The 1-Minute Market Report – December 14, 2018

It's so easy to get caught up in the drama that the stock market creates. And that's why I try as best I can to stick to the facts. Every Wall Street strategist has a prediction for the future direction of the market. It's in their job description. And, essentially, it's nonsense. Nobody can predict what the market will do on a short-term basis. But serious students of market history can get fairly close to what various asset classes, like stocks, are likely to generate in terms of performance over the next 7-10 years.

In the investment world, there is very little downside for making a prediction that turns out to be way off the mark. The financial media just ignores them and focuses on the lucky few who got it right. They become the superstars of the day. But very few of them will remain superstars for very long.

Let's go through the numbers to find out how bad things are right now. As I said last week, I am not an outright bear at this point, but I'm gradually and methodically moving my clients into a more defensive posture with their asset allocations.

I'm switching things up a little here. Compare the most recent numbers (left chart) to those that were registered at the peak of the market on September 20, 2018 (right chart). It's easy to see the magnitude of the deterioration in the periodic returns since the peak.

Key Markers

Now compare the distance from key markers as of Friday, versus the same numbers from 10 weeks ago. The support price I'm using is 2,581 which is the low price we reached during the last correction in January-March of this year. 

We are now just 0.7% above that level, but as I said, in a fluid market like the one we're in right now, anything can happen. If we break 2,581 I'm going to have some things to say, including the possibility of suggesting a trad-able bounce from an oversold level.

Chart 2. Distance from Key Markers

So far, the market has taken out 4 key support levels, and is threatening the 5th one. Below is a chart that is of concern to me, but remember that one chart that represents one indicator does not mean you should seek shelter. 

I call this chart the YOY Red Zone because it tracks the year-over-year percentage change in the S&P 500. History shows that when this line penetrates the 0% level from above, the likelihood of a bear market being in place rises significantly. 

It doesn't guarantee that a bear market is in place, but it does raise the probability that I track in my bear market model.

By now most of you have become familiar with the Market Dashboard. What we see this week is a market that is struggling on many technical fronts, but on a fundamental basis the market isn't in very bad shape. Earnings, employment, and inflation are still favorable. But market participants appear to be sensing a change in the atmosphere. We'll keep tracking the numbers to verify what's happening under the surface.

Let's face it - things are getting pretty dicey in the market. I believe that we will see more rallies over the next few weeks and months, and some of them will probably be quite strong. But I'm less and less convinced that we will make a new high before we finally succumb to the next bear market. 

I could be wrong, of course, but I follow my models and they are showing increasing risk and diminishing prospects for a new high.

For a full analysis of the probability of a bear market or a new recession, see my Monthly Intelligence Report. 

As always, if you like what you see, or have suggestions for improving this recap, leave a comment below, or email me at info@zeninvestor.org