Starting with the Great Slump of December, Mr. Market has exhibited some interesting behavior to say the least and the least is the most that can be said. It’s no wonder some people were confusing him with The Grinch Who Stole Christmas.

Well here we are in late January and thinking that those folks who responded to December’s alarm by hitting the snooze button may not have made out quite so badly after all. Don’t get me wrong, there are some miles yet to go. But – and most importantly – our prime focus is always to preserve and protect the interests of our clients. Accordingly, when things get a bit too risky, we always lean toward reducing as much risk as conditions warrant.

Mr. Market is still doing a bit of fence sitting, being balanced by opposing forces. The evidence of that can be seen in the daily charts of the major indexes in the past 2 weeks. In a dominant percentage of trading days, we have seen markets open quite a bit down only to recover by the end of the day. The negativity of the Sellers brought in the Buyers, again and again. Even better was that many of these days ended with strong ups — a relief when it was beginning to look like flat was the new up. Obviously, we are nowhere near consensus and to see this one need look no further than the differing outlooks of Barclay’s Bank, Wells Fargo and Bank of America / Merrill Lynch. Barclay’s 2019 forecast is bearish enough that it is favoring holding debt (bonds) over equities while Bank of America expects equities growth of 15% over the 2018 close. Wells Fargo says ‘Wait! There’s more!’. They have posted expectations of 20%.

In times like these — where there is no clear direction — we always see the investment and trading community take sides in the ‘glass half full’ versus ‘glass half empty’ conversation. Rarely mentioned is the solution of ‘pour it all into a smaller glass’. The great thing about that method is that now all can agree on the fill level of the glass. Markets were disappointed that projections of growth levels (especially worldwide) were being brought down. But growth is not contraction and some is better than none.

The elves in the workshop also tell us that from a technical analysis point of view we could experience another down leg, perhaps testing the low points of Christmas Eve but they counter this with noting that, fundamentally speaking, stocks are a much better value now than they have recently been. The bottom line here is that, while we tend to expect some meaningful gains in 2019, we don’t want to get too far out in front of our skis.

Market Minute – When You’re Up to your Shorts in Alligators…

So, that’s how it feels to be in my chair today. The S&P 500 is currently in the midst of its best monthly advance since Jan of 2018. However, this follows the worst month’s decline since Feb of 2009. Current advance is still not back to where it was at the beginning of December.

For those of you who follow football, I believe that chasing the US market now would be like trying to thread the needle on a touchdown pass when you are NOT Tom Brady. There are certainly some strong charts, but…take a look at this one:

This happens to be a chart of the S&P 500 as represented by the SPY exchange traded fund.  I’ve purposely made the actual price of the daily value of the SPY very light so that you can focus on the 200-day moving average (200 MA) in blue. One of the most basic tenants of technical studies is that it’s best to avoid stocks when their price is below the 200 MA. Strain your eyes a bit and you’ll see that the price of the SPY is below the blue line (200 MA). Rule 2 is similar It suggests that when the 50 MA is below the 200 MA the trend is down, and stocks are to be avoided. That should be easy to see – the red line is clearly below the blue one. 

Well that’s just one chart. On the other hand, the charts of the other major US market indexes – Dow Industrials, Nasdaq, and Smallcaps – are each showing a chart that is almost identical. In all of those charts the price is below the 200 MA and the 50 MA is below the 200 MA.

Add to that, I’ve spent quite some time searching the past (yes, I know, ‘past performance’ etc.) and I can’t find a bear market pullback that doesn’t have some sort of a double bottom. That would argue for a retest of the Dec 24th Low. 

With that in mind, my expectation is that we are still in a bearish environment, and any uptrend is deemed a counter-trend bounce- although it’s truly one HECK of a bounce. Until the signals change, I remain in the defensive camp. And I must keep in mind that protection of principal is the main object, no matter how many alligators are nipping at my shorts.


Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk

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