Date: January 7, 2019

My Oh My. That was Quick

In my last blog post, Apple had pre-announced less than expected earnings news and stocks were looking sharply lower on Thursday morning. Besides commenting that it was probably a day to just sit back and watch, I also offered that historically, news like this from Apple usually comes near stock market lows.Thursday had an unusually dour feel to it. It seemed like the parade of pundits were all talking about an immediate retest of the Christmas week lows and that investors should be out buying bottled water and canned goods. My Twitter feed was full of Treasury bond bulls taking victory laps and calls for a much worse bear trend.

VOILA! Thursday ended up being a sweet bear trap.

There were three very good pieces of good news on Friday. First, overnight, the People’s Bank of China lowered reserve requirements which effectively puts more into the economy, a sort of stimulus. That got pre-market trading to indicate a much higher opening for the U.S. Then the December employment report was yet another blockbuster! 312,000 new jobs created. More people back in the workforce. Wages growth hit 3% again. These are just not recessionary numbers, at least not yet. Finally, and perhaps most importantly, Powell, Yellen and Bernanke all appeared on a panel at the Atlanta Economics Club where Powell reversed course very sharply from just a few weeks ago. It really is amazing what a 20% decline in stocks will do a hawkish Fed chair.

Boy did stocks respond, for the second time in two weeks.

While we didn’t have another 1000 point gain, stocks did soar more than 3% and again we saw 95% of the volume occur in stocks that were up. That is usually a very goo sign for the intermediate-term. With sentiment so negatively extreme, there is a good backdrop for the bulls over the next 3 to 6 months, even if that means a revisit to the Christmas week lows this quarter. I thought it was a very good sign that high yield (junk) bonds saw a lot of love and interest. That hasn’t happened in a long while.

The past two weeks have been good steps, but there will be other tests, likely at higher prices for the bulls to pass. I want to see the VIX close under 16 and the number of stocks in uptrends climb back above 60%.


Paul Schatz, President, Heritage Capital