1. Moving the markets

The November Fed minutes revealed that a rate hike was on the horizon, but the path from then on forward was uncertain and that “monetary policy in 2019 was not on a pre-set course.” Additionally, it was made clear that the expectation of 3 hikes was “flexible” and could change, if the economic picture shifted dramatically.

Nothing new there, but the markets took it as less uncertainty than we had prior to yesterday’s announcement, and see-sawed around the unchanged line all day before closing slightly in the red.

Still, the indexes have now recovered to where they are hovering at critical levels with their key moving averages. That simply means that these levels could serve as resistance points or, if broken solidly, as a base for new advances and a break back into bullish territory.

Headline news will likely make that decision, as words like G-20, Fed, Trump and Trade are the ones that will affect market direction soon. Interest rates took a dive with the 10-year bond yield dropping below the 3% level for the first time since the middle of September, before rallying off that point to close at 3.03%. That is an amazing collapse in yields when considering that earlier this month we were at 3.24%.

This makes me wonder if economic conditions are as solid as advertised, because if they were, yields would continue to rise and not drop. Consider, we have a plunge in pending home sales to the weakest in 5 years, jobless claims soaring to 8-month highs, while some car manufacturers are closing plants and laying off workers. These are signs of weakening conditions that may need an assist from the Fed in form of lower rates. Is that why the Fed showed a softer “dovish” side yesterday?

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1. Moving the markets

Today, only one topic mattered and that was what Fed chief had to say about interest rates. His comment that they are “just below where they won’t stimulate the economy” was enough to get the buying spree going with the major indexes scoring solidly, as the chart above shows.

The Wall Street crowd interpreted this not only as a softening tone (dovish) regarding future rate hikes but also that we may be close to the “neutral” rate, a level where its alleged effect on economic growth would be neither positive nor negative. These words appear to be a turnaround from comments made in October, when Powell opined that the “central bank may go past neutral, but we’re a long way from neutral at this point, probably.”

That indeed appears to be a change of heart, still, Powell did not mention anything about the expected rate hike at their next meeting in December. Some analysts argued that Powell was not as dovish as was interpreted, as he did not mention any expectations for slower growth or weaker inflation.

In the end, the US Dollar dumped on Powell’s apparent flip flop, but caution is warranted, as one analyst noted:

“The markets are overreacting to what Powell said, perhaps partly because some of the newswire headlines don’t quite accurately convey the nuance of what he said…”

With today’s advance, the S&P has now wiped out its huge Thanksgiving week losses, but it’s too early to tell if this is just one big head fake, especially with China’s trade negotiations on deck in a few days. Again, if these turn out to be positive, our Domestic TTI (section 3) may very well be pushed to the bullish side of its trend line getting us back in the market.

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1. Moving the markets

After last week’s drubbing, it came as no surprise that a rebound was in order. Closely watched was the retail sector with analysts trying to gain some perspective as to the shopping traffic leading into the Holiday season. The picture was mixed, and not conclusive, as in-story traffic fell as much as 9% compared to last year’s Black Friday. However, internet sales made up for it by rising 26.4% year over year.

That was good enough to get a rally going, which was further supported by an easing of the stand-off between Italy and the EU regarding the budget deficit. That helped European markets to surge with the effects spilling over into the US.

Today looked like an oversold bounce, along with the biggest short-squeeze in some 4 weeks, giving the bulls finally as say in the outcome of this session. On the other hand, GM’s news of closing several plants and laying off over 14,000 people should have dampened the animal spirits but did not as GM’s stock was halted but soared 7%. Go figure… At the same time, the other American icon, GE, tumbled to cycle lows, but managed to cut intra-day losses.

On deck is the G-20 summit meeting this coming weekend where for sure Trump and his Chinese counterpart Xi will meet and create a flurry of headline news about the hottest topic, namely trade tensions. Any outcome, that can be confirmed as positive is sure to ignite the markets and may create the much talked about year-end rally.

Our Trend Tracking Indexes (TTIs) improved but remain on the bearish side of their respective trend lines for the time being. I am sure, the roller coaster ride is bound to continue, but should the path shift in favor of the bulls, we will jump back in at that time.

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