Wednesday, November 28, 2018

Market Alert - The Close

After a pause in the bounce from the test of the October low stocks started higher pre-Powell. When Powell's speech with his 'rates just below neutral' statement hit the wires, stocks shot higher and rallied all the way home. The statement was foreshadowed by Clarida's Tuesday speech that used the same language, but it was Powell's confirmation of those words that sealed the deal. The market now has a Fed that is near neutral and thus ending rate hikes. Indeed, I heard one Fed historian say that the Fed would even end its balance sheet unloading in July 2019. Wow, expecting a downturn I suppose.

The market was not worried about any negatives. The Fed is one of the big market obstacles (along with trade) and that was, more or less, removed today. In response, the stock indices surged higher, continuing that rally off the October low test.

SP500 61.62, 2.30%
NASDAQ 208.89, 2.95%
DJ30 617.70, 2.50%
SP400 1.96%
RUTX 2.51%
SOX 2.27%
NASDAQ 100 3.17%

The index charts show solid action -- sold bounce action. DJ30 has a classic fall double bottom, SP500 as well. NASDAQ and NASDAQ 100 are very similar adding an undercut on the second leg as an excellent shakeout move. All sported higher MACD lows on that second leg, that old momentum shift indicator I talked about last week. Nice.

SOX added upside as well though was very tame for SOX, showing less upside than even SP500. Typically its beta is at least 1.5 of the large cap indices. As it is, the index is up but still somewhat a question mark, not as strong as the large cap indices.

SP400 and RUTX both scored solid advances though the midcaps lagged the overall market. Interestingly, the midcaps never tested the October low while RUTX has a more classic double bottom. Still not leaders, but definitely following upside.

Leadership: Gains were rather broad with the 'Dow-type' stocks rallying (VZ was notably absent), tech/growth surging (software flying post-CRM), drugs flying, food strong, financials (yes, verily) strong, FAANG (AAPL, AMZN, GOOG) jumped, transports much improved -- the moves were pretty much across the board.

All clear? For a yearend rally no doubt. For new highs? Hmm. There is still the trade issue out there and the likelihood of no deal or a faux deal at the G-20 meeting between Trump and Xi. Heck, today the Chinese ambassador showed he read the headlines out of a history book, citing how trade issues can become real wars, etc., but he did not read the part about his government being a communist one and inherently flawed. He also did not read modern history about how China steals IP to make tech and economic gains. That has to change or there will be no agreements. Why agree with a thief? We have appeased the thief for decades and all the thief did was become more aggressive. Remember the line from 'Air Force One' when the President (Harrison Ford) says to the VP (Glenn Close) 'if you give a mouse a cookie . . .' and the VP answers 'it will want a glass of milk.' (borrowing from the children's book 'If you give a mouse a cookie'). China equals a case in point.

So, trade is still out there but the Fed is, according to the market and many pundits, off the table. We will see. You still cannot trust the Fed as long as it is in hiking mode. It would be a rarity if it stopped hiking in time.

But, for a yearend rally, the Fed's softening is just right. We picked up some nice positions on AAPL, UA, PEP, ABT, AMAT, etc. to go along with DATA, VRSN, AXP, CREE, MCD, XLNX, JNJ -- and there are still more to buy, particularly if we get just a bit of a pullback early Thursday (LRCX, VMW, ADBE, TEAM -- to mention a few).

Have a great evening!
Jon Johnson, Chief Market Strategist

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