Subject: Bearish momentum is strong. Trapping volatility going forward
The transcript of this video was produced on Saturday, November 16 at 11:25 EST and is available at the URL provided in the video information.
If you want to see the market forecast first, go to slide 6.
Howdy, Swings!
The news about the Federal Reserve and Trump's nomination rattled markets, leading to a big drop.
As expected, the S&P 500 fell more than 0.8%.
However, the actual drop was much larger than expected at 1.32%, which contributed significantly to the market's decline.
On November 11, we predicted on stocktwits that UVXY would reach $24 in the first half of November, but we incorrectly assumed that this might happen the following week.
Around 11:30am, the market failed in its attempt to rebound and unfortunately continued its downward trend, plunging sharply for no apparent reason.
Will the market continue this downward trend and fall further this coming Monday?
Let's take a look at Fullhapce’s Daily swing market forecast and explore the possibilities.
Let's review Daily Market Index Movements.
Almost all indices suffered big losses.
The volatility index (VIX) spiked 13%.
SPX: 5870.62, down -1.32%.
Dow Jones: 43444.99, down -0.70%.
Nasdaq: 18680.12, down -2.24%.
Russell 2000: 2313.6, down -1.53%.
Vix Index: 16.14, up 12.79%.
Let's look into Daily sector performance.
The technology and telecom sectors led the decline, while utilities outperformed.
Good performers included banks, insurance, medical technology/medical supplies, telecommunications, household staples, agricultural trading companies, utilities, consumer discretionary pocket and certain autos.
Underperformers included technology, packaged food/beverage stocks, fast food, health care, and media.
Let's take a look at some of the reasons why.
- The biggest factor in the downward pressure on the stock market on Friday was the uncertainty and debate over President Trump's second term.
Existing concerns about government debt, import taxes (tariffs), and strict immigration restrictions have been amplified by the controversy surrounding Trump's cabinet picks.
- Over the past few days, cabinet appointments have significantly changed the narrative around Trump.
This means that the incoming administration is poised to spend months battling over personnel appointments, or even spark constitutional debates over appointments during recesses (pauses or vacations in the legislative branch's deliberations), and the Senate's advisory role in these appointments is critical.
The crisis could hinder the implementation of market-friendly policies on Trump's political agenda.
- Financial markets were hoping for an initial message more supportive of economic growth and free markets than what has been delivered so far.
- Also, the argument that the Fed would not cut rates on December 18 seemed to be gaining traction as the week progressed.
But a slow tapering of monetary support isn't necessarily bad news for the stock market.
- Of greater concern is the ongoing discussion of a second term for President Trump.
Here are the Things to consider.
- Optimism for what was once President Trump's second term is waning among investors.
- With rising import and export prices, a big jump in the Empire Manufacturing Index (a monthly survey that measures general business conditions), and a big positive revision to September's retail sales numbers, it seems more likely that the Federal Reserve (Fed) will keep interest rates on hold at its December meeting.
- If the Fed decides to stop cutting rates and this decision leads to a stock market decline, disagreements between the incoming Trump administration and Jerome Powell (Chairman of the Federal Reserve) could intensify, further shaking investor confidence in the market.
- Recent economic data from China has shown both positives and negatives, with industrial production coming in weaker than expected and more worrying data on the real estate market.
- Future revenue estimates from technology company AMAT were somewhat disappointing, dampening investor sentiment in the technology and semiconductor sectors.
- On Friday, Russia announced that it would suspend gas exports to Austria and uranium exports to the US, adding to the uncertainty around commodity prices.
Here we present the Daily Market Forecast for swings.
The weekly market potential is still on the bullish side, but we have detected a large amount of money moving to the bearish side.
The weekly uncertainty is very high, so it wouldn't be surprising to see a move to the downside, but for now, the weekly market direction is still leaning towards the bullish side.
The daily market has turned potentially bearish and the daily market uncertainty is extremely high.
Looking at today's market action, the SPX, which already opened very low at 5915, quickly dropped to the borderline of the forecast at 5875, attempted to recover to 5890, but again dropped significantly to 5850 before closing at 5870.
This shows that the uncertainty in the markets has reached a critical mass, making it difficult to predict the direction of the markets, and we expect volatility in the early part of tomorrow's trading session.
Investors seem to have gone into panic mode yesterday in response to the uncertainty, and will need to digest the situation over the weekend before deciding whether to maintain the bearish sentiment or pull back from the overreaction.
The multiple reversal attempts in the last 90 minutes of the market are indicative of this sentiment.
Our calculated sector outlook suggests that emerging markets, Chinese stocks, gold, materials, etc. could move higher, while financials, Russell, Dow, high beta, S&P, internet and technology could move lower.
It's also worth noting that biotechs could move higher in a week or so.
On the other hand, there is also the possibility of a temporary bull trap on Monday, as some sectors could rise temporarily, such as S&P, tech, and healthcare.
The indicators we calculated are mixed, with slightly more bearish indicators than bullish ones.
But with this much uncertainty, we wouldn't be surprised if the market starts to turn higher earlier than expected.
According to our calculations, the SPX will likely move between 5817 and 5906 on Monday.
If things turn bad and it goes lower, the next support level would be 5780.
And if Tuesday's Walmart earnings help the market or other good news comes out, the market could rally.
Let's take a look at some more perspectives that might help.
- The current outlook for the stock market - Those who believe financial markets will rise in the near term have a strong argument when considering positive indicators such as steady earnings, good year-end market performance, stable economic information, and the Federal Reserve's continued rate cuts.
All of these factors should at least keep stock prices from falling significantly or consistently over the next few months.
- However, if we take a step back and compare the stock market conditions when President Trump first took office in 2016 to the market outlook if he returns to the presidency in 2024, the conditions for investing in stocks eight years ago were much more positive in almost every respect.
Let's look at the counterarguments.
The counterfactual scenario is that market sentiment changes over the weekend and the SPX rallies between 5840 and 5941.
The additional rationale for this scenario is as follows.
- On Friday, financial experts discussed that the latest economic data from the US pointed to strong growth potential.
- Most notably, the Empire Report noted that inflation - the overall increase in prices and the decline in the purchasing power of money - appears to be under control.
In addition, falling inflation, the outlook for economic growth, and the potential for a deterioration in the employment situation still suggest that the Fed may consider lowering interest rates.
- Data from China appears to signal some improvement in economic growth, particularly with respect to consumer spending.
This leaves open the possibility of progress towards easing tensions over the ongoing Ukraine issue.
We believe that the opposite scenario is also possible, given that the weekly market is still showing upside potential.
If you agree with this scenario, you may want to consider increasing your bullish position but adding 'stop-loss' protection to be on the safe side.
The Conclusion is as follows.
We expect the weekly market to move higher, while the daily market will see a temporary downtrend.
If you agree with our outlook, consider buying more after the price drops, but add other protections such as a 'stop-loss' or other protections such as hedging.
Also, traders may be wise to consider both out main forecast and opposition scenarios to manage risk effectively.
Thank you for watching.
Fullhapce Intelligence, the best investment partner for swing traders.