Monday Markets

» Posted by on Jan 28, 2019 in Announcements, Shop Talk, Uncategorized | 0 comments

Stock are slightly lower this morning, as traders brace for an extremely heavy week of headlines!

There’s heavy debate on Wall Street about if the current rally can continue or is it simply a bull trap?

In the past 30-days the Nasdaq is up over +15%, while the S&P 500 and Dow are up +13%. Large speculative bulls are hoping to see better than expected corporate earnings from some big names this week, then by mid-February U.S. corporate buy-backs will be well underway, start to kick in and provide some additional upside traction.

Bulls are pointing to the fact the Fed has turned more dovish, U.S. and Chinese leaders appear to be working towards some type of compromise, and U.S. government workers are going to get paid.

Most computer based trading programs have arguably covered more than half of their net-short positions, redemption and reallocation season has mostly passed, and money seems to be flowing back into the stock market.

From a technical perspective the S&P 500 will soon start bouncing up against stiffer resistance on the charts. I believe it’s going to be extremely tough climbing from 2680 to 2750. At the same time, there’s a ton of huge money managers and large traders who believe we are extremely late-cycle, which means they will continue to move forward with their finger on the trigger and keeping a “shoot first and ask questions later” approach towards risk management.

In other words, many inside the trade are going to be reducing exposure and banking profits on the rallies.

I’m also worried that if U.S. corporate earnings and economic data is strong enough, it will reignite a more hawkish tone form the Fed and we could quickly find ourselves back in a similar cycle as we were in during the final quarter of 2018.

On the flip side, if earnings disappoint and economic data continues to weaken then the bears will have proof and reasons to keep the upside limited.

I don’t think we break or tumble to any extremes. I just think we will have better opportunities to be a longer-term buyer.

I suspect we could chop around for many weeks or even months just depending on how things play out with Chinese trade negotiations and the Fed’s overall willingness to become more flexible in regards to future rate hikes and perceived need to continue reducing their balance sheet.

With only 30-days remaining, and a week long Chinese New Year holiday in the mix, the trade is eager to know whether the U.S. and China can reach a trade agreement to resolve their deepening differences before the March 1st deadline.

From what I understand, lead negotiators (Vice Premier Liu He from China and U.S. Trade Representative Robert Lighthizer) from both nations will meet in Washington on Wednesday and Thursday to discuss deeper “structural changes” to current trade relations.

Neither nation wants to spook the stock market, so I suspect both sides leave the meeting acknowledging some additional progress has been made, but nothing formal or final will probably be announced until closer to the March 1 deadline.

As for more traditional economic headlines, this week will be jam packed.

Don’t forget, the Fed will be holding their first meeting of 2019.

Most everyone suspect the Feds will leave rates “unchanged” at this meeting, but their overall tone and sense of flexibility regarding the balance sheet will be highly scrutinized.

The trade seems to still be debating the next interest rate hike, will it come in the summer or will the Fed hold off until the Fall?

Also this week we have a fresh U.S. GDP estimate being released and the latest U.S. monthly employment numbers.

There’s also a massive wave of corporate earnings scheduled to be released this week.

We start things off today with earnings from Caterpillar, which were already released and a bit weaker than expected, and included conservative forward looking guidance. Remember, Caterpillar is the world’s largest construction and mining-equipment manufacturer, so many large investors like to gauge global economic growth by looking at Caterpillars earnings for the quarter.

Tuesday we will be digesting earnings from big names like Verizon, Pulte Group, Pfizer, Allergan, eBay, Biogen, Lockheed Martin, Amgen, Harley Davidson, and the most important Apple.

Wednesday will be the busiest day of earnings releases with Wynn Resorts, Visa, U.S. Steel, Tesla, AT&T, PayPal, Microsoft, Mondelez, Mcdonalds, Alibaba, Boeing, and Facebook all reporting. Thursday will bring earnings from General Electric, Sherwin-Williams, UPS, Sprint, Raytheon, MasterCard, Edwards LifeSciences, Blackstone Group, DowDuPont, and Amazon. Friday will include earnings from Exxon, Chevron, Honeywell, and Mark.

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