Well, that was fast! Just as everyone was recovering from a Thanksgiving food coma and coming to terms with the 4% drop in the SPX 500, technicals turn bullish.
Weren’t we just talking about a bear market?
Indeed we were, because there is so much uncertainty right now. Last month, it appeared more interest rate hikes were on the horizon. But then Fed Chair Jerome Powell said something about pausing rate hikes. Which will it be?
This past weekend, leaders from around the world met at the G20 Summit in Buenos Aires. All eyes and ears were on the dinner meeting between President Trump and Premier Xi Saturday night. Trade negotiations have been on-going for months. Would this be the moment to thaw out the dispute or escalate the trade war?
Like I said above, we have a lot of uncertainty right now. This is why volatility has been elevated. When assumptions were made about resolving big unknowns in the past, the result was a slap in the face. Not this time, said the market. Even coming into the weekend, the VIX was sporting an 18% level, quite high for this time of year.
But then the technicals turn bullish
Last week played out well beyond anyone’s expectations. The 4% loss in the SPX 500 from the prior week was “returned to sender,” and now all of a sudden market technicals are looking much better. Just a few up days in the market can have a profound effect on the trend.
As we start the final month of trading in 2018, we enter a seasonally bullish period. Buyers tend to be ever-present to scoop up a dip. That is not always the case, but we seem to have a better shot to close the year with a bang. The Fed meeting in a couple weeks might not be a stinger now after Chair Powell calmed nerves. And it appears there will be a thaw in the US-China trade war.
We may see funds start to chase some return before year end. This is often a run-up to book some gains before the calendar turns. Regardless, watch the technicals very closely for any signs of a breakout or breakdown.