Market Lab Report - Premarket Pulse 2/18/16
Major averages rose on higher volume though the number of leading names showing actionable buy points remains scant. Former "FANG"-stock type leaders are barely keeping up with the major averages. FB may be the last standing soldier, but while it has regained its 50-day moving average, its current bounce relative to its recent pullback should strengthen relative to the majors if it wishes to maintain leadership status. This may be a big-stock name to keep an eye on if one wishes to try and capitalize on any potential, continued bear market rally.
True leaders are typically the first to maintain new highs when the market undergoes a sharp bounce. The groups that are doing well currently are defensive such as utilities and food stocks, not the type of stocks that can carry a sustainable, strong rally. We would like to see some improvement in the quality of leadership before taking any stronger bullish stance.
Federal Reserve minutes showed most members were concerned about the market selloff, preferred to take a wait-and-see approach before hiking rates again, and wanted 'direct evidence' inflation was rising before hiking interest rate further. Markets rallied on the news as this implies the Fed is leaning toward a dovish stance, thus is more likely to align with other central banks who have been doing everything they can to lower rates, some which have pushed rates negative.
So while the Fed may remain on hold in terms of hiking rates, it can eventually elect to reverse its prior rate hike and even push rates into negative territory despite strong evidence that this could result in indirectly pushing rates higher to businesses as has happened over in Europe as more banks acknowledge they are carrying bad debt on their books. Negative rates are causing banks to charge higher interest rates for loans, thus interest rates are on the rise for businesses, quite the opposite of what central banks were expecting. Major European banks such as Deutsche Bank are now trading below their 2008 lows. The Euro's days are numbered as it cannot afford another banking crisis.
Ultimately, the major downtrend remains intact as further evidence of economic global malaise mounts. That said, bear market rallies can be short and sharp which can provide short-term long trade opportunities while at the same time helping to bring short-sale targets back into optimal short-sale range. Investors should remain nimble, fluid, and alert to this as the current rally evolves or fails.
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