I update each Saturday with my view of the stock market for the next few weeks. The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a crash, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
You may notice that I am using a new font for the blog. A friend and reader suggested that I try to darken the text to make it a little easier to read. The fonts are provided by WordPress, so I looked through my 20 choices and I thought this one looked a little darker. Thanks to my friend, and I hope you all like it!
Existing-home sales ran at a seasonally adjusted annual rate of 4.99 million in December, the lowest rate since November 2015. Sales were down 6.4% for the month, and 10.3% lower than the year-ago rate. Initial jobless claims, a rough way to measure layoffs, fell by 13,000 to 199,000 in the seven days ended Jan. 19, the lowest since 1969. The leading economic index fell 0.1% in December, perhaps another sign the U.S economy has slowed according to the Conference Board. The index fell in two of the three final months in 2018 (three consecutive drops in the LEI can foretell a recession about 6 months out).
We are still getting economic reports from non-government entities like the Conference Board, but all government reporting is delayed. Employment looks good, but the other 2 reports are weak. The US economy shows clear signs of slowdown, so it is not the time to be too aggressive here.
The government shutdown ended Friday afternoon, so that should give the market a boost on Monday.
We’ve focused on China, but there is not much new to report this week; it seems the two teams are working on solutions and that is good. Most watchers think the most likely case will be some progress by March 1, no doubling of tariffs, and extend the date 90 more days and keep working. I think the market would like that scenario.
In Europe, the news is not so good, things continue to slow down. From this week’s ECB meeting news conference:
Jan. 24, 2019 – The European Central Bank (ECB) took no action Thursday, but President Mario Draghi warned that growth risks in the region had shifted to the downside due to a number of external factors.
“The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility,” Draghi said at a press conference.
Draghi also reaffirmed the central bank’s stance to keep key interest rates at their present levels through the summer of 2019 and “longer, if necessary.”
The euro plunged to a one-month low, trading 0.5 percent lower against the dollar after Draghi also acknowledged that near-term data are likely to be weaker-than-expected.
Last month, the central bank formally brought an end to its $2.6 trillion bond-buying program, meaning purchases fell from 15 billion euros a month to zero. It marked a historic moment for the bank as it brought an end to the crisis-era policies in the euro zone, despite coming at a difficult time for Europe.
The ECB, however, kept its plans to reinvest cash from maturing bonds for an extended period of time beyond its next interest rate hike. These purchases are designed to keep borrowing costs down through to sometime in 2021.
So the ECB has ended their QE program of buying bonds each month, but have not begun the process of normalizing interest rates nor shrinking the central bank’s balance sheet. Until interest rates rise in the Eurozone, there will be plenty of buyers for US bonds and that will tend to keep longer term interest rates from rising too rapidly.
Over the last year we have moved from “global synchronized growth” to “global slowing”, and that is showing up in the stock market.
The S&P was up about 1% this week, making five straight winning weeks. So far it is a nice rebound from the hard three-month selloff of Oct. – Dec.
Technically, we are in a precarious spot. RSI at the top of the chart is at high neutral at 61, but in this correction whenever we have reached that level the market has pulled back. We have not been strong enough to go up to 70 and hit a true overbought level. That presents an opportunity to move forward and show a sign the correction is ending, or to fall back indicating the correction is still on. For momentum we use MACD at the bottom of the chart, and the trend lines are up, but the histograms are declining showing weakness in the advance at this stage. The price action is up against the purple down-sloping trendline of the correction, and that is the key battleground. I’m sure all the computer programs are looking at the same trendline and it will be interesting to see what they do with it next week. Half of the Dow Jones Industrial Average reports earnings next week, and earnings have been coming in pretty good so far, although guidance for Q1 has been a little weak for some companies.
I bought a small piece of SPY and EEM and if the market can get and stay above the downtrend line, I would keep buying, but nothing too big while we are still in the correction zone. I would also take profits when things get overbought, at a more aggressive rate than when the market is in more bullish mode. There is still overhead resistance at the 200 day moving average of 2740 and the recent highs at 2810.
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You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text. To do this in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up, then size each window to about half of your monitor size. If you bookmark the link you can look at it each day of the week to see how the market is progressing to certain milestones.
Rich Comeau, Rich Investing