Market Direction Week of December 23, 2019: Merry Christmas

Market Direction: BULLISH alert issued 10/24/2019



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Market Direction Week Review: On Wednesday (12/18), the House of Representatives voted on 2 articles of impeachment against President Trump. The passage, mostly along party lines, was virtually assured, making him the third President in history to be impeached by the House, but the first to have it occur during his first term as President. As a result, he will also be the first president in history to run for a second term after having been impeached. The Senate, which is not expected to hold a trial until January, is virtually assured to acquit, so the President will likely remain in office.

Separately, two key spending bills to keep the government open through September 2020, were passed by the House and the Senate, and are expected to be signed into law by the President before funding runs out on Friday 12/20. The bills, which increase discretionary spending by $44B, include $1.8B in funding for the Mexican border wall, $22B in increased military spending, and extensions of some tax breaks that were due to expire soon.  

The details of the US/China phase one trade agreement are now much clearer than they were a week ago. While the actual agreement has not yet been signed in ink, both sides say the deal is essentially done. Here are some key points that have been announced:

• 15% tariffs on $165B of (mostly consumer) goods that were scheduled to take effect on Sunday 12/15 were effectively cancelled.
• 15% tariffs on $120B of goods that were put in place back in September of 2019 were reduced to 7.5%.
• All other tariffs remain in place for now.
• China has pledged to buy $40B - $50B annually in US agricultural products. How this will be enforced is still unclear to me, and there are already rumors that China is planning to meet some of this obligation by moving some imports that currently go through Hong Kong, through mainland ports. 
• Forced technology transfer, state support of private corporations and human rights issues were not part of the deal.

Following last week’s decisive election victory by Boris Johnson, the UK’s newly emboldened Prime Minister has indicated that he intends to press for completing the Brexit sometime in 2020, despite having been given the option by Parliament of taking up to 2 years to do so. The move seems to be intended to placate Brexit supporters who have grown tired of the repeated delays and postponements since the referendum was passed back in mid-2016.

How the market finished last week, the S&P 500 up 1.7%, the Nasdaq up 2.2%, and the Dow up 1.1%.

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Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 9/5/19 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies). 

Q3 earnings season is over. With 500 companies (100%) of the S&P 500 reporting, below are the final aggregate results for Q3 EPS and Revenue beats. 

Quarter EPS beats        Rev beats

Q3 ‘19             78%                58%

Despite rising more than 10% since the US/China phase one trade deal was first announced back on 10/11/19, there has been little or no profit taking since the deal was officially announced last week. While the markets are already in “melt-up” mode, the indicators say that will likely continue for at least another week.

The changes in the indicators we follow this week were in a slightly more bullish direction, so the outlook for next week is Moderately Bullish. That said, the VIX IV Gap, which tends to be one of the shortest term of all the indicators, is showing the possibility of a pullback on Monday. And while we don’t think it will be significant, it might be prudent to watch out for it. Additionally, while we won’t give a secondary outlook of volatile again this week, given the very low level of the VIX, an early week pullback will almost certainly be accompanied by an uptick in volatility, if it occurs.

A market in melt-up mode tends to result in excessive complacency, but it can be risky to try to pinpoint when it will end. For now, the indicators are saying it may last a while longer. However, no matter what the indicators say, the usual caveat still applies; “Trump’s tweets still trump everything else”.

Economic Calendar: New Home Sales (12/23), Durable Goods (12/24), Initial Jobs Claims (12/26)

Some of the major earnings announcements on deck: No earnings this week.

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Building a community of investors one trade at a time. Share with a friend. Cha-ching!

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