The month of December was one of the most historically bearish months in the history of the stock market as money outflows from mutual and hedge funds set records twice on a weekly basis.
Some of that money went into fixed income instruments such as U.S. Treasuries and gold, which both saw a considerable rise over the last few weeks. Nevertheless, a great deal of money remained on the sidelines heading into last week.
Following the 2018 low made the day after Christmas, U.S. stocks rallied into the end of the year and then reinitiated the rally when 2019 opened.
However, two items may cause concern for bulls and slow down this rally. The first, the current political situation, is a fundamental concern. With the U.S. government shutdown and the presidential administration remaining persistent about certain policies both at home and abroad, the element of political instability is rising.
The second is a technical concern. How much more first-of-the-year money is going to come into the stock market? The market-on-open and market-on-close imbalances have been impressive as money has moved from the sidelines back into stocks; however, at some point, the money could dry up.
Following up on this technical concern, we will look at the chart to see a price history comparison between this current rally and prior rallies since the September breakdown.
The bands outside the price bars are standard deviations of 20-day price history. The specific bands showing today are the first standard deviation, and the orange line on the chart is the nine-day moving average. Notice as marked on the chart that the last two times rallies on the S&P 500 futures that solidly broke above the moving average occurred they failed at the first higher standard deviation. Currently, the E-Mini S&P 500 future (ESH19) is trading just below that price marker.
We think that price could find resistance at these levels and turn lower heading into the middle of the month. Then it would be key for bulls to establish a higher low, which could appropriately come at the first lower deviation before resuming the uptrend.
Beginning with MBA Mortgage Applications and three Fed speakers combined with recent FOMC minutes, the calendar today, shown below, probably won’t be market-moving, but it does add several items of interest.
- MBA Mortgage Applications 7:00 AM ET
- Raphael Bostic Speaks 8:20 AM ET
- Charles Evans Speaks 9:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- Eric Rosengren Speaks 11:30 AM ET
- 10-Yr Note Auction 1:00 PM ET
- FOMC Minutes 2:00 PM ET