Wednesday, December 12, 2018

Present State of the Market: December 2018

The present market has finally succumbed to the whims of life. News now moves the market as the market is overly sensitive to the latest news like from the oracles from Fed governors as to what their take on interest rate hikes. It keeps one eye on the charts and the other eye on the news, particularity on the White House. Did the Donald change his stance on tariffs? Did the Chinese offer something to end the tension?

The market is a forward looking vehicle with at least a six months picture of the economy, inflation and prices. The market must have sensed something back in February of this year when it reached its lows. It rallied after that time period, but then, formed a consolidation range until it finally reached a new all-time high. The bulls were running strong until news of pulling out of the Iran deal jolted the market. Like a sharp curve along the path, the bulls lost traction. They began to skid. Trade tensions and tariffs caused the bulls to crash upon each other in a pile up. The strength in the run was over.  You get more conviction when you look at the volume in the QQQ and SPY. The average up volume is well under 100 million shares while on down periods, it increases to an average of over 120 million.This is displayed in the Dow as prices hit lows in July, November and now, in December. Under candlestick charting a dark cloud has formed. This indicates more downside. I see 22,000 as a possibility and a confluence point.

The other half to the Dow Theory, the transports are also showing cracks in the armor. The transports now show a bearish engulfing under candlestick charting for the week. This is a very strong negative for the market. The transports broke under 10K and they have already broke below their February low. It looks like the confluence point will be 9,500.

The technology led NASDAQ is also running out of stream. After hitting an all-time high in August, it has constantly touched new lows. It rests around 6950, but it too has revealed a bearish engulfing under weekly charting. This indicates more trouble ahead. I see 6250 on the horizon. Volume will be very important on how we approach this level.

The small cap, IWM is also screaming, "Get out!" Like its sibling, the NASDAQ, it too reached an all-time high in August at 172. It is now 144 with 131 as a confluence point.

Baltic Dry Shipping Index($BDI)

This is the one important index not showing any considerable weakness. Things are still moving around the world. With that said it is important to remember that the BDI sits at 1372 and that is far below the normal range for this index. Its price level has never returned to the normal level prior to the financial crisis of 2008. It is like the Fed which keeps rates artificially low and for so long that one begins to believe this is normal. It is like Sebastian said in a piece a while back, he sees the market in a range bound period until after Christmas of this year. He see the winter storms coming in January 2019. Dress warmly.