Market Briefing For Monday, Feb. 4
Synergies prevailed as a 'Worry Wall' was climbed and persists. Factors outlined have combined to allow the S&P to ignore Amazon's missteps that we discussed (in China and India); helped quite a bit by Semiconductor and Oil rebounds. The Fed is sidelined as a concern for now; and while many of course worry about Treasury demand later (mentioned this week); overall it is not anything to be concerned about, despite 'tight job market' concerns.
Let's summarize where we stand going into the new month's first full week:
- A blockbuster January S&P move (best in it seems 30 years); will set it up for consolidations; but likely within-context of the overall uptrend;
- Having anticipated 2018's rolling purges, especially in the Fall; we had a pivot that set-up a down-and-up 'V bottom' reversal that could pause;
- The nature of those having to 'chase' the upside, plus skeptical short sellers, contributed to the extension to and above our congestion zone, which we thought would see the market 'nudge' higher, and occurred;
- We do anticipate a fade or pullback perhaps after another thrust or two; as key headwinds have softened (for now) from a monetary standpoint;
- The calmer Fed 'and' progress on China trade were essential to our call for the market to move forward, and extend it it has and is ongoing;
- We got the former, and anticipate the latter over the weeks ahead;
- To a degree, the fuel (shorts and seasonal buyers) will gradually fade, but that doesn't mean better quality growth won't advance overall;
- We discourage chasing stocks that turned nicely in December; at the same time we thought many FANG stocks would also rebound, but are more dangerous to trade with (that's more so after the recent run);
- We do anticipate a short-term battle just ahead; in line with our call all month to be wary of upside extensions later, in February;
- Concurrently, the anticipation of China progress (N. Korea too) will tend to temper any meaningful downside move, as this generally allows Bulls to keep temporary overall control of markets, which they lost in the Fall, in line with low liquidity;
- Last year we warned institutions and hedgers were over-invested and in a low-liquidity situation; and believed that shifted with December's turn;
- We are not suggesting letting down one's guard; just be prepared for a pullback that will (however) be temporary; not a gut-wrenching drop;
- The factors we have outlined are 'synergies' to hold the overall market trend together, allowing essentially for 'pauses to refresh'.
In sum: it was a terrific month, and we even initiated coverage on a new stock (Ceragon Networks)(CRNT) that has performed well (on notably expanded volume) this week. I view consolidation (whether in individual stocks aside the ridiculous FANG's, as well as S&P's), to be within context of the overall cyclical uptrend that began from our indicated reversal at the end of the December liquidation.
(Typo.. 'CRNT moves solidly, not solely. Also the point is of someone(s) buying a ton of this stock given triple typical Average Daily Trading Volume.)
And yes, those pundits screaming for people to 'sell then', to protect basic capital, still 'claim' nobody saw that 'freak sell-off' coming, or the rebound. Totally untrue as you know; and what's analytically important is that it was technically fairly classic; as we guided the stair-step decline as it evolved for the S&P. And equally important was the return of liquidity (seasonal) as well as the 'calmer' Fed, which was first signaled (as I observed) when Chairman Powell talked about 'patience' on Jan. 4 at the New York Economic Club; to be followed by the ECB's Draghi comments about Germany and 'calm'. We took that as 'coordinated with the U.S. Fed'; and called for the calmer Fed.
I believe this telegraphed why we looked for an upside extension; and it was ignored by too many technicians and pundits at their expense. The point is that it was not unorthodox as some claim; and was generally predictable as well as analytically evident during the progress of this turnaround process.
[Another typo in the graphic: eke not eek.]
The breakdown came as outlined from S&P 2800 (double rebound peaks), and achieved the ideal initial (and perhaps good for some time) downside or target zone goal of S&P 2300-2400.
The rebound from 2350 achieved our January rebound goal of S&P 2600+, and as January developed, we picked up on 'global' central bank concerns, due to Chinese and German economic slowing in particular, and expected a coordination with the U.S. Fed would bring 'calmer' policy statements. This all matters to put in perspective why the market is not 'unpredictable' and/or having some sort of convulsive activity like a visible pundit or two claim.
The turn combined with anticipation of 'trade' progress; allowed us to clearly maintain optimism for the S&P to 'nudge' higher, eventually over 2700. Now we are right there. While we can get a smidgen higher over the near-term, we're now generally open-minded to a 'pause to refresh' within a few weeks; after which we may well be looking for a rebound higher yet into Spring.
Bottom line: all is going according to Hoyle; as we allow for a pause soon.