December 31, 2018
Posted 9:30 AM ET - Last week the market established support near the 200-week moving average. The S&P 500 bounced off of that level and Asset Managers are "window dressing". Even a small bid can spark short covering from this deeply oversold level. I believe the market will try to move higher on the last trading day of the year. Friday stocks seem poised to run. We had seen massive rallies in the last hour of trading Wednesday and Thursday. After a surge higher stocks retreated sharply in the last hour of trading on Friday. This was not the strength I expected to see. If the market had closed on its high I would've been much more bullish today. China posted its manufacturing PMI and it fell to 49.4. That is officially in contraction territory and export orders declined for the seventh straight month. I was expecting dismal results and this could prompt the PBOC to ease. It will certainly put pressure on Xi to get a US trade agreement done. A US delegation of trade officials will meet with Chinese officials this week. President Trump said he had a "very good call" on trade with Xi this weekend. The British Parliament will vote on Brexit the week of January 14. Odds makers say the chances of Brexit are 50-50. The EU is fine with the agreement, the Brits can’t get the deal through their own parliament. Italy's government has approved a 2019 budget and they reached a compromise with the EU. Earnings season will start in a few weeks. Year-over-year comps (growth rates) will be tough to beat given that tax cuts went into effect a year ago. Profits will be at record levels. At a forward P/E of 14, valuations are attractive. ORCL, MU and FDX recently dropped after posting earnings because guidance was light. I believe that most traders and investors will be happy to see 2019. This has been an extremely volatile year and many of the moves were tweet driven. Swing trading is very difficult and we officially went into bear market territory (20% decline from the highs). We've seen severe technical damage during the strongest time of the year and that is a bad omen for 2019. Slowing global growth and a hawkish Fed are the two biggest market threats. From a trading standpoint I don't like to short the market into year-end and I don't like shorting 10-year bull market runs. We are through the end of the year and I can clearly see the technical damage now that we have remained below the 200-day MA for weeks. My trading will be much more balanced (longs and shorts) during the first quarter of the trading year. Swing traders should remain in cash. The market should rally today and I'm waiting for signs of exhaustion. Any positive developments on the US/China trade front will help. Once this bounce has run out of steam an excellent shorting opportunity will present itself. Day traders should let the market established support. Favor the long side today and get more aggressive if we are above the first hour high. Wishing you and your family a healthy and prosperous New Year! . .
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