Market at a Glance 12/18/2014

By: Christopher Mistal

December 18, 2014

Psychological: Festive. Despite last week’s sizable losses, Investor’s Intelligence Advisors Sentiment survey is still showing bulls at 49.5%. Bears number a paltry 14.9%, while the correction camp has swelled to 35.6%. These readings confirm an overall bullish sentiment that still leaves room for upside. Weekly CBOE Put/Call ratio and VIX both spiked last week as well, but both are already heading lower. Typical first-half December weakness is likely over and the market is poised to rally into yearend.

Fundamental: Firm. November’s employment report showed 321,000 net jobs added in the month while the unemployment rate sits at 5.8%. Housing data has cooled to a sustainable rate and housing starts have been above 1 million for three straight months. Falling energy prices will dampen energy company earnings, but will most likely give many consumers extra cash to spend elsewhere. Forward earnings estimates for the S&P 500 are falling, but a year from now (or less), provided oil does stabilize at substantially lower prices than the past few years, energy companies will likely have less weighting in many indices and the impact of their declining earnings will be reduced.

Technical: Consolidating. Until proven differently, DJIA, S&P 500 and NASDAQ have all been merely consolidating the gains from their respective early-November breakouts. It has not been a textbook process as DJIA, S&P 500 and NASDAQ have all closed below their breakout levels and their 50-day moving averages, but they are attempting to reclaim both levels again. Should they fail to find support, then the next key level to watch would be the 200-day moving average, DJIA 16,800, S&P 500 1948 and NASDAQ 4400.

Monetary: 0-0.25%. Everyone would like to know exactly when the Fed will raise interest rates. Unfortunately, this is just not possible. The Fed’s statement on Wednesday went to great pains to avoid any specific timeframe. Simply put, the Fed’s strategy is “wait and see.” It would like employment data and inflation near targets. Employment data is there or at a bare minimum, headed in the correct direction. Inflation, however, is not. Falling energy and other commodity prices are putting downward pressure on inflation. The Fed has spent trillions staving off deflation; I would not anticipate a rate hike until actual, present day inflation exceeds the Fed’s 2% target and future expectations are even higher.

Seasonal: Bullish. January is the third month of the Best Six/Eight, but it is the last of the Best Consecutive Three month span. January is the top month for NASDAQ (since 1971) averaging 2.9%, but it has slipped to sixth for DJIA and fifth for S&P 500 since 1950. The Santa Claus Rally ends on January 5 and the First Five Days early-warning system ends on the 8th. Both indicators provide an early indication of what to expect in 2015. However, we will wait until the official results of the January Barometer on January 30 before tweaking our 2015 Annual Forecast. Alerts will be issued after the close on these dates.