Trash Talk all Day! Markets Test Support & Bounce, Tone is Improved Today

What You Need to Know Today

  • New sources ACCENTUATED all the negatives yesterday

  • IBM beats as does Comast and PG (so far)

  • Futures found support at the trendline and that is a POSITIVE

  • High level trade talks still on for next week – The rumor was BS.....

Ok so think about it for just a minute.....did you see one positive headline yesterday at all? Here is what I saw! (Note the words in bold help to direct the logic built into the ‘smart algo's)

  • Billion Ray Dalio sees ‘Significant Risk of possible US recession in 2020

  • We are in a worse place than we were one year ago – fund manager says at Davos

  • Investor David Rubenstein says US-China trade talks likely to need months

  • J&J tops 4th qtr expectations BUT signals sales to slow this year

  • Housing Sales Dropped in December – Weakest level since 2015

  • US cancels trade planning meeting with China

  • Dow Snaps 4 day winning streak as fears of an economic slowdown intensify

And on and on... – the headlines got worse - and mixed results from JNJ and SWK only added to the negative mood – causing more drama and causing more opportunity for the algo's to react negatively...... the headlines once again raising concerns again about trade, global economic growth, central bank policy etc forcing investors/traders to once again consider the possibility of a recession in the year ahead – (but are you paying attention here...Last week – they managed to put all of those issues in their place – the tone was more positive and the algo's responded in kind – taking the mkt higher seemingly oblivious to the coming Chinese GDP report or the boondoggle in Davos) .............But look at what happened...Here is what I said about mkt action yesterday and what we could expect ....

".....Now the S&P looks great on the chart – but do not get yourself all excited just yet....We want to see it back off - the 50 dma which was resistance is now by all technical definitions – support. (Remember - when you are below the trendline – the trendline represents resistance – but when you are above the trendline – then the trendline represents support) So - the S&P closed at 2670 on Friday – so SUPPORT is now 2625 –will the buyers defend that position if we test it?"

And BINGO! We sold off – held onto 2645 for bit and then at 3 pm – we sold off harder – testing 2625..........word that Trump cancelled a meeting between the US and Chinese officials over trade talks for this week to get ready for the ‘more senior talks next week (scheduled for January 30th & 31st ) -sent the mkt into a tailspin....and as the mkt sold off – the WH called out the troops – led by none other than my friend – Larry Kudlow – Trumps National Economic Council Director – who took to the airwaves at CNBC saying:

"The story is NOT true, there was never a planned meeting other than the one planned with Chinese Vice Premier Liu He next week"

And the pressure was lifted......darkness turned to light and the bell rang....ding, ding, ding......and the S&P closed at 2632 – after testing and piercing the trendline support before rallying a bit into the bell. Industrials – XLI, Energy – XLE & Communications XLC all feel better than 2%, Tech – XLK fell 1.6%, Financials XLF fell 1.1%, Consumer Discretionary – lost 1.5% while Consumer Staples only fell 0.9% and as you might expect – Utilities rose 0.19% in all of this turmoil.

By the end of day – the Dow had given up 300 pts or 1.2%, the S&P lost 37 pts or 1.4%, the Nasdaq gave up 136 pts or 1.9% and the Russell gave back 25 pts or 1.6%. Yes it felt a bit sloppy and ugly – but in the end I believe it was more of an overreaction due to the fact that we missed one trading day this week with the MLK holiday. The VIX (Fear Index) which has been on its own wild ride for 3 months – spiking 188% between October 3rd and December 26th – had given most of it back by January 18th....only to spike higher yesterday as the headlines hit the tape causing it to surge 23% by end of day suggesting that investors/traders are not convinced that the worst is over....and then not to be outdone – WFC runs with a story that they expect stocks to fall to NEW LOWS (Another NEGATIVE headline) saying that ‘it usually takes 63 months (5.25 YEARS) for stocks to hit a new high after falling at least 20%'.

Dude! – no one is talking about the mkt hitting new highs right now – We're just talking about a bit more stability. What is the point of your story other than for you to talk your book? I mean in September GS – told everyone that oil was going to spike to $100/barrel - by yr end - when it was trading at $70 – causing all kinds of investors to run out and buy oil or oil stocks (where GS was happy to sell them to you) – and guess what? Not only did Oil NOT spike to $100 by yr end (as projected) but rather got hammered and has fallen by 43% while the Energy ETF – XLE fell by 32% before finding any support at all! Hmmm- what did Goldy do with all that stock that sold at those higher prices? Come on – you know the answer......

Anyway – let's move on....Overnight - mkts were a bit mixed – not rising or falling by any notable amounts....investors/traders just trying to parse thru the headlines looking for something positive to stop the bleed. Think US/China trade talks – THAT WILL STOP THE BLEED. Other news out of China had officials there telling the world that they would ‘boost fiscal expenditures in 2019' to help their economy on top of the 1.3 trillion Yuan ($190 bil) tax cuts they made in 2018. Elsewhere – the BoJ (Bank of Japan) left rates unchanged – no surprise while they also cut their inflation forecast (think trade uncertainty between US/China) along with a supposedly weakening Europe. They did though, UP the ante on GDP growth from 0.8% to 0.9%. Think about this for one min – US is growing at 3.4%, China at 6.6% and Japan at 0.9%....I mean put it in perspective! Japan – 0.14%, Hong Kong +0.01%, China -0.07% and ASX -0.26%.

In Europe – mkts there are also struggling looking for direction as investors/traders there sift thru the rubble.....Again – it is about trade right now and not only between US & China – British trade minister Liiam Fox is in Davos meeting with his European counterparts discussing how to ‘roll over existing trade agreements' between the UK (United Kingdom) and the EU (European Union) after the UK leaves the EU on March 29th....(if that even happens – but that's another story) .....Tomorrow we are set to hear from the ECB about future policy moves....while there is no expected change in rates – we may hear the ECB become a bit more dovish as the recent difficulties in the UK concerning BREXIT escalate. FTSE -0.43%, CAC 40 +0.19%, DAX – 0.02%, EUROSTOXX +0.14%, SPAIN +1% and ITALY +0.16%.

US Futures are up 13 pts at 2645....Davos day 2 is already in full expect to hear more concerns coming from the hilltop.....Earnings today include – ABT, CMCSA, PG, KMB, UTX, WAT, APH, RCL & F to name just a few....After the bell last night IBM reported and BEAT the number.....coming in at $4.87 vs. the exp $4.81 – Gina Rommety – CEO – couldn't be happier....earnings beat and the guidance is UPBEAT - - the stock closed yesterday at $122.52 and this morning is trading at $130/sh – up 6%. Morgan Stanley analyst Katy Huberty calling it ‘the cleanest quarter in years!'

The focus remains on Trade – everything else is in a supporting actor role....As said Larry Kudlow reiterates this morning that ‘the teams remain in touch in preparation for high level talks with Vice Premier Liu He at the end of January" – once again refuting the rumor yesterday started by the Financial Times. Eco data includes mortgage apps and the Richmond Fed Survey – Now the Richmond survey details what is going on in that part of the country and while it is usually NOT a mkt mover – the mkt remains anxious – so traders and investors will look for any reason to sell them.....Comcast and PG have reported and they have both beaten the estimates – that should be seen as a positive.....and there are NO FED speakers today.....(and that is a relief...).

We held the support yesterday at 2625 and this morning futures are pointing up.....I would not be surprised if the mkt rallied, then sold off to test support again – as it wants to know that it is a level where long term investors find value. On the upside??? My sense is that 2645/2650 is about it for today.... - A level that held for a while yesterday before they slammed it lower....

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.