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Market Lab Report - Premarket Pulse 12/17/18 - Chop Suey Markets

Markets remain in a state of volatile flux between the on-again, off-again headline news regarding trade between the U.S. and China. Nevertheless, the choppy downtrend remains intact with leading stocks continuing to falter. The FAANG tech juggernauts remain under their 200-dmas with price/volume action suggesting further downside.  AAPL has lost more than $200 billion in market cap since October.

Nevertheless, some have suggested December may be a slower month due to the holiday season. This is a statement of hope since the trade issue is still alive but potentially unwell. Also remember that while 2008 was different, elevated levels of volatility can create a turbulent December as it did then as well as in 2000 and 2002. Thus stocks can swing widely.

Still, bond yields have dropped as a reflection that the Federal Reserve will have to maintain a more neutral stance with respect to rate hikes. This could potentially stabilize the market, though volatility remains elevated with pronounced selling pressure at times, thus remains a trader's market.

While Wyckoff undercut & rally patterns worked well earlier this year, shorting into resistance has worked best as air was let out of the stock market since October due to bond yields which were on the rise as well as trade issues and fears of a flattening yield curve. We have discussed each point in prior reports, thus the situation remains fluid, though price/volume overall suggests further choppy trading with a bias to the downside. 

Due to elevated levels of volatility, the sidelines are not a bad place to be in this choppy environment. If one wishes to take positions, one either must be nimble to cover losses quickly, or widen their acceptable maximum loss to avoid getting whipsawed. The Market Direction Model is not a day or swing trade vehicle, thus it tends to lean toward increased acceptable maximum losses should it take a buy or sell position when volatility is elevated.

One must continue to keep a close eye on actionable possibilities in stocks if one wishes to trade in this chop suey market environment. That said, very few stocks have produced any meaningful gains over a longer than day or swing trade period, thus this remains what we call a day trader's market.

While the European Central Bank will end its QE bond buying program, it has no plans to hike rates in 2019 as of yet. Its economy will have to show signs of life before it has such headroom to do so. Meanwhile, China reported a set of weak economic data, once again raising fears that the world's second largest economy is faltering. China's November retail sales grew at the weakest pace since 2003, a 15 year low, while industrial output rose the least in nearly 3 years as domestic demand softened further, all while China works to settle the trade dispute with the U.S. Some analysts have suggested rate cuts in China will happen in the weeks ahead, thus somewhat offsetting the ECB's plans to end its QE program. It has also been suggested the U.K.'s Bank of England may need to play its trump card of increasing its level of QE in regards to the calamitous Brexit issue to gain some leverage.

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This information is provided by MoKa Investors, LLC DBA Virtue of Selfish Investing (VoSI) is issued solely for informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. Information contained herein is based on sources which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of available data. VoSI reports are intended to alert VoSI members to technical developments in certain securities that may or may not be actionable, only, and are not intended as recommendations. Past performance is not a guarantee, nor is it necessarily indicative, of future results. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Entities including but not limited to VoSI, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Additional information is available upon written request. This publication is for clients of Virtue of Selfish Investing. Reproduction without written permission is strictly prohibited and will be prosecuted to the full extent of the law. ©2019 MoKa Investors, LLC DBA Virtue of Selfish Investing. All rights reserved.
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