• Will the FOMC statement start the overdue Santa Claus rally?

    I will be very clear in my response: maybe yes and maybe not. As a matter of fact, nobody knows.
    What we know is that for now, the S&P500 is negative for the year. Hence statistically there should be NO santa rally due to tax selling issues combined to the end of the Year portfolio window dressing process.

    At this stage, the market is also rather negative, with sellers very present across the board.



    Even the leading NQ8 sector looks heavy.



    The underlying story is that institutional investors are rotating from equities to bonds. This is not that obvious looking into the 10Y treasuries, but Municipal bonds seem to be indeed attracting money.





    On the other hand, we can see below that corporate bonds are being sold here. Are investor expecting a credit issue?



    But we should not be too negative: excess reserves are decreasing, indicating that there is more money available at least there is more money that should be available for the Fed to continue its QE tightening by B$50/Month. in 2018, the Fed did not replace about 420B$ of bonds that came to maturity. Fortunately, we can see below that Excess Reserves were lowered by about the same amount. In 2019, the Fed is planning to retrieve $B600 of liquidity.



    The energy sector continued to weaken, together with the rest of the market, despite the positive Money Flow divergence.



    Oil did not confirm the break above the average TEV trend line and is now back to its support level.



    So, what should we do? For example, should we buy AMZN on Monday based on its recent EV pattern, as I was asked by private email yesterday?



    This was my response:

    Regarding the issue of AMZN, you have to ask yourself who is trading it? Who provides the most volume for that stock? This is a huge mammoth stock. Hence, it mostly trades on index following algos. In other words, this stock will move on general market news such as China, AAPL litigation issues, Trump legal issues, etc...

    AMZN would move on its own information mostly around earnings. This is why AMZN is down even though the longer term EV pattern shows accumulation. Funds continue to buy weakness because AMZN has a total control over its own market. Even if it is only slightly profitable here, it could easily become much more profitable. AMZN controls the payments/purchasing habits of an increasingly large amount of consumers. Hence, it is a "must have" by any longer-term investment fund. But it is a key component of large ETFs/index following instruments and hence it is automatically sold when the index is down.

    So yes, AMZN will not go bankrupt and will probably be higher in six months, but will it go higher on Monday, I do not know.


    The same is true for AAPL.



    How is it then possible to use the EV pattern at all? The EV pattern works best for mid size stocks that are not in everybody's portfolio.

    For example, FDX/UPS started to show EV weakness days before the sector plunge. This shows that professional investors who study the sector started to sell on the results of their research. I always keep an eye on the EV pattern of every stock that I own, because then if something appears on the EV pattern, I would sell right away before waiting for the possible news to hit the stock.





    IBM/SAP/CTXS have also shown weakness during their most recent bounces.







    What about THS, OXY and CRM?







    Conclusions:

    There is enough evidence that the market is acting very poorly.
    The FOMC announcement of Wednesday could trigger the expected end of the Year rally, but I do not have much hope for now and still staying in cash.
    Comments 4 Comments
    1. NZ8I's Avatar
      Pascal,

      Thank you for youer excellent, honest research and comments.

      Charles
    1. stharp's Avatar
      Pascal,
      Your dedication to creating factual information, day in day out, is appreciated. Thank You!
      I weigh my opinion against yours, daily, to arrive at buy, sell, hold decisions.

      The FOMC meeting and sabres rattling over spending budgets, the wall, Democrat's obstructionist behavior, threats of government shutdown, these are dark clouds. We'll have to get to the other side of these events before money might have a chance to flow.

      As for AAPL, we are approaching a milestone landmark. A baseline price set on 8/28/2017 of $164 was the last high before the ascent to $225. If this threshold is perforated, we will have to wait for a new definition. I am waiting and watching (what I would like to happen) for the event of the price to hold in the 156 to 164 range, while Big money pushes up the EV and a Small money comes in to reinforce a price movement upwards. $158 and lower is an ideal price should the EV components indicate an upturn.
      Steve
    1. Pascal's Avatar
      Quote Originally Posted by NZ8I View Post
      Pascal,

      Thank you for youer excellent, honest research and comments.

      Charles
      Thank you Charles.

      Always happy yo get a positive feed-back.


      Pascal
    1. Pascal's Avatar
      Quote Originally Posted by stharp View Post
      Pascal,
      Your dedication to creating factual information, day in day out, is appreciated. Thank You!
      I weigh my opinion against yours, daily, to arrive at buy, sell, hold decisions.

      The FOMC meeting and sabres rattling over spending budgets, the wall, Democrat's obstructionist behavior, threats of government shutdown, these are dark clouds. We'll have to get to the other side of these events before money might have a chance to flow.

      As for AAPL, we are approaching a milestone landmark. A baseline price set on 8/28/2017 of $164 was the last high before the ascent to $225. If this threshold is perforated, we will have to wait for a new definition. I am waiting and watching (what I would like to happen) for the event of the price to hold in the 156 to 164 range, while Big money pushes up the EV and a Small money comes in to reinforce a price movement upwards. $158 and lower is an ideal price should the EV components indicate an upturn.
      Steve

      Hi Steve.


      Good to see that you are following my comments.

      To be honest, I primarily use these comments for my own trading. Writing these comments is a great help to structure my trading day, even though I am in cash for now.


      Pascal