Gone Fishing Newsletter: V-Shaped Recovery Hopes

Still Digesting

We began this week with a rollover in the markets and a continued drop in Oil (27% in 31 days). This pullback was discussed in my live trading room on Friday the 9th as the 7% 7-Day rally hit overbought conditions. (See my yellow arrows in my Nasdaq  NYSE intermarket analysis charts which indicated to me the 7% run was likely done.)

So Now What?

We dropped 124 SPX points between Friday and Thursday – five down days in a row – and that was before NVDA reported earnings and dropped hard which now represents a 44% correction for NVDA (love child of the market) since my short market call October 3rd.

Many if not most are expecting (hoping) for a “V-Shaped” recovery on US-China Trade Truce or Powell dialing back the Fed rate hike path at the next FOMC meeting in December. These headlines may come to pass. As Cam Hui demonstrated in his latest post, most are not only bullish given Santa seasonality, but the most revered technical pattern is taking shape which would foretell higher prices – if price confirms.

Problem is, I don’t see us being done digesting this large October swoon: 11.6% drop in SPY, 14.6% pullback in QQQ and 16.6% correction in IWM (from September high).

Note the bottoming formation in my NASI indicator – a chart I have shown many times over the past few months. It is intonating a V-shaped reversal but this divergence occurred with the overbought nature of the recent bounce and before the further drop in AAPL (which is now down 20% from $1 Trillion fanfare). Long story short, these divergences have kept me from adding tech longs or recommending “All Clear”.

Here’s another chart indicator I am watching for confirmation when it turns:

1. China Trade War Talks between President Trump and President Xi – Nov 30/Dec 1 – could mean resolution, albeit even repackaging (as happened with NAFTA), that could pacify the fear and stress in the global supply chain.
2. China QE could be announced sending Chinese stocks soaring, temporarily helping ours rally too, although to get to QE, China would also likely have to devalue the Yuan which would spike USD undoing all if not most of the effects of their QE. It appears, China bears are shorting yuan proxies as traders see these (intended) consequences of monetary intervention.
3. Market is hoping Powell could intonate Fed will dial back frequency of rate hikes and/or balance sheet rebalancing. This after several speeches this week (Powell, Clarida, and Kaplan) that global growth is feeding back negative into the US.
4. “Stocks are cheap” as potential mantra from fund managers with cash on the sidelines. SPY at less than 16X 2019 earnings, economy growing at 3% and (so far) inflation tame at around 2%.
5. Santa Claus is coming

Unless the USD jumps the shark in which case the market is going to get attacked. (Note charts are on a Monthly and Quarterly basis.)

Trade Ideas

Here’s an example of a major bank stock that looks like its correction is not over.

Transports bounced..into resistance

AAPL Fell Off The Tree

Back on September 2nd, I wrote that AAPL was a short at $228 in my post: Market Thoughts: Let’s Talk About AAPL. Part of my rationale was based on prior behavior post new iPhone launches:

Apple’s stock sold off 45% from $100 to $55 from Sept ’12 to July ’13 after the launch of the new iPhone, and again from $133 to $89 mid-2015 to mid-2016, again, after the launch of the new iPhone.

So 45% sell-off in 2012/13, -33% in 2015/16…and we are only at -20% so far in 2018. With that, you know where I’m going with this:

Facebook coming into support.

Netflix has some more to go.

Cloud space is broken.

Not Done.

Island Reversal on a Weekly for Germany is very ‘Verboten’.

Air Pocket Stocks Won’t Be

Last General Standing

To Hike Or Not To Hike

Some believe Powell is hiking too aggressively – Yellen for one; Trump for another – and that the higher rates are causing the stock market sell-off. (Even though Trump blames the Democrats not Trade Wars.)  Point is, there are some stress cracks appearing as rates and US dollar moved higher past few months with a pullback end of this week on hopes Powell might dial back the Fed rate hiking schedule at the upcoming FOMC meeting December 11th.

Lower oil prices put downward pressure on inflation.  And as oil prices were plunging from 2014 through 2016, the Fed clearly held back on their rate hiking plans.

Well, there is evidence of slowing economic growth in Japan and Europe, slowing inflation as oil drops like a rock, and a divided Congress that nixes pro-growth policies…so the thinking is that Powell will slow the rate train down, which in turn could be rocket fuel for stocks as money on the sidelines comes back in. This would time well with my thesis we chop and drop into Thanksgiving then start to reverse around the time of the FOMC. An announced slower pace to rate hikes would be a present filled sleigh for a Santa Rally into January.

Hope it Helps. Happy Trading and Don’t Forget To Hedge,

Samantha

Thanks for reading and please consider joining me in the LIVE Trading Room where we work through Value and Momentum trade ideas and set ups every trading day.

At LaDucTrading, Samantha LaDuc leads the analysis, education and trading services. She analyzes price patterns and inter-market relationships across stocks, commodities, currencies and interest rates; develops macro investment themes to identify tactical trading opportunities; and employs strategic technical analysis to deliver high conviction stock, sector and market calls. Through LIVE portfolio-tracking, across multiple time-frames, we offer real-time Trade Alerts via SMS/email that frame the Thesis, Triggers, Time Frames, Trade Set-ups and Option Tactics. Samantha excels in chart pattern recognition, volatility insight with some big-picture macro perspective thrown in.

More Macro:  @SamanthaLaDuc  Macro-to-Micro: @LaDucTrading