Small Relief Rally Likely Into G20 – Fed Will Keep A Lid On It

Posted 9:30 AM ET - In the context of seasonal strength and record earnings, the price action is bearish. This is historically the most bullish time of year and heavy selling has dampened spirits. From a technical standpoint the S&P 500 is making a higher low and the 200-day moving average is within striking distance. The news is light this week and trading volumes will decline during a short week. I believe that we will see a small bounce ahead of the G20 meeting a week from Thursday. Trump and Xi are miles apart and I am not expecting any progress. At best, both leaders will agree to resume negotiations and Trump might postpone tariff increases (10% to 25%) in January. This scenario would spark some buying, but it will be temporary. Without a trade deal we won't see a sustained market rally. After the G20 meeting we will get the jobs report (12/7), the continuing resolution (12/8) and the FOMC meeting (12/19). I believe we will get a small G20 relief rally. Trump always likes to paint a rosy picture after meeting with foreign leaders. There will be not be any substance behind his statements and the bounce will stall. The jobs report should be decent, but Trump is threatening to shut down the government if he does not get funding for the wall. With the caravan approaching our southern border he thinks this is a good time to pressure Democrats. The market won’t like the idea of a government shut-down. The Fed is likely to raise rates in December and they still plan to tighten three times next year. Their tone has been hawkish and Asset Managers fear that they are not taking global weakness into account. The market is likely to tread water around the 200-day MA during the last two weeks of the year. Credit issues are something we need to be concerned about in 2019. Wednesday the EU will respond to Italy's budget. Apple suppliers are cutting guidance and the stock is down 2% before the open. It will weigh on the action early today. Swing traders were stopped out of the SPY short position at our entry price last Thursday when it crossed $273. We are going to stay on the sidelines. I believe the market will be choppy into year-end. We should see a small bounce this week and it should last a few days after the G20. Talk of a government shutdown and a Fed rate hike will keep a lid on the rally. I don't believe we will get through the 100-day MA. Day traders should expect choppy trading this week. Holidays tend to be bullish and the S&P 500 established a higher low last week. We are going to lean on that support level and have a slightly bullish bias this week. Trading volume will decline into the holiday and I suggest trimming your size and activity. Use the first hour range as your guide. Support is at SPY $269 and resistance is at SPY $276. . .

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