Subject: We're sensing a stock market pullback in a few days: Brace yourself.
This video transcript was created on Thursday, November 28 at 7:12 a.m. ET, and a link to the video can be found in the video description.
If you want to see the market forecast first, go to slide 6.
Howdy, Swings!
Markets closed lower yesterday as earnings from Dell and HP raised concerns about the future of AI and the tech market.
As we expected, emerging markets, gold mining closed higher.
However, the financials sector did not close lower, contrary to our expectations.
Also, the SPX failed to close higher, raising concerns about market conditions.
Unexpectedly, the SPX peaked at 6000 and stayed there for the last hour of trading.
Could the trend of markets pulling back from all-time highs continue on Friday?
Let's take a look at Fullhapce's Daily swing market forecast and explore the possibilities.
Let's review Daily Market Index Movements.
Markets were down slightly.
Unusually, the volatility index (VIX) also fell slightly.
The SPX closed at 5998, down 22.9 points/48 bps, while the equal-weighted version of the index fared much better, with the R2K up only slightly.
The Dow was down 138 points/31 basis points and the Nasdaq was down 115 points/60 basis points.
Treasuries were slightly higher on Wednesday, with yields falling 4-5 basis points across the curve.
The probability of a rate cut at the December 18 FOMC meeting is currently around 66%.
The DXY was down 85 basis points, and Brent crude was trading flat at around $72.90.
Let's take a look at the daily sector performance.
Retail/consumer discretionary, autos, housing, media, insurance, REITs, health care, consumer staples, and utilities outperformed.
The technology industry was a bloodbath due to pressure on hardware, software, and chips.
Power producers linked to data centers and travel/leisure also fell.
Let's take a look at some of the reasons why.
While the SPX didn't perform well, there was a lot of movement in certain sectors and companies.
The Russell 2000 Index (R2K), which is centered on small-cap stocks, performed well.
- The Chinese market was a big winner, while the technology sector was a drag on performance.
- The underperformance of the technology sector was due to unexpectedly low earnings and the impact of "Trump trade."
This means that investors are moving out of technology stocks and into cyclical and value sectors/stocks.
"Cyclical" sectors are those that perform well when the economy is doing well, while "value" stocks are those that are believed to be undervalued or cheaper than their intrinsic value.
- In the US, there has been a significant amount of economic data released.
However, the pivotal or key numbers were more or less in line with what experts had predicted.
Here are a few things to consider.
- On Wednesday, market analysts discussed that the U.S. markets are not taking into account the potential risks if Trump wins a second term.
- Recent data showing that fewer people are claiming unemployment benefits and that personal consumption expenditures, the pace at which people are spending money, has picked up suggests that the Federal Reserve (the U.S. central bank) may not change policy at its Dec. 18 meeting.
- Political and budgetary uncertainty in France is creating a negative sentiment in European equities.
- The ongoing political and economic turmoil in France due to fiscal mismanagement could be a foreshadowing of the problems the U.S. could face next year.
- On Wednesday, Mexico again warned that it will fight back if Trump imposes tariffs (taxes on imports).
- The Canadian government is also investigating US products for possible additional tariffs in response to the tariffs, according to a report by the Associated Press.
- If Trump is re-elected and imposes more tariffs, China's response will likely be tougher than before, especially targeting U.S.-based companies.
- Although political tensions in the Middle East appear to be easing, the Organization of the Petroleum Exporting Countries (OPEC+) is likely to postpone plans to increase production again at its December 1 meeting.
This could cause oil prices to rise.
- In Ukraine, Russia is seizing more land at the fastest pace since the conflict began.
- Earnings from big tech companies were disappointing Tuesday night, with Dell and HP reporting weak PC sales and software companies also performing worse than expected.
Here we present the Daily Market Forecast for swings.
The weekly market is bullish, but investors are refraining from making big moves, which creates uncertainty.
Minor events can change the situation drastically.
Today, a small amount of money flowed into the bearish market, but the overall market momentum remains bullish.
Therefore, the daily market potential remains as bullish as it was yesterday, but volatility and uncertainty are increasing.
Looking at today's market action, after opening at 6015 yesterday, the SPX plunged to 5985 by 1pm, recovered to 6000 by 2pm, and held it until the close.
This level of uncertainty makes it difficult to predict the direction of the market, and we believe there is an equal chance that the market will open higher or lower on Friday.
Investors appear to be taking a step back and adding safety to their bullish positions ahead of the Thanksgiving holiday.
Typically, this behavior may slow down an ongoing rally or cause a small correction for a day or two, but it is unlikely to change the trend significantly.
Sectoral forecasts suggest that gold could move higher and financials and biotech/healthcare could move lower.
Also note that it's still early, but many sectors could soon follow the bear market.
Indicators are giving mixed signals, suggesting that the market could fall on Friday or rise slightly and then fall the next day.
It's hard to predict due to the uncertainty, but we could see the SPX fluctuate between 5950 and 6020 on Friday.
Then, over the weekend, if China news or other factors negatively impact the market, the SPX could fall further.
Let's look at some more perspectives that might be helpful.
- Our thoughts on current market conditions: U.S. stocks have continued to perform well since the election and are showing strong momentum as we head into year-end.
Investors seem to be switching easily between tech stocks and traditional/cost-effective stocks, rather than staying out of the stock market altogether.
- Despite the strong performance, we are still cautious because there is a gap between what is being said about a second Trump administration and what is likely to happen.
Also, stocks seem overpriced at the moment.
- Comparative performance gap: European stocks are not performing well compared to US stocks.
This gap is getting quite large.
- But it's not all doom and gloom: Despite these challenges, the bad news seems to be priced into European stocks right now.
Let's look at the counterarguments.
The opposite scenario is that the SPX could move between 5970 and 6040 and close higher if the market rallies due to news from Japan or Europe or other economic factors.
Here's another rationale for this scenario.
- Expert discussion on Wednesday centered around the fact that China's economy is showing signs of improvement and that the Chinese government may introduce additional measures to stimulate the economy.
- The release of three Americans held in China could ease tense relations between the U.S. and China.
- On the U.S. economic front, there were no notable controversies.
The recent decline in weekly jobless claims suggests that the labor market is strengthening.
October also saw notable month-over-month increases in personal income, the savings rate, and the number of homes pending sale, all of which are good signs.
The fact that artificial intelligence continues to perform well bodes well for the broader tech industry.
- Tensions in the Middle East have eased significantly following the ceasefire in Lebanon.
Given the increase in bearish indicators, we believe that the opposite scenario is a realistic possibility.
Traders who subscribe to this contrarian view can take this opportunity to sell off the highs or add additional safety at the highs.
The Conclusion is as follows.
We believe that the weekly market is showing strength with both the daily market being sensitive to bad news.
As for the upcoming daily markets, it would be wise to remain vigilant as investors seem to be pulling back a bit ahead of Thanksgiving, so the current bull run could quickly turn into a bear market.
However, it might also be wise to pay equal attention to the opposite scenario, as the bull market could continue over the next few days if nothing special happens.
Traders who agree with our forecast may want to consider staying positive, but with an increased margin of safety and waiting patiently for a bottom.
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.