Week-In-Review: Stocks Plunge As Big Top Forms On Wall Street



The market is forming a major top and unless we see another bullish monetary or fiscal bazooka show up – we are likely headed into a bear market in 2019. Stocks plunged last week after the major indices hit resistance near their declining 50 and 200 day moving average lines. The major indices opened sharply higher on Monday, then sold off, after briefly flirting with their respective 50 and 200 DMA lines. Stocks plunged for the rest of the week, erasing the big gains we saw after Jay Powell’s dovish speech on November 28, 2018. That is a BIG PARADIGM shift because the market stopped reacting blindly bullish (if that’s even a phrase) to the Fed. Remember, it is not the news that matters, but how the market reacts to the news. In a bull market, the reaction is overwhelmingly bullish and in a bear market, the reaction is overwhelmingly bearish. Meaning, in a bull market, the market rallies on both “bullish” and “bearish” news and, in a bear market, the opposite is true. For the last ten years, we have been steadily rallying and the reaction has almost always been bullish. For the first time in ages, that dynamic changed & that needs to be respected. Furthermore, the market is forming a big top as the major indices are forming bearish technical patterns – see here. If support holds, then we can rally from here. If support breaks, then odds favor we are heading into a bear market.


Stocks rallied sharply on Monday as they bounce from deeply oversold levels. General Motors said they will slash its salaried workforce by 15%, a more drastic cost-cutting plan than investors had expected. The stock was up nearly 5% on the news. Separately, oil and tech stocks rallied from deeply oversold conditions. On Tuesday, opened lower but reversed and turned positive after the White House said talks were being held on “all levels” between the US and China before Trump and Xi meet. Technically, the market is deeply oversold and is trying to bounce as it pauses to digest the recent (and steep) sell-off. Stocks rallied nicely on Wednesday as the “bounce” continued. The Fed came out in the morning and warned that a ‘particularly large’ plunge in market prices is possible if risks materialize. Later in the day, Fed Chairman, Jay Powell, gave a speech and said, the Fed is close to it’s target and will not be aggressively raising rates in the near future. That was enough to send stocks sharply higher.

1 2
View single page >> |

As always, keep your losses small and never argue with the tape. Do You Know The 20 Cheapest Stocks On Wall Street?  more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.