The Market Is Turning

Written by Dennis Slothower
Posted March 30, 2018 at 8:00PM

Talk about choppy sideways trading. The S&P 500 crossed the unchanged line at least 53 times in Wednesday's trading session, and the market ended the short week right around where it started.

Perhaps some of the volatility could be attributed to many people taking off early for the coming Easter weekend. The bond market closed early Thursday, and all markets were closed on Good Friday, giving traders a long holiday weekend.

Traders also shrugged off an upward revision to fourth quarter 2017 GDP, which moved up to overall growth of 2.9% from the earlier estimate of 2.5%.

With this revision, the fourth quarter is not out of line with the record 3.2% posted for the third quarter, painting a more positive picture for the end of 2017.

Perhaps this “good news” of growth improvement exceeding expectations only means that the hawkish Federal Reserve now has even more ammunition to keep its quantitative tightening plans on track, removing more and more liquidity from the equity market.

Trump Turns on Amazon

Amazon digressed from the broader market choppiness on Wednesday to drop 4.38%, and has traded flat since, after President Trump reportedly discussed “going after” the online retail giant.

Just as the President campaigned against unfair trade deals — which has led to tariffs imposed on many imported products — it appears that Amazon has also reached that “unfair” level of monopoly over retail. Trump says he is worried about this one company crushing too many small Mom-and-Pop stores around the country.

We often advise that the FAANG stocks have the ability to set trends for stock valuations and economic conditions.

With Facebook, Google, and Apple in strong downtrends — i.e. bear market territory — only Netflix and Amazon were holding their own.

But with traders reacting negatively to the slightest of rumors that the government is concerned about the monopolistic nature of Amazon, the FAANG group of stocks is now leading the entire broader market into bear market territory.

Facebook is down 21.5% from its high, Apple is down 9.2% from its high, Amazon is down 11.5% from its high, Netflix is down 14.4% from its high, and Google is down 15.4% from its high.

A bear market is when stocks drop 15-20%. The FAANG group of stocks is getting close.

Finally, take a look at what “Smart Money” has been doing since the late-January sell off:

Not a pretty sight!

NYSE Long-Term Sell Signal

While the media hype is that the market still remains near 30% up since the 2016 elections, they ignore the potential damage staring them straight in the eyes.

The major indexes are about to create a major long-term sell signal, one that could accelerate selling into bear market levels.

The 10-month moving average has historically been breached right before every bear market, and the NYSE is now sitting on the cusp of that sell signal with the S&P 500 only a few points away.

However, the caveat is that the data is monthly, and we have several trading days left in a very volatile market. Look at where the NYSE is now.

If you look to the far left on this chart you will see where this long-term signal caught the 2008 bear market in late 2007, well before the major collapse seen in late 2008.

If we see similar selling to end this week as we saw today, it is likely that there will be major month-end sell signals established, which could trigger greater unloading after the tax reporting deadline of April 17.

Consumer Sentiment Drops

The celebration party following the hoopla over the tax cuts passed by Congress and signed by President Trump may be over. The Conference Board reported this week that consumer confidence unexpectedly fell in March, surprising economists who had been predicting the index to rise again.

The drop was pretty much across the board, as the index dipped to 127.7 versus expectations of 131.0.

Consumers' assessment of current conditions slipped to 159.9 from 161.2 in February. The percentage for “good business conditions” rose to 37.9% from 36.5%, but “bad business conditions” also climbed to 13.4% from 11.3%.

The Expectations Index fell to 106.2 in March from 109.2 in February, as the percentage of consumers anticipating business conditions to improve over the next six months dropped to 23% from 25%, and the percentage expecting conditions to worsen ticked up to 9.8% from 9.4%.

Consumers' outlook for the job market was also less positive. Those expecting more jobs in the months ahead slid to 19.1% from 22.4%, while those anticipating fewer jobs inched up to 12.6% from 12.4%.

To your wealth,

Dennis Slothower Signature

Dennis Slothower
Editor, Stealth Stocks Daily Alert and Wall Street's Underground Profits

Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club, Stealth Stocks Daily Alert, and Wall Street's Underground Profits. For more about Dennis, check out his editor page.

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