Subject: Warning: The Rally is about to take a breather.
This particular video was set on Thursday, November 14 at 14:19 EST and you can find the link to it in the video description.
If you want to see the market forecast first, go to slide 6.
Howdy, Swings!
Markets closed lower today following the release of the latest Producer Price Index results and a rather lackluster speech from Chairman Powell.
Contrary to our initial expectations, the market fell, but not as sharply as we had anticipated.
Even in the midst of the market's downturn, we were able to observe a positive trend returning with several sporadic efforts to recover losses.
The question is, will this downward trend continue tomorrow?
Let's take a look at Fullhapce’s Daily swing market forecast and explore the possibilities.
Let's take a look at how the daily market indices moved.
All indices were down, including bond yields.
The Vix index was up slightly, but Vix futures were down, which is unusual.
SPX: 5949.17, down -0.60%.
Dow Jones: 43750.86, down -0.47%.
Nasdaq: 19107.65, down -0.64%.
Russell 2000: 2348.8, down -1.42%.
10-Year Treasury: 4.42, down -0.74%.
Vix Index: 14.10, up 0.57%.
Let's take a closer look at the daily sectoral performance.
Most sectors were down.
Only a few sectors, notably utilities and energy, were up slightly.
Semiconductor Equipment, Wireless, Solar, Staples, Dollar Stores, Energy, Utilities, Travel & Leisure, and Housing were the top performers.
Weak performers included defense contractors, electric vehicle-related stocks, large-cap technology stocks, health care, vaccine stocks, railroads, and steel.
What happened?
- Not much happened on Thursday, making it a fairly boring day.
Perceptions of the Washington/Trump situation are turning neutral after the initial excitement.
This is because investors have to weigh the benefits of tax cuts and deregulation against the negatives, such as rising national debt, trade tariffs, concerns about immigration, and the early chaos of some of his cabinet picks.
The stock market still favors Trump's changed stance to some extent, but the excitement is waning as investors keep a close eye on long-term interest rates.
- The day was quiet in terms of actual news from Washington, DC, and markets are still waiting for more concrete information on the big three issues.
- On the economic front, initial readings on the Producer Price Index (a measure of inflation) and jobless claims were leaning towards tighter monetary policy, as well as comments from Federal Reserve Chair Jerome Powell at 3pm ET (suggesting a rate hike is imminent).
- Finally, there weren't many financial report updates.
However, the two large companies that did report earnings beat expectations, offering higher financial targets than market analysts had anticipated.
Here are a few things to consider.
- The discussion among pessimistic investors on Thursday focused on too much optimism about the political situation in Washington and not enough attention to potential financial or economic risks, especially given Trump's strengths.
- The producer price index (PPI), which measures the average change in the selling price domestic producers receive for their output, rose in October, indicating that prices are rising more than expected.
This is not good news for consumers as it can make goods and services more expensive.
- At the same time, the number of people filing for unemployment benefits fell to 217,000, which generally indicates a strong job market and supports the Federal Reserve's decision to take no action at its December 18 meeting.
- Federal Reserve Chairman Jerome Powell made comments on Thursday afternoon that leaned toward the view that interest rates should remain on hold for the time being.
This increased the likelihood that the Fed will leave rates unchanged in December.
- A higher-than-expected producer price index could mean that the downward trend in inflation could slow or stop.
Here we present the Daily Market Forecast for swings.
There are signs that the weekly market may lean more to the positive side, but it seems that some investors are locking in profits by selling high.
The daily market is still a mildly bullish market, but the uncertainty and volatility has reached a critical mass, and we've been below SPX 6000 for five days.
The daily market seems to have some potential for profit, but also a lot of potential for loss.
Looking at today's market, the SPX opened at 5995, near yesterday's close, and then continued to fall, dropping to 5940 before closing at 5950.
Investors seem to be leaning more towards the sell side, confidence is lower, and they seem to be more interested in selling high while avoiding risk.
Our sector outlook suggests that bonds could continue to move higher, but it's possible that a day where the SPX drops 0.8% in a single day could be on the horizon. If that happens, the internet, tech, dow, financial, smallcap might join the downfall.
It's hard to say with certainty given the high level of uncertainty, but for now, we think the daily market could go either way on Friday, with the SPX likely to move between 5900 and 5960.
Early next week, we could see an upside move to recoup market losses.
Let's look at some more perspectives that may be helpful.
- There are many reasons to be optimistic about current financial market conditions, including the ideal balance between inflation and economic growth (Goldilocks data), strong corporate profits, lower interest rates, stimulus from China, and the typical market improvement trend heading into the end of the year.
- However, stocks are facing challenges not because of economic data or the Federal Reserve's hawkish stance, but because of President Trump's policies during his second term, particularly rising bond yields due to concerns about the rising national debt, trade restrictions, and immigration rules.
- Investors are skeptical that the massive tax bill proposed by the Republican Party during President Trump's first 100 days in office will do anything but significantly increase the deficit.
- If that skepticism materializes, it could spark a backlash from bond investors, often referred to as "bond vigilantes," who are concerned about government debt getting too high.
- If the yield on the 10-year Treasury note hits a new 52-week high, there is likely to be serious resistance in Washington to many of the policies President Trump has proposed for his second term.
Let's look at the counterarguments.
The opposite scenario is that the manufacturing index report on Friday will likely be favorable for the market, causing the SPX to trade between 5995 and 5930.
Other evidence for this scenario is as follows
- The latest monthly report from the International Energy Agency (IEA) suggests that the world could have an excess oil supply of 1 million barrels per day by 2025.
- On Thursday, international conflicts showed signs of calming down.
- Investment in artificial intelligence (AI)-related technologies continues to grow strongly.
- Several companies, including Disney and Siemens, reported satisfactory fourth quarter (FQ4) results.
Given the recent gains, the opposite scenario seems possible, but if investors continue to sell off, it is unlikely that the SPX will rebound easily without an event that sends it back to the low 5900s or lower.
Traders sympathetic to the opposite scenario might be wise to buy some dips in the low 5900s and place stop losses, deciding whether to add to their positions as they go.
The Conclusion is as follows.
We believe that while the weekly market is currently in an uptrend, the daily market is under temporary downward pressure.
As soon as the downside pressure is cleared, the market will turn upwards and the rally may accelerate a bit more.
Therefore, while timed bearish bets may seem attractive at times, it may be wise to avoid them as they can be very risky.
Traders who agree with our forecast may be wise to buy more on every dip to the lower end of our range, and then add safeguards such as stop losses.
Traders may also be wise to consider both the main forecast scenario and the counterfactual scenario to effectively manage risk.
Thank you for watching.
Fullhapce Intelligence, the best investment partner for swing traders.