Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and the Nasdaq continue to trade constructively above 200-DMA support, with three and two distribution days, respectively
Symbol: YETI
WON Global View
The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq staged upside reversals yesterday, finding support at their respective 10-DMA to close relatively flat for a second straight session. Distribution remains low at two days on the S&P 500 and one on the Nasdaq.
US Focus
Te U.S. market is in a Confrmed Uptrend. Te S&P 500 and Nasdaq continue to trade constructively above their respective 200-DMAs with a low number of distribution days. 2,800 remains near-term resistance on the S&P 500, while the next level of resistance on the Nasdaq is 7,573. Breadth remains strong with nine of 11 O’Neil sectors trading above their respective 200- DMAs. Since the January 4 follow-through day, Transportation, Consumer Cyclical, Technology and Capital Equipment have all rallied more than 18%. Te majority of leading ideas also continue to act well, making higher highs or consolidating above individual support levels. We will need to see a severe price break in the major averages or a clustering of distribution to change our current positive outlook on the general market. We continue to recommend buying quality ideas as they emerge from consolidation, but also recommend to not chase ideas that have become too far extended from an ideal pivot point.
WON Global View
The U.S. market is in a Confirmed Uptrend. The S&P 500 cleared above its 200-DMA last week and now faces resistance at ~2,800. The Nasdaq regained its 200-DMA on Friday, with the next level of resistance at ~7,500. Overall price volume action remains constructive as both indices continue to grind higher with a low number of distribution days. Further, multiple sectors are participating in the rally with eight of 11 now above their respective 200-DMA. Ideas continue to act well, with leadership across numerous growth-oriented industry groups. We will change our current positive outlook on the general market should we begin to see technical damage to leading ideas combined with a pickup in distribution.
Market View
Technically, U.S. markets have made great progress since the December 24, 2018 low. All major indices are in
a Confirmed Uptrend and have risen above their 50-DMA. The rally has been broad-based, with all 11 sectors
trading above their 50-DMA. Headwinds remain in the form of overhead supply (6–10% or more off highs in
most cases), some downward-trending moving averages, and 50-DMA that are nearly all still below 200-DMA.
Given the strength of the rally, we have several observations.
First, an 18% rally on the DJIA since December lows, with no 5% pullback, is higher than the average leg
of 14% (11% median) in a bull market, dating back to 1900. One leg is a 5%+ move in either
direction. A leg of a 15% gain immediately following a 15% loss, which we just had, is very rare,
occurring only four times prior to the current leg.
We expect volatility to resume, given the continuing macro uncertainty such as slowing European
economies, lower growth in China, continuing trade tensions between the U.S. and China, partisan
political conflict in the U.S., and slowing U.S. corporate profits. As a result, it seems unlikely that 2019
gains will continue without any counter-trend down legs.
In addition, while Q1 is the second-best quarter for gains, Q2 and Q3 are usually much weaker. In fact,
for the S&P 500, Q2 is normally up only +2% while Q3 is flat. In the third year of a presidential cycle,
those figures are +5.5% and -1.0%, respectively, but we wonder if January and February’s performance
has pulled forward some of the gains for the year.
While we are not preempting the move and will wait for price action to dictate a change in our bullish stance, it
would be historically in line for the markets to pause or retract some of their recent gains after earnings season.
We are already 49 days into the current rally. If there is a pullback from current levels, it would not be abnormal
to see a median move downward of roughly 6%. If the market did experience a typical “third-leg” pullback, it
would put the S&P 500 at approximately 2,600, slightly below its 50-DMA.
WON Global View
An 18% rally on the DJIA since December lows, with no 5% pullback, is higher than the 14% average (11% median) leg in a bull market, dating back to 1900. One leg is a 5%+ move in either direction.
A leg of 15% gain immediately following a 15% loss is very rare, occurring only four times prior to the current leg. A ~6% pullback is typical following these v-shaped recoveries.
Earnings estimates continue to come down, with GAAP S&P 500 earnings now expected to decline 2% in Q1 2019.
While the seasonal setup remains strong (Q1 in the third year of a presidency and strong January gains), macro uncertainty combined with the above average rally from lows could soon test our current bullish stance.
US Focus
Te U.S. market is in a Confirmed Uptrend. Te S&P 500 cleared above its 200-DMA this week and now faces resistance at ~2,800. Te Nasdaq also closed above its 200-DMA on Friday and now faces resistance at ~7,500. Distribution remains low with multiple sectors participating in this rally. Ideas continue to act well, with leadership across numerous growth-oriented industry groups. We will change our current positive outlook on the general market should we begin to see technical damage to leading ideas, combined with a pickup in distribution.
Strategy View
Key points from the report:
- An 18% rally on the DJIA since December lows with no 5% pullback is above the 14% average (11% median) leg in a bull market dating back to 1900. One leg is a 5%+ move in either direction.
- A leg of a 15% gain immediately following a 15% loss is very rare, occurring only four times prior to the current leg. A ~6% pullback is typical following these v-shaped recoveries.
WON Global View
The U.S. market is in a Confirmed Uptrend. The S&P 500 cleared above its 200-DMA, while the Nasdaq touched that level and then reversed to close at the lows of the session, albeit in light volume. Look for the major averages to avoid distribution and for leading ideas to hold above individual support levels should the major averages pull back off current levels.
WON Global View
The U.S. market is in a Confirmed Uptrend. The S&P 500 is now touching resistance at its 200-DMA, while the Nasdaq is trading 60bps below that level. Six of 11 O’Neil sectors are now trading above their respective 200-DMA, with Capital Equipment, Technology, and Transportation regaining that level yesterday. Breakouts continue to increase, and leading ideas remain healthy. We maintain our positive view on the general market.
