[vc_row][vc_column][vc_column_text]Last week I wrote about the possibility Hedge Fund liquidations were at the crux of the stock slaughter in December. If that assessment is accurate (no hardcore current data to confirm) the Nov low, around 2600, should have been the bottom. This past week we did regain that level (see charts below). A continued run of another 5-10% might unfold if the Nov low should have been the Real McCoy.
If the Christmas carnage was not due to the liquidations then the message of the market becomes a more negative read. Severe sell offs such as that usually intimates trouble on the horizon and a more time consuming bottom unfolding. Retesting Xmas Eve lows of 2350 would be more typical outcome.
This week should add some color to where the true bottom lies. Earnings season kicks off this week with Financials initiating a series of high profile reports Monday. Most are thinking the typical release will reveal strong 4th quarter results, but reduced outlooks (ala Apple) for 2019. Some of the rationale for the reduced outlooks is the poor December equity performance, and the aforementioned market message it sends.
A potential source of rally fuel is the sideline cash, also mentioned last week, that built up in the 4th quarter. A potential buying panic could ensue chasing the market higher if it begins to run away. Another source could be shorts still needing to cover and the corporate Buy Back window reopening post reporting season. Here is some detailed info about those dynamics, pretty interesting stuff.
The chart below is a 2 Hour S&P 500 Bullish take. An Ascending Triangle has formed and if the Nov bottom scenario unfolds, we should see the index break out through 2600 decisively and head to 2800. Possibly in relatively short order. That could be this week with good earnings reports and the end of the gov’t shutdown being the catalyst.[/vc_column_text][vc_single_image image=”848″ alignment=”center”][vc_column_text] The flip side of the same chart is the Bearish Rising Wedge pattern. A break down and sharp piercing of the uptrend line could be the signal that a retest of that 2350 area is needed before the rally really gets going. That would be a near 10% drop from current levels. Ouch![/vc_column_text][vc_single_image image=”851″ alignment=”center”][vc_column_text]Bearish Rising Wedge to have a higher probability of playing out, but I am in the Hedge Fund liquidation camp and believe the market is headed higher short term. We may have to consolidate some and could have a piercing of the Wedge uptrend giving the Bears hope, only to reverse and take off forcing the fuel to chase.
Either way I do believe the S&P 500 gets above 2800 sometime this spring/early summer. Currently looking to re-enter the profitable positions we exited last week. Hopefully on a pullback?
Final Thought –
“I intend to live forever, so far so good” – Steven Wright
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Disclaimer: Remember everything I said could be wrong, the market always has the last word.