It's been an incredible rally off the Christmas Eve lows. Yet it was an even more incredible decline from the record highs in the last half of 2018.
We looked poised to reclaim all of our late 2018 losses after a sharp rally on Thursday to get the $SPY back over $285 for the first time since early October.
The SP500 traded well over former resistance. Support was getting established.... the breakout to new record highs was close at hand....and then yesterday happened. Clearly the marker wasn't ready yet....
It was a near 2% decline for the SP500. The Nasdaq fell over 2%. Small caps were by far the worst performers with $IWM suffering a near 4% decline!
$IWM now is under channel support from the 2016 post election move as well as that key $150 figure.
It's amazing what one trading session can do to market perspective, at least on a short to medium term basis. What looked like a clean break and hold over former resistance (now support) ended up morphing into a giant head fake, throwing that fresh record highs outlook forward a few months.
Are we now setting up for a test of support on the S&P500 /$SPY?... maybe. It certainly can't be ruled out. However no matter what happens I think later this year we will be at new record highs.
The last time $SPY was over $285 on October 9th, it saw a massive pull back the next day. A pull back that didn't end until months later at $233.24 for the $SPY on Christmas Eve.
Thursday the $SPY climbed into the $285s for the first time since October 9th. The following session the market suffered a nasty decline.
We've had a lot of deja vu in this market since the lows in 2009. Pull backs that feel the same, market patterns that repeat themselves over and over and over. Excuses to sell that never go away....
Yesterdays excuses :
and of course those are just the two headline excuses. The other excuses remain in play depending on the day and the news flow.
We have Impeachment, Greece, Italy, Government shutdowns, political drama, Nuclear warhead tests, Ebola, the list goes on and on.
I think yesterdays excuses are actually reasons why later on this year the market will be back at record highs. I know... it sounds crazy today, just like it did months into the bull market in 2009 when the market was rallying despite gloomy earnings and data. Or even a few months when this rally of the Christmas Eve lows was in its infancy.
Everyone likes to compare today to yesteryear - to previous times when growth was slowing and possible recessions were near.
But guess what? IT IS DIFFERENT THIS TIME. Why?
When the market collapsed in 2000, were the Central Banks buying ETF's and Corporate bonds? Was the ECB buying Junk Bonds? Was the Swiss long Billions of $$$ worth of $GOOGL, $AAPL, and other technology stocks? The financial crisis in 2008 allowed the Central Banks to open the Pandoras box. Period. End of Sentence.
It is different this time, and the financial markets reflect the world we live in. A participation trophy for all. Failure is not an option (unless your Lehman).
The market took to the streets in October of 2018. With signs, bull horns, and bright active wear, the marchers demanded an end to rate hikes. And that is what they got.
(insert pacifier pic here)
This past week the FED not only declared an end to rate hikes for 2019, the door even opened for a possible rate cut... or two!!
In the last 6 months, the Fed has moved from projecting 4 more rate hikes in 2019-20 (3 in 2019, 1 in 2020) to 1 more rate hike (0 in 2019, 1 in 2020).
Market is still not buying it, now pricing in 2 rate CUTS by end of 2020. pic.twitter.com/XHOkKBxiu0
— Charlie Bilello (@charliebilello) March 23, 2019
And don't think for a second the FED and Central Banks don't care about the stock market. The stock market matters.
Sentiment matters. Perception matters. A stock market circling down the drain does not embolden spenders, investment, and borrowing, which all comes down to availability of capital. Money. And the cost of that capital. No interest rate hikes for 2019? Possible two cuts by the end of 2020? What's that going to do for the economy? More importantly how is that going to help spending, investment, and borrowing?
It is not a coincidence that the stock markets record highs have coincided with record high debt levels. Low interest rates will only continue that trend. And if the cost of capital starts to send the stock market the wrong way, rest assured the Central Banks will step in to make sure access to capital remains cheap.
The headlines don't call consecutive down days for the market a losing streak for nothing. In this day in age no one can lose, even if you are a loser. Perhaps this market is a loser with unsustainable debt levels. Guess what? It's getting a trophy. Whether you like it or not.