It seems Santa is not coming to town this year. We received economic data that were better than expected, and the market sold off on fear that FED may tighten more because the economy is good. It is silly. On the one hand, the investors are panicking on fear of the US economy going into recession, and on the other hand, they are panicking when the economy is good and the FED may tighten and spark a recession. That’s how fickle the market is. So we sold off because the economy was too good. We would probably sell off if the economy weren’t too good, either.

However, the market acted as expected. We sold off in the morning, true a bit more than I expected, but then rallied towards the end of the trading session erasing half of the losses. I expected to erase all losses, but I do not have a crystal ball, and the predictions are not the exact chart of what will happen.

Tomorrow, I expect the market to be muted or even trying to recover today’s losses but eventually lose it by the end of the day and sell off before the weekend. So, expect a down day again.

The market managed to get above the support that it undercut this morning. That could be perceived as a good sign, but I am skeptical and do not think it will hold tomorrow. I would be surprised if it did, but it may happen. Anything can happen.

Overall, I think we are undergoing an exhaustion process. The level of bearishness out there is so high that it justifies becoming bullish. For example, Tesla (TSLA) is so beaten up that I think the stock will soon see some bounce. And the market may see the same thing.

I anticipate markets will go up and through the big downtrend line. There are multiple reasons why and I won’t go into full details, but here are some key points:

#1- Market Sentiment. Almost every human I know is bearish on markets for the first quarter of 2023. The equity put/call ratio hit extremes not seen since 2008. That suggests massive put buying, which is counterintuitively bullish (institutions own hedges, so they are less inclined to sell).

#2- Fundamentals. The drop in earnings estimates has been in place for all of 2022. The most vulnerable groups based on valuation (e.g., high-flying tech stocks) have already come down 70%+ in most names. So, I think the slowdown is priced in and actually set up for some + surprises.

#3- Technicals. The downtrend line (see chart above) is so obvious to everyone. It becomes an obvious place for bearish (short sellers) to trade against. The stop-losses above that downtrend line are begging to be triggered on the move upward.

#4- U.S. Dollar has been moving sharply lower. Just as it was a major headwind for stocks previously, it should act as a tailwind for a trade higher in stocks. Also, Bonds have reversed sharply on the massive Yen drop. Stocks being up on that news is actually very impressive.

#5- My proprietary Bollinger band system has many buys and zero short setups. Suggesting that the market as a whole is on a big buy signal (in fact, the Dow Jones Industrials are on a b-band buy signal, use the symbol DIA if trading it).

Long story short, I have a lot of reasons to be a buyer. It feels very uncomfortable to be a buyer, which makes it probably the right thing to do.

Happy Holidays friends!
 

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The market continued higher, as expected. In the morning, we had some sideways moves and rallied toward the end of the day (the media told us that the rally was thanks to Nike… maybe). But we saw a few other technical coincidences that convinced me that this rally was not just because of Nike. The market hit a few significant supports and managed to bounce from them. I think these levels were significant, so if the market sustains the bounce, we will see a rally. Let’s review them one by one. The first level of support happened at the 50% Fibonacci retracement. This was developing the entire week, and we just needed confirmation. That happened today:

We saw the same bounce happening at the Ichimoku cloud. Also, almost perfect bounce. The price managed to stay above the cloud and bounce off of the support. The only concerning thing could be the blue line trying to cross the red line to the downside, but due to today’s price action, we may see the lines diverge again:

Our trend forecasting is a mixed bag, partially pointing to the downside, while another long-term indicator points to the upside. The trend shows a possible retreat from today’s gains but should recover them afterward. So, I expect the market to be flat tomorrow.

Again, do not take it as a prediction of what will happen. The market may react completely differently. I use math to perform trend forecasting based on past data. Trend forecasting may work very well in a solid environment within a given trend, but we currently do not have it. We have an erratic, choppy, and sentiment-driven market. And in such an environment, forecasting may not work well. Other tools must be used to confirm the trend (which is again difficult in today’s market).
 

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The market performed as expected today, although not exactly as per the script. Most of the selling happened overnight. The market opened with a down gap but then rallied since then. The rally was muted, however. It was a bit surprising to me since we had a newsless environment and negative sentiment. As we can see, the market, however, bounced at 50% fib retracement, and that seems to be working as a support.

Tomorrow, I expect a choppy market with a bit more upside at the end of the trading session:

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Again, do not take it as a prediction of what will happen. The market may react completely differently. I use math to perform trend forecasting based on past data. Trend forecasting may work very well in a solid environment within a given trend, but we currently do not have it. We have an erratic, choppy, and sentiment-driven market. And in such an environment, forecasting may not work well. Other tools must be used to confirm the trend (which is again difficult in today’s market).
 

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This market is completely news-driven, better say sentiment-driven, because as of now, there are no news but negative sentiment and fear about a recession which may not even come at all. After some initial positive upward movement in the morning, the market quickly turned negative and ended down 0.9%. And the future do not look any better. All our indicators are pointing down, so tomorrow, I expect a down day.

My trend forecast also indicates a gloomy day tomorrow. We probably open down with a gap and then go lower until about noon and have an end of the day rally:

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Of course, the forecast is just that, not a prediction. Other indicators must confirm it, and any news during the day may turn the market around, and no prediction can capture it. I do not have a crystal ball, I just use math. And so far, all indicators confirm the trend forecast. There is no news planned to come out that would shake the market (Housing data coming out and they should show a decline). That means I do not expect any catalyst that would change the forecasted trend. Expect further selling tomorrow.
 

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The market continued its sell-off (and unfortunately, it will continue). The investors are now looking at the FED’s damage to the economy. If retail sales were a miss, you would think that it was good news. The FED may finally pivot. But it is no longer the narrative. It is now evidence that the FED is damaging the economy, and with their forecast of more damage to come, the recession is now more likely than it was just two weeks ago. Everybody, but FED, understands that the FED uses old, outdated, and lagging data to set their policy, and now they are likely overtightening the financial markets, and when they finally realize what damage they would have done, it would be too late to fix it. And despite cutting the rates, the economy will continue sliding lower into a recession. As much as I hate it, I just got rid of all growth stocks and high PE stocks and wait this storm out before buying back.

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So we had a large failure and kneejerk reaction to yesterday’s Powell’s speech, supposedly to retail reports miss and who knows what else. At some point, the market was down 3%. What happened to JP Morgan’s prediction of a large rally if the CPI comes back lower? Now the market sits at the support, but I think this support will not hold. We may bounce tomorrow and recover all losses from today but on Monday we will see a renewed selling. So there are two options, one, this selling will continue tomorrow, and two, a bounce with Monday’s blood bath. In both scenarios, the market is heading lower.

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