1/9/2019
By Charles Payne, CEO & Principal Analyst

The market is certainly acting better with a post-Christmas run that has seen the Dow Jones Industrial Average rally 1,900 points or 8.7%.  While those big macro data points are encouraging, I’m always looking at more nuanced developments that signal a shift in market psychology.

There were three things on January 8, which I’m sure were not reported, that give me a sense this market is set up for a bigger move higher.

Market Breadth

There are several ways to measure market breadth, including overall advancers versus decliners, up volume versus down volume and new 52-week highs versus 52-week lows.  Yesterday, January 8, was the first time since September 21, 2018, there were more 52-week highs than lows on NASDAQ.

Today, both the NYSE and NASDAQ see more new highs than lows, but that’s only half the story.

On December 24, there were 1,058 new lows on the NYSE, today there is only seven.  On December 24, there were 1,101 new lows on NASDAQ, and today only 5!

That is absolutely remarkable.

Strong Earnings Reactions

Yesterday, a half a dozen stocks soared after issuing positive earnings guidance, including Roku (ROKU), which rallied more than 25%.  The good news with everyone bracing for massive declines in earnings are those low expectations equal low hurdles.

No Negative Knee-Jerk

Yesterday, the ISM Services number missed, and the market wasn’t crushed like it was on the ISM Manufacturing miss, and today, NFIB and JOLTs were below consensus.   Again, the market didn’t tank because investors are taking their time and looking under the hood and all these reports actually have lots to be excited about.

No knee jerk reactions reflect a diminished sense of fear just a week after investors were running around like long-tailed cats in a room full of rocking chairs.

Hurdles

• Geopolitical

I put U.S. – China trade talks in this category, as it’s a power play between the world’s two largest economies.  It could also be a preview of future clashes considering China’s surging global ambitions now go beyond economics and having the world’s reserve currency.

I think progress will be made and talks will eventually yield a deal that will include real changes to the way China currently does business.  The battle will drag on for years, however, the verification process will find from time to time that China is cheating.  

Nobody will be shocked.

Still, America is on the cusp of being able to sell more products and services in China with fewer restrictions and lower tariffs.  U.S. corporations won’t be forced into partnerships that invite wholesale theft of intellectual property.

• Global Economy

Emerging markets have been waning for some time and Europe’s economy is slowing more rapidly.  There is no telling the impact of a hard Brexit to the continent.  There will be turmoil, but I hope the will of the people in the U.K. is honored. 

• Central Bank

Although Jay Powell has finally calmed the markets, I’m left wondering if he will still surprise Wall Street with rate hikes without the kind of data that would warrant its urgency.  For now, we will make investments based on the notion the Fed will not derail the economy.

Technical Challenge 

One October 29, the Dow Jones Industrial Average tumbled to 24,442 and bounced the next day.  That support point held on several sessions thereafter, but when it failed to hold, the market shifted into freefall mode.

Now, that former key support point looms large as an upside test of resistance.  Interestingly, that’s also right where the 50-day moving average (purple line) is right now and clearing that on the upside would certainly trigger additional buying.

Dow Jones Industrial Average (January 8, 2019)

A move above 24,450 on the Dow and 2,600 on S&P 500 will be seen as major buy signals. 

Charles Payne
Wall Street Strategies

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