Like almost anything else, the price of a given share of stock is worth precisely what it is believed to be – plus or minus what traders might believe the price will be in the future. Ah, the conundrum of markets.

Anyone who was not spending the latter part of December under a rock no doubt noticed that the bears had hijacked the Christmas party and were having their way with whomever they pleased. Trading floors were dominated by the ursine creatures gleefully filling the air not with holiday cheer but instead with cries of ‘We told you so!’

What had the rest of us concerned was the question of, underneath this bacchanalia; did the bears actually have factual knowledge to indicate a market correction of this size?

Well, as we have mentioned in a few recent e-letters, there were (and are) a few cautionary elements that must be acknowledged and allowed for. On the other hand, many of the problem areas are coins with two sides. Before I get busted for too many metaphors in one paragraph, let me point to some examples.

First, there was the Fed — which was maybe getting ahead of itself as 2018 came to a close. Other side of that coin: it has since reconsidered its planned number of rate hikes for 2019. Next, November job adds looked a bit weak but December hit a home run by nearly doubling analyst’s expectations. The flattening and then inverting yield curve did neither. Then we had the slowing of global growth which was bringing fear of recession through contagion. Early evidence of that problem was investments in emerging markets were drying up faster than Elizabeth Warren’s chances of a successful presidential run. But, turn the coin and we see that a weakening dollar – plus a Brazilian election and a few other things – has rejuvenated that issue. Still, concerns remain over the government shutdown, Trump’s wall, the Chinese tariff situation and Brexit: ‘To be or not to be’.

So, we do in actual fact have a handful of what we might call ‘uncertainty generators’.  Uncertainty is what markets hate most – and for good reason. Bad news can be dealt with but uncertainty reduces strategic planning to a guessing game.

Our crystal ball is still in the shop for its annual tune-up but our sense is that we are more likely than not to see solutions to the top set of issues and that this will happen sooner than later.

Market Minute – Fascinating!

Even after watching markets’ actions since the early 1970’s I continue to find their daily bumps and twitches fascinating. In particular, when any major market moves too far too fast, there is always (sooner or later) a countermove. After December’s bruising, it should surprise no one that there is a current move counter to December’s direction. 

Since Christmas eve, markets have trended up at an annualized rate of almost 900% – that’s not a typo. In other words, IF that rate of advance were to be sustained throughout the entire year, markets investments would increase nine times within a year. I don’t believe anyone could consider that a realistic possibility. With that in mind, the next most expected action will be a pullback of some sort. Will it be a minor pullback — just slightly impeding the current (very) short-term bounce — or will we see markets retreat and re-test the December lows? 

I don’t know, and in fact no one knows. Markets trend higher by showing us higher highs and higher lows, and they trend lower by showing us lower highs and lower lows. It helps to remember that bounces UP in a bear market environment can and have exceeded 15%, only to be soon followed by larger market drops.

So, for now we must watch market actions.

The next (upcoming) pullback will show us a low value to compare with Dec. 24th. If that value is higher than the 24th, it will be encouraging for the Bulls, and they will hope to see an upcoming high value that is higher than yesterday’s close. On the other hand, should markets choose to put in a lower value than Dec. 24th, the Bears will be encouraged as it will indicate that the current downtrend has further to run.   

It’s too soon to make a judgement based on a trend that is ten days old. If the recent decline is now over, as some pundits are conjecturing, it has indeed been a baby bear, and only a small taste of what the next larger bear will bring.

No one knows what 2019 will bring, but charts will help us avoid the 30-40% or larger drops in the next ‘real’ bear market, whether it is soon or later. Bear market rallies can be very strong- like the current one – but most of them burn out quickly and are followed by stronger down-legs.  It is difficult and perhaps impossible to determine the difference. And that is the market environment in which we find ourselves at this time. 

 

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
www.denkinvest.com

This weekly article reflects news, commentary, opinions, viewpoints, analyses and other information developed by Denk Strategic Wealth Partners and/or select but unaffiliated third parties. DSWP provides Market Information for illustrative and informational purposes only. If you wish to receive this weekly commentary by email please contact us at 602-252-8700 or by e-mail at lindaw[@]denkinvest.com. If you are receiving this commentary via email and would prefer not to please let us know either by email or phone.

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