Tuesday, December 18, 2018

Market Alert - Pre-Market

Futures vs FV: SP +19.41; DJ +202.02; NASDAQ +51.86

Worst case scenario? Looks as if that could be the case. Stocks started to rebound late Monday and continued a stead rise into 8:00ET. Some give back since then, but not much at all. Stocks are thus set to gap higher at the open.

Is all clear, safe, and upside? A gap higher gives the sellers something to shoot at for sure. It prevents the serious flush out we were looking for. Perhaps that comes later session, perhaps on the FOMC announcement.

The indices did break to lower selloff lows, did match the JAN/FEB selloff lows in some cases, sentiment bad, new lows high, etc. Just not the flush out so we don't have a ton of faith in a bounce. The FOMC is the wildcard -- a 'no hike' could perhaps propel stocks to the oversold bounce even without the shakeout.

Stocks such as MRK that sold to the 50 day MA in sympathy with the JNJ woes represents a good upside vehicle. Other strong stocks that held support on the selling are candidates as well, e.g. WDAY, TECD, VRSN, ZS.

Fed Day: the President tweeted for the Fed to 'feel the market' in its decision. Perhaps Powell will feel the market's pain as Clinton said he felt the average American's pain.

WSJ: Says there are no signs of breakout inflation, and if the Fed gets its policy wrong, the President will be the least of its worries. WSJ is making the case for the Fed to hold off today.

Indeed, the FFF contract has a rate hike at just 77%. While that may seem high, on the day of a Fed event that is low. There is some question here as to what the Fed will do.

The economic data is not helping the 'feel the market' argument.

Housing Starts, Nov: +3.2% vs 0.7% expected. Most in multi-family (apartment) construction

Permits: +5.0%

China: Xi delivers a speech and states 'no one can dictate reforms to China.' Sure, that line is good for the homeland consumption, good for national pride. Sticking to that means China continues to suffer and see its economy slide farther.

Now here is a twist. The US' strength in the trade war is its economic strength. It is a strategy similar to Reagan's versus the USSR: create a hugely strong economy and then spend the soviets to oblivion. It worked. The thing to consider now: is the Fed killing the US chances at winning the trade war because it fears mostly phantom inflation? Can it not see the big picture of what is going on? Is this exposing the folly of a Fed that chases, again, inflation that is not that much a problem (other than the Fed devaluing our currency 97% -- another story) but the Fed is ready to again crash the economy over it and perhaps lose a very important trade war? Again, this makes one reconsider (for another reason still) the reason for the Fed.

Earnings beats: FDS; NAV; ORCL

Misses: DRI (TL)

Bonds: 2.839 vs 2.855%

EUR/USD: 1.1377 vs 1.1344

USD/JPY: 112.43 vs 112.83

Oil: 48.84, -1.04. Breaking the 50.00 level

Gold: 1251.80, 0.00

Futures are showing staying power after a steady rise since Monday night. We will see the staying power. Not that confident this bounce after the lower lows with no further Tuesday selloff is the signal for the rally, but if a Santa Clause rally is coming it has to be soon. Again, the ideal situation was a further selloff then reversal. Now it is problematic.

Therefore we look at stocks such as MRK that we put on last night -- defensive area, oversold thanks to JNJ's issues, at the 50 day MA after a good move higher. Classic situation to bounce and a good, more defensive sector.

Then we see what the Fed says at 2:00ET.
Jon Johnson, Chief Market Strategist

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