by Dr. Chris Kacher
2018 as we all know was a choppy, sloppy mostly trend less year except for the last quarter which still had pronounced turbulence in both directions. As a consequence, the trend following wizards which are a group of all star hedge fund managers whose performance is tracked finished the year down -5.5%. Even the great Bill Dunn of Dunn Capital who has been praised by the likes of Michael Covel in his bestselling book Trend Following Wizards was down -19.98% for 2018. http://www.automated-trading-system.com/trend-following-wizards-december-2018/
So the question is whether there are more choppy times to come. Mario Draghi who heads the European Central Bank recently said they are open to resuming quantitative easing if needed which suggests that Draghi thinks the economic struggles in Europe may worsen. Over in China, in the midst of its economic quagmire, its central bank is attempting to improve credit lines to businesses and meanwhile, Fed Chair Powell has said they will go easy on quantitative tightening and may even stop attempting to normalize their balance sheet though of course they plan to remain flexible.
Markets rallied on the expected no-hike and Powell’s continued stance to remain data dependent as far as balance sheet normalization is concerned. Other central banks around the world are chiming in lock step. They remain on hold such as the Bank of England while Japan continues its QE flow of asset purchases and its negative interest rate policy. As a consequence of potentially less QT and more QE, the gold ETF GLD continues to rally as greater levels of QE mean greater devaluations of fiat currencies.
This should be relatively good for stocks as well but given that stocks have come straight up from lows, a pullback of some magnitude could be expected. Since 1990, every time the market has corrected more than -15%, a retest of prior lows has occurred. But of course QE was not part of those bull markets as it has in this bull run. Given the stance of the Fed and global central banks to print more money, this makes a retest potentially less likely. A lot of bets are off in this environment. Just because history says something has always happened over a prior of time does not mean it has to happen this time. Suffice to say the Market Direction Model which looks for major trends to avoid getting whipsawed, especially during sloppy markets, is seeing a potential major change in trend despite the markets coming straight up from lows.
Friday’s jobs report came in ahead of expectations again. 304k vs 173k estimate. That said, December’s jobs number was revised downward to 222k from 312k. But overall the tight labor markets is pushing up wages without stoking inflation which gives the Fed more room to stay dovish though they don’t have much choice as the markets spoke loudly in December pushing the major averages into bear market territory for 2 days on concerns the Fed was being too aggressive. Powell has rescued the markets in terms of what they wish to hear in terms of interest rates, QE, and QT so the bull market remains alive but perhaps less well. We will have to see going forward.
Over in stocks, AAPL beat earnings and sales by small markets but its bounce has lagged that of the major indices, so this suggests AAPL remains tenuous especially as China’s economy sputters, and thus contributes less to AAPL’s bottom line. The number of constructive patterns in this market remain scant though a number of names we mentioned in prior reports are shaping up rather well.
FIVN has come to new highs.
DXCM is retracing to its 20-dema getting support there on below average volume.
WING is forming the right hand side of its base in constructive fashion.
TEAM is trading near new highs as its base completes.
EW is near new highs as its earnings report came in strong.
PDD is a Chinese name that has bucked the trend of other Chinese stocks as it trades near highs.
AMD had a mini gap off its 200-dma.