foxex: FALLING!

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Friday's Headlines

1. Falling!

2. Chart of the Day: S&P 500 forms dreaded 'Death Cross'

Markets Close

Dow
24,388.95 -2.24%

S&P
2,633.08 -2.33%

Nasdaq
6,969.25 -3.05%

VIX
23.23 +9.63%

INV Anxiety Index
100.49 Neutral

US 10-Yr Yield
2.85 -0.90%

(Pictured above: money, falling into the void)

If you are reading this right now, take a moment to breathe.

You are going to be OK. I know... We've taken a beating this week as the broader market has lost more than 4 percent of its value. Gains for the year have now been erased, again.

All news is bad news, even the news no one cares about. Case in point, the November Jobs Report came out this morning, indicating that 155,000 non-farm jobs were added last month. That was less than forecast and a sign of economic weakness. The knee-jerk reaction was that it would give the Federal Reserve another reason not to raise interest rates as it had planned to throughout 2019. Markets took off at the open, and then sank about an hour later.

"The sellers are in control", as one financial blogger put it earlier this week.

Here's where we stand for the week and the year, with 13 trading days left in the year.

We talk a lot about the major markets since they are the biggest, but we shouldn't forget about the broader universe of stocks and how they are doing.

The Russell 2000 is a pretty good representation of that, and it's having a tough time, falling to its lowest levels of the year.

Thanks to Bespoke for this chart.

The Russell is down 15 percent from its highs earlier this year which puts it well into a correction, with the potential to head lower. Of course, not all the stocks are declining, but at least half of them are. Notice how the 50 day moving average and the 200 day moving average crossed a few weeks ago. That's what technical analysts like James call a Death Cross Pattern. Those chartered market technicians (CMTs) can get pretty dramatic with their pattern names, but this is more tragic than dramatic. It gets worse. The S&P 500 also crossed that threshold yesterday. James will explain in our chart of the day, below.

Why it Matters:

We pay attention to technical indicators because they take the emotion and the noise out of investing. Its pure price action that doesn't care about twitter, financial pundits on television, or the 'He said/Xi said' back and forth between Pennsylvania Ave. and Beijing. As Jay-Z likes to say, "Men lie, women lie, numbers don't." The numbers are pretty clear right now and they are not telling the story of a market poised to rebound anytime soon. Could it happen? Of course. But the trend we have seen is that big rallies are sold into the next day or even intraday, followed by painful selloffs in subsequent days. Lower highs, and lower lows. From 2015 to 2017 we experienced a total of 11 days of 2 percent or more declines. In 2018, we've already had 11 such days. Mercy!

Trying to time the bottom or buy into rallies is futile. This needs to play out.

What's Next:

The weekend, praise (whatever/whoever you praise)! The Federal Open Market Committee (FOMC) will meet on interest rates next week on December 11th and 12th. The probability that it will raise interest rates at least a quarter percent is still very high. According to the CME's Fed Watch tool, which tracks such things, there is a 75 percent chance that will happen. That's down from 80 percent a week ago, but it's still likely and expected. It's what the Fed says about future rate hikes that investors will focus on. That's what matters.

Is the economy cooling faster than we thought? Are lower oil and gas prices helping tame inflation? Does the November jobs report foretell a worrisome trend in the jobs market? The one thing that stood out from the November report was that 4.8 million people working part-time actually want full-time work. That's up 423,000 since August.

It's data points like these that start to chip away at the narrative of the strength of the U.S. economy. The stock market tries to predict the future profitability of the companies within it. If the economic data points are pointing to future weakness, it will impact company profitability. I wrote yesterday that the economy and the stock market are not the same. They aren't...but this is one of the ways they are connected.

Hug your loved ones and enjoy the weekend.

Some good reading when you have the time:

Oldest book on Dutch Stock Exchange to Sell for up to $300,000

I'm not sure if it covers Tulip Mania, but seeing as it was published in 1688 and tulip trading was at its height in the 1630s, and the book's title is "Confusion of Confusions", I'd say it's certainly possible.

Lessons from the Financial Crisis, 10 Years Later

Not a bad moment to brush up on recession lessons. Just saying.

Buffett is Eyeing an Indian Bank

The more you know.

American Entrepreneurs who Flocked to China are Heading Home(WSJ)

Read this if you want to understand the challenges facing U.S. businesses and entrepreneurs in China.

It happened. Not since 2015 has such a major bearish event occurred (in the eyes of technical analysts and traders).

A 'Death Cross' is a chart pattern usually defined by technical analysis as the crossing of a shorter-term moving average below a longer-term moving average. Typically, the most common moving averages used in this pattern are the 50-day and 200-day moving averages. Meaning that, over the last 50 days, the S&P has been trading lower, on average, than the market has been trading for the past 200 days on average.

The Death Cross rarely occurs on major equity indexes like the S&P 500 – the index has formed only a small handful of such patterns in the past decade. As a result, it's one of the most widely watched technical formations that exists, and it's also among the patterns considered the most bearish.

The S&P 500 saw a Death Cross first begin forming on Thursday, which was then confirmed with a completed cross on Friday. To make matters slightly worse, the index has been heavily pressured and trading in and out of a correction (defined as a pullback of 10% or more below the most recent peak) for the past few days.

But before we start panicking and predicting doomsday scenarios based on this pattern alone, it should be noted that every S&P 500 Death Cross in the past decade after the 2008 financial crisis has resolved into significantly higher prices, though it can sometimes take several months to do so.