At this point in time we remain positive on the longer term direction of the equity market. By that, we are not expecting this bull market to revert to a full blown bear market. Market pullbacks seem few and far between of late, but are healthy and necessary in order to sustain a longer term trend like the one investors are enjoying since the end financial crises in 2009.
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| From The Blog of HORAN Capital Advisors |
Source: Doug Short
The catalyst for the current market pullback certainly is different. The oversupply in oil and the resultant rapid contraction in oil prices was not a factor on investors minds just a few short months ago. Contributing to the oversupply in oil is the fact oil demand also seems to be on the decline. The question for investors and the market is whether the supply/demand issue is the result of a broader economic slowdown globally. This unanswered question is contributing to the equity market's recent decline.
Oil dominated economies like Russia's have been negatively impacted by this price decline. In order to address the negative impact of the oil price decline and the weakness in the Ruble, yesterday, Russia's central bank increased its key interest rate to 17% from 10.5%. Also, a melt up in long term treasury bond prices is an outcome nearly no one predicted at the beginning of 2014. Even if treasury bond prices turn lower (rates rise) the article referenced in the just noted link indicates bond prices do not experience crashes like stocks do in their downturn.
Oil dominated economies like Russia's have been negatively impacted by this price decline. In order to address the negative impact of the oil price decline and the weakness in the Ruble, yesterday, Russia's central bank increased its key interest rate to 17% from 10.5%. Also, a melt up in long term treasury bond prices is an outcome nearly no one predicted at the beginning of 2014. Even if treasury bond prices turn lower (rates rise) the article referenced in the just noted link indicates bond prices do not experience crashes like stocks do in their downturn.
At HORAN we constant evaluate fundamental data related to company earnings and the economy. Also, we believe reviewing technical data specific to stocks and the economy is a valuable input in investment decisions. Investors should note it is impossible to predict market bottoms to the day. From a technical perspective then, as we look at just the S&P 500 Index, we do believe the market is nearing a bottom, but maybe not quite there as can be seen in the below chart. No single technical indicator is a panacea to the timing of a particular stock purchase or sale. With this said, one indicator investors might find useful the TRIX momentum indicator. This indicator is a momentum oscillator that displays the percent rate of change of a triple exponentially smoothed moving average. The TRIX is designed to filter out insignificant price movements. As shown in the below chart the TRIX experienced a crossover in early December and has yet to reach a low or at least cross below the zero center line. On a weekly basis, the TRIX attempted a cross above the signal line which appears to have failed as can be seen in the chart at this link. Lastly, the below chart also shows the S&P 500 Index closed just below its 150 day moving average. The market will need to reclaim the 150 day M.A. or else the 200 day MA at 1,947 will come into play as the next support level.
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| From The Blog of HORAN Capital Advisors |
Wednesday is a Fed announcement day which will cause potentially more market volatility. Friday is a quadruple witching day and this often results in higher trading volume as well as increased market volatility. As stated earlier, no one technical indicator will indicate a turning point in the market; however, these type of indicators provide some insight into the sentiment around the market and/or particular investments.
The market seems to be hoping for the so-called Santa Claus rally so we will see if the Fed helps make this happen in their Wednesday statement. As Charles Kirk of The Kirk Report noted in his evening strategy report to members,
The market seems to be hoping for the so-called Santa Claus rally so we will see if the Fed helps make this happen in their Wednesday statement. As Charles Kirk of The Kirk Report noted in his evening strategy report to members,
While probabilities are good for a post-Fed, Santa bounce back, the price action has not confirmed that bullish scenario. In addition, we still don't have any bullish reversal setups to work with as the series of lower lows, low highs continues to unfold.
Tomorrow is Fed day and expectations are high that Fed and Janet Yellen will do or say something to save Christmas from the Grinch this year. From a price action perspective, we don’t have any indication of that yet but we will continue to keep our eyes open and trade what we see, not what we expect or want to see instead.
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| From The Blog of HORAN Capital Advisors |
Source: The Kirk Report
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