• Expectations have changed. Earnings and China must now deliver.

    The Fed surprised everyone this week by an aggressively dovish statement both on balance sheet reduction and rates increases.

    The main consequence was a rush to buy US assets, from bonds to defensive stocks and of course equities in general. The market was obviously positioned on the short side and is now reverting in a hurry to long only positions.



    The NQ8 looks slightly negative here,



    but this is mainly due to the oscillator aspect of that indicator, which tends to revert to the mean on a 20 days basis. On a longer term view, the NQ8 Money Flow is still well in positive territory.



    The small caps Money Flow itself is more worrisome here as it dipped below 0.



    We are only waiting for the US/China trade issues to be resolved before focusing again on companies earnings.

    Below is an interesting article dated from two days ago regarding earnings.

    https://www.factset.com/hubfs/Resour...ght_020119.pdf

    The positive news is that out of the 46% of S&P500 companies that reported earnings, 70% had positive earnings surprises and 61% had positive revenue surprises. These are of course earnings and revenues of Q4 2018.

    I picked up two Figures which looked interesting of what might be coming down the road - compared to what occured in Q4 2018.

    The first one is the S&P earnings growth rates estimate, which turned negative. This is due to the fact that the median EPS estimate for Q1 2019 turned to a negative 4.1%. Of course, analysts might have turned negative only because of the general market pullback.



    As a consequence, overlapping this Figure on the S&P500 price trend displays a very negative divergence.

    On a side story, factset noted that all of the nine healthcare related companies that issued earrings have also produced negative guidance. I guess that Drug prices and healthcare issues in general will come back in the 2019 agenda.



    Conclusions:

    The equities markets are still in a positive trend. The combination of the Fed induced short squeeze to positive expectations regarding the US/China trade talks point to short-term higher prices.

    I expect that the next big China deal that Trump will announce will mark the top of the markets.

    In the meantime, we can point to some specific stories that could be developīng. For example, JAZZ and YELP experienced large price drops in past months and are presently under selling pressure during the current general market bounce. This does not necessarily mean that they are going to drop fast or even at all, but these are signs of large investors' mistrust.