It's a funny kind of bear market

By Colin Twiggs
January 4, 2019 7:00 p.m. ET (11:00 a.m. AEDT)

First, please read the Disclaimer.

The US economy continues to show signs of robust good health.

Total hours worked are rising, signaling healthy real GDP growth.

Growth in average hourly wage rates is rising, reflecting a tighter labor market. Underlying inflationary pressures may be rising but the Fed seems comfortable that this is containable.

The Leading Index from the Philadelphia Fed maintains a healthy margin above 1.0% (below 1% is normally a signal that the economy is slowing).

But market volatility remains high, with S&P 500 Volatility (21-day) above 2.0%. A trough above 1% on the next multi-week rally would confirm a bear market — as would an index retracement that respects 2600.

The Nasdaq 100 is undergoing a similar retracement with resistance at 6500.

The primary disturbance is the trade confrontation between the US and China. There is plenty of positive spin from both sides but I expect actual trade negotiations to drag out over several years — if they are successful. If not, even longer.

I have been keeping a close watch on our big five tech stocks as a barometer of how the broader market will be affected. So far the results are mixed.

Apple is most vulnerable, with roughly 25% of projected sales to China. Recent downward revision of their sales outlook warns that Chinese retail sales are falling. AAPL is testing its primary support level at 150.

Facebook and Alphabet are largely unaffected by a Chinese slowdown, but have separate issues with user privacy. Facebook (FB) is in a primary down-trend.

While Alphabet (GOOGL) is testing primary support at 1000.

Amazon (AMZN) is similarly isolated from a Chinese slow-down although there may be a secondary impact on suppliers. Primary support at 1300 is likely to hold.

Microsoft (MSFT) is the strongest performer of the five. Their segment reporting does not provide details of exposure to China but it appears to be a small percentage of total sales.

The outlook for stocks is therefore mixed. Be cautious but try to avoid a bearish mindset, where you only see problems and not the opportunities. Even if China does suffer a serious slowdown we can expect massive stimulus similar to 2008 - 2009, so the impact on developing markets and resources markets may be cushioned.

Best wishes for the New Year.

What beat me was not having brains enough to stick to my own game � that is, to play the market only when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time.

~ Jesse Livermore

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Disclaimer

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.

Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing.

Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice.

Investing and trading involves risk of loss. Past results are not necessarily indicative of future results.

The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material.

Please read the Financial Services Guide.

	It's a funny kind of bear market By Colin Twiggs January 4, 2019 7:00 p.m. ET (11:00 a.m. AEDT) First, please read the Disclaimer. The US economy continues to show signs of robust good health. Total hours worked are rising, signaling healthy real GDP growth. Growth in average hourly wage rates is rising, reflecting a tighter labor market. Underlying inflationary pressures may be rising but the Fed seems comfortable that this is containable. The Leading Index from the Philadelphia Fed maintains a healthy margin above 1.0% (below 1% is normally a signal that the economy is slowing). But market volatility remains high, with S&P 500 Volatility (21-day) above 2.0%. A trough above 1% on the next multi-week rally would confirm a bear market — as would an index retracement that respects 2600. The Nasdaq 100 is undergoing a similar retracement with resistance at 6500. The primary disturbance is the trade confrontation between the US and China. There is plenty of positive spin from both sides but I expect actual trade negotiations to drag out over several years — if they are successful. If not, even longer. I have been keeping a close watch on our big five tech stocks as a barometer of how the broader market will be affected. So far the results are mixed. Apple is most vulnerable, with roughly 25% of projected sales to China. Recent downward revision of their sales outlook warns that Chinese retail sales are falling. AAPL is testing its primary support level at 150. Facebook and Alphabet are largely unaffected by a Chinese slowdown, but have separate issues with user privacy. Facebook (FB) is in a primary down-trend. While Alphabet (GOOGL) is testing primary support at 1000. Amazon (AMZN) is similarly isolated from a Chinese slow-down although there may be a secondary impact on suppliers. Primary support at 1300 is likely to hold. Microsoft (MSFT) is the strongest performer of the five. Their segment reporting does not provide details of exposure to China but it appears to be a small percentage of total sales. The outlook for stocks is therefore mixed. Be cautious but try to avoid a bearish mindset, where you only see problems and not the opportunities. Even if China does suffer a serious slowdown we can expect massive stimulus similar to 2008 - 2009, so the impact on developing markets and resources markets may be cushioned. Best wishes for the New Year. What beat me was not having brains enough to stick to my own game � that is, to play the market only when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. ~ Jesse Livermore Latest ASX 200 Awaiting bear market confirmation. Bear Market Significant divergence - December 2018 Making Rational Decisions If it's flooded, forget it. Portfolio Investing in a volatile market - April 2018 Yield Curve Does the yield curve warn of a recession? - September 2018 Disclaimer 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. Everything contained in this web site, related newsletters, training videos and training courses (collectively referred to as the "Material") has been written for the purpose of teaching analysis, trading and investment techniques. The Material neither purports to be, nor is it intended to be, advice to trade or to invest in any financial instrument, or class of financial instruments, or to use any particular methods of trading or investing. Advice in the Material is provided for the general information of readers and viewers (collectively referred to as "Readers") and does not have regard to any particular person's investment objectives, financial situation or needs. Accordingly, no Reader should act on the basis of any information in the Material without properly considering its applicability to their financial circumstances. If not properly qualified to do this for themselves, Readers should seek professional advice. Investing and trading involves risk of loss. Past results are not necessarily indicative of future results. The decision to invest or trade is for the Reader alone. We expressly disclaim all and any liability to any person, with respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance upon the whole or any part of the Material. Please read the Financial Services Guide.	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