January 2, 2019
Posted 9:30 AM ET - Last week the market staged a nice bounce after testing the 200-week moving average. Deep drops like this take time to resolve and a base will form over the next few months. Severe technical damage has been done during the most bullish time of the year and the S&P 500 has closed below the 200-day moving average for almost a month. We can expect plenty of volatility in 2019 and the lows will be tested. China posted another manufacturing number this morning and it was soft. Similar to the manufacturing PMI on Friday, Caixin was in contraction territory (49.7) this morning. Buyers hoarded Chinese inventory ahead of potential tariffs last year and that glut needs to be worked off. We can expect dismal numbers from China the next few months and perhaps that will keep them at the tariff bargaining table. A delegation of US trade officials will meet with Chinese officials towards the end of the week. Trump said progress is being made, but we’ve heard that before. The Fed is still hawkish and they want to raise rates twice this year. Global economic growth is slipping and analysts feel that the Fed is oblivious to the undertow. Earnings season will begin in a few weeks. Profits will grow at a slower rate since companies benefited from tax cuts a year ago. Even though the growth rate will contract, overall profits will hit record levels. Guidance will be the key and ORCL, FDX and MU recently disappointed investors. At a forward P/E of 14, stocks are reasonably priced. Swing traders might have an opportunity today. If the SPY trades above $248, get short when it drops below $247. Our stop will be $252 on a closing basis. Day traders should let the early action play out. Use the first hour range as your guide. I have been teaching Option Stalker members how to use the 1Option indicator for day trading S&P 590 futures. It has nailed all of the major moves and I had my best week trading futures in 30 years. I'm expecting a lot of market volatility will during the first half of 2019. Trade wars, central bank tightening, global economic growth and earnings growth will become clearer in a few months. Until then we will have plenty of bullish and bearish crosscurrents. . .
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