Commentary: Paul Ebeling on Wall Street

Commentary: Paul Ebeling on Wall Street

$DIA, $SPY, $QQQ, $RUTX, $VXX

FLASH: The longest Bull market in history has relied on low interest rates, and weakness in jobs. So, if everyone else is worried about stocks, capitalize on the fear and make a a lot of money as the market climes the wall of worry, fear is your friend, and you saw it in action last week.

So, forget earnings, the savvy participants are looking to the future, as interest are pushed to near Zero, there is only 1 place for money: Stocks.

Many analysts do not expect Q-2 earnings season to a party, they anticipate that earnings growth will be essentially flat compared to last year, just as it was in Q-1. There is hope, but that optimism depends on guidance from companies in coming weeks.

The risk is that the company guidance ends up being negative. It is not just about the actual earnings, and executives have worked hard to manage expectations in advance of their official announcements.

The way the earnings game is played, the companies guide the analysts low. Conservative estimates pave the way for an earnings beat.

Companies have been particularly circumspect this year because of inevitable comparisons to Y 2018, when super earnings were boosted by US tax cuts.

Watching the US stock market 1 would not know earnings are tought to be weak. A rate cut from the Fed this month has sent US stocks to record highs, even as tariffs on hundreds of billions of dollars worth of goods from United States and China remain in place.

The positive impact of lower borrowing costs on profits will outweigh the negative impact of tariffs.

Near term, the biggest concern for markets is insight on what is next. So, pay attention.

Remember, it is your money so, your responsibility, pay attention.

The Bulls Vs The Bears

Once again, is a Wall Street adage: The market takes the stairs up and the elevator down. That is a way of saying that the market tends to drop faster than it rises.

As we saw last week, The Bulls are on the up escalator and The Bears are on the down stairs.

Sentiment: Individual investor Bullish equity sentiment data is indicating a cautious investor. This week’s Sentiment Survey by the American Association of Individual Investors (AAII) reports Bullish investor sentiment at 33.6%. The less volatile 8-period MA of the Bullish sentiment is reported at 27.9% and more than 1 standard deviation below its long run average. Market Tops have not been associated with this low of a level in Bullish equity sentiment.

According to AAII sentiment data, there have been more Bears than Bulls for the 9th week running. Such streaks are Bullish for the S&P 3 months later. The only 2 Bearish cases occurred in July and October 2008, when the economy was deep in a recession and the stock market had already collapsed. That is a very different environment from today.

Note: YTD the S&P 500 Index is up 21.5% on a total return basis with a large part of the return a recovery from the 13.5% decliner in Q-4 of Y 2018.

And, since the end of January 2018, the S&P 500 Index is up only 4.9% over the last 1.5 yrs. It would not be a surprise for the market to digest its recent gains, and with Q-2 earnings season set to begin this week, there is the potential for an increase in market volatility.

That said, few participants seem to have expected the market action that has occurred so far this year and further Northside may result from buyers fearing they will miss out on an expanding rally in 2-H of the year, and come off of the sidelines.

Support and Resistance

Analysis for SPY is Bullish across the board, support is strong at 295.54 and the resistance is very lite at 305.85, SPY finished at 300.65 Friday in NY.

The US leading economic indicators are good in here, which suggests that a recession is not in sight.

HeffX-LTN’s overall technical outlook for Wall Street’s major US stock market from the support and resistance perspective is Bullish to Very Bullish in here, as all of our Key indicators are Very Bullish

Have a terrific week

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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