Weekly Market Recap Dec 30, 2018

December 30, 2018

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Courtesy of Blain.

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In last week’s recap we wrote:

“All the charts continue to point to bad signs – that said in the near term the market is EXTREMELY oversold and vicious rallies can and do happen within downtrends but aside from the nimblest of traders it remains a time of caution. Maybe Santa can bring some rallying this week.”

and

“Again let me say we are VERY oversold short term so a violent oversold rally could occur at any time.”

Indeed we saw that with a vicious rally Wednesday – in fact the first 1000 point move in the DJIA in history. Since we prefer % gains, Wednesday’s rally was the best for the major indexes since March 23, 2009. For those with very short time spans and nimble fingers the selloff Monday – on top of what was rarely seen oversold conditions – was a nice short term buying opportunity for a quick in and out trade. That said we are nowhere near out of the woods – the rubber band had simply gone too far one way and when that happens the snap back is often furious. Thursday was another wickedly volatile day with the intraday action (heaving selling until the closing 90 minutes when another giant rally occurred). Stable markets are relatively calm – this is not that.

Speaking of volatility:

The Thursday turnabout was the largest such swing for the S&P 500 since May 25, 2010, and the largest for the Nasdaq since Nov. 18, 2008.

Was that “the bottom” – you never know until after the fact – but there is a lot of work for bulls to do to prove it was.

“Such rallies are not uncommon in troubled times, and we have experienced many of them in past bear markets. To call for a bottom, we need at least a couple of days of strength, not just in price, but also in trading volume, breadth of the market, and fundamentally supported environment,” said Hussein Sayed, market strategist at FXTM.

In times likes this news usually follows technicals vs vice versa but Monday’s selloff was “due to” the Treasury Secretary calling around to banks to see if liquidity was cool – that spooked the market. Then Wednesday’s rally as “due to” the strongest holiday sales increase for U.S. retailers in six years, according to Mastercard Spending Pulse.

Economic news was not market moving so we’ll ignore it.

For the week the S&P 500 gained 2.9% while the NASDAQ added 4%.

10 year yields are back to lows last seen in spring. Recall the rally in yields was one of the instigators of this selloff a few months ago.

Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.

The week ahead…

Investors face another holiday shortened week, with markets closed Tuesday for New Year’s Day. The economic calendar might prove thin thanks to a partial government shutdown that’s seen the Commerce Department postpone a number of data releases. As for the employment report, Wall Street expects an increase of 180,000 jobs in December, with the unemployment steady at 3.7%

Index charts:

Short term: The S&P 500 fell to May 2017 levels and the NASDAQ to August 2017 levels before staging rebounds. We were very oversold and still remain reasonably so. Any further rally could certainly take these indexes at least up to their 20 day moving averages – which are still quite a ways away. The epic bull market of the past near decade has seen many “V” type recoveries where indexes turn on a time and never look back. So we’ll see if this is one of those – for some reason it does feel different this time so I am not sure it’s going to be quite that easy for bulls this time around.

The Russell 2000 has been uninspired all year – and even on this bounce, it’s a bit lethargic.

We were in rare territory on the NYSE McClellan Oscillator, seen only 3 times this year. The rally has resolved that extreme.

Long term: The S&P 500 bottomed nearly exactly on the 200 week moving average. This is why it’s great to have technicals in your tool box. Things are in a bit of a no man’s land right now – there could be a substantial rally and the charts still would have some issues longer term due to the damage wrought.

Charts of interest / Big Movers:

Rather than major movers of the week, with 1 trading day left in the year, here are some of the notable stocks that moved the most for the year…and notable losers.

Twilio (TWLO) +264%