foxex: Streaking

The Market Sum | INVESTOPEDIA

Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Markets rally for 5th day in a row

Markets Close

Dow
24,001.92 +0.51%

S&P
2,596.64 +0.45%

Nasdaq
6,986.07 +0.42%

VIX
19.45 -2.65%

INV Anxiety Index
102.23 Neutral

US 10-Yr Yield
2.731 +0.11%

Richard Heathcote / Getty Images

Streaking, but for how much longer?

Make that 5 days in a row for market gains, and the longest winning streak since September. Even our Anxiety Index has calmed down, going from HIGH ANXIETY to NEUTRAL. A five-day rally with a 10% lift in the DJIA will do that. James has more on this radical reversal in our daily chart, below.

The DJIA posted a triple-digit gain after starting the day in the red as concerns about the retail sector weighed on the markets. Target and Costco reported relatively strong same-store sales for the holiday season, but Macy's was not able to tell the same story. The stock fell as much as 18 percent as the company reported weaker than expected sales and lowered guidance for 2019. The big question is whether this is a Macy's problem or a signal for the retail sector going forward. Given Target and Costco's guidance, it may be limited to Macy's, which has been having its own issues, but we'll learn more in the coming weeks as retailers report fourth quarter results.

It was a relatively quiet day for economic data, although Fed Chair Jay Powell sat for an interview with the Economic Club of Washington D.C.

Key takeaways:

China's economy is slowing. Powell cited Apple's revenue warning as evidence. The Apple factor looms large over everything - including The Fed
The Fed is concerned about rising U.S. Debt. The current U.S. deficit topped $1 trillion recently, and the current total debt is $21.6 trillion, $16 trillion of which is owed by the public. Rising debt levels are nothing new for the U.S. - but the fact they have risen so dramatically during a sustained period of economic growth is a big problem.

Why it Matters

We've been writing a lot about the Fed lately and the impact on the markets, both in the U.S. and globally. Obviously, the federal funds rate has an impact on markets, but the Fed has been very transparent about its intentions going all the way back to the financial crisis. But, how much does the Fed actually move markets?

Economists at Bank of America Merrill Lynch tried to quantify that as well as other factors that have impacted markets over the past several months. According to their study, the Fed's actions have less impact on market direction than what BofA calls 'negative data surprises'.

The economists looked at days in which the S&P 500 moved at least 0.5 percent since reaching its all-time high on Sept. 20, and used news coverage of the session to attribute the move to a given factor, such as trade, the Federal Reserve, macroeconomic data, commodities or international news. Turns out, the Fed played a much smaller role than one might think. It's the "other" category that had an outsized impact on market direction.

The moral of the story: Don't base your investing strategy off of any one factor. Create the strategy that works for you, your risk tolerance, and your life stage.

Here is the chart:

In Other News...

The U.S. Government remains in partial shutdown. President Trump visited the border today and said he may declare a national emergency to get funding for the steel wall he has promised since his campaign. Remember... 800,000 federal employees won't get paid tomorrow.

Trump cancelled a planned trip to Davos for the annual World Economic Forum, citing the shutdown. For those of you not familiar with the World Economic Forum in Davos, it is an annual gathering of leaders in business, politics and the academic world wherein they try to identify and solve the world's issues from the cozy confines of a Swiss ski resort. Think of it as a gathering of the 1% of the 1% in puffy jackets and snow boots, driven around in armored vehicles from chalet to chalet.

The Consumer Electronics Show (CES) is raging on in Las Vegas. This year's big themes are autonomous cars, flying cars, voice activated devices, bendable TV screens, 5G and the Internet of Things (iOT). CNET has a good roundup if you are interested.

CES and trade shows like it are fun for product launches, but they are usually not places to identify investing opportunities. Big themes like voice activation and 5G are important to watch, but it is what companies do with those technologies over a sustained period of time that matters most.

Still...flying cars are cool, so here's a picture of one, courtesy of CNBC.

Chart of the Day: Dow Up 10% From Lows but Hits Key Resistance

Like the S&P 500, the Dow Jones Industrial Average has now had five consecutive winning days as of Thursday's market close. Also like the S&P 500, the Dow is up around 10% from its late December lows. While this may be impressive for less than three weeks' time, the question remains – will this bullish market environment last? There are several fundamental and technical signs that point to a potentially difficult path ahead, at least in the short-term.

On Thursday, Fed Chair Jerome Powell said that he is "very worried" about burgeoning U.S. debt. He also suggested that the Fed's balance sheet will be reduced substantially, which equates to further monetary policy tightening – potentially not the best news for the stock market. Add to that an extended U.S. government shutdown, U.S.-China trade talks still up in the air, and continued concern about global economic growth – it's clear that market pressures remain.

From a technical perspective, volatility continues to run high and the Dow has risen to reach key resistance around the 24000 price area. This level represents the late June low and is also in the vicinity of the late October and early December lows. Though support and resistance levels, and technical analysis as a whole, are far from a precise science, the current area of resistance could be a spot for either a profit-taking pullback or a sharp market reversal due to all of the pressures noted above. Either way, if the Dow is unable to break out significantly above this resistance, we could be in for a return of the market turbulence similar to what we saw through much of December.