The jury is still out

By Colin Twiggs
December 7, 2018 6:30 p.m. ET (10:30 a.m. AEDT)

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Dow Jones Euro Stoxx 600 broke support at 350, confirming a bear market in Europe. A Trend Index peak below zero warns of strong selling pressure. Expect a decline to test 305/310.

DJ Euro Stoxx 600

The Footsie broke support at 6900, signaling a primary down-trend, while a Trend Index peak below zero warns of selling pressure. Expect a decline, with a target of 6000.

FTSE 100

US markets are high on volatility but low on direction.

Average hourly earnings are rising, warning of further rate hikes from the Fed.

Average Hourly Wage Rates

Growth in NonFarm Payroll x Average Weekly Hours is slowing, warning that real GDP growth is likely to follow.

Real GDP and Estimate

The S&P 500 continues to range between 2600 and 2800. Volatility is rising but does not flag immediate danger. A large trough above 1% extending over at least six to eight weeks, however, would warn of elevated risk. Breach of 2600 would suggest a primary decline. Follow-through below 2550 would confirm.

S&P 500

The Nasdaq 100 shows a W-shaped bottom above primary support at 6500. Declining Money Flow is still above the zero line suggesting that the sell-off is secondary in nature. Breach of 6500 would warn of a primary decline. Follow-through below 6300 would confirm.

Nasdaq 100

Bellwether transport stock Fedex broke support at 210 but entrance of Amazon as a competitor may be affecting the quality of the signal.

Fedex

Quarterly Fedex Express package shipments were rising in August 2018. Statistics for Q2, ending November 30, are due for release on December 18 and I expect will continue to reflect a robust economy.

Fedex

We are being barraged with bad news as the bears try to frighten the herd into a stampede. But the jury is still out. Europe is a worry. Rate hikes will continue but have little immediate impact on earnings. Valuations (P/E multiples) were high but have softened considerably. Bearish consumer sentiment may have some impact on sales. The yield curve is likely to invert but any impact is lagged by at least 12 months. Trade tariffs are a two-edged sword and will necessitate some adjustment. Tech leaders — Facebook, Alphabet, Amazon, Apple, Google and Microsoft — are still more bullish than bearish. If one or two more enter a primary down-trend, then I will accept this is a bear market. Until then, there is a reasonable chance that this blows over.

I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.

~ Jesse Livermore

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Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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