The 4 Keys To The Stock Market For The Week Of March 26
It will undoubtedly be an interesting week, especially with the quarter end on Thursday, remember the markets are closed on Friday for Good Friday. The Eurekahedge 50, an index that measures the top 50 hedge funds, was up only 1.15 percent for the year at the end of February, and that was trailing the S&P 500 total return index of 1.83 percent. The Eurekahege 50 had a gain of only 6.96 percent in 2017, severely underperforming the S&P 500 total return gain of 21.83 percent. The last things these guys want to show is a big loss for the first quarter. So profit-taking could weigh heavily on some of the more significant gainers this final week, think Amazon, Netflix, Micron, and so on.
I do not know the exact reason why the market is selling-off, nobody does for sure. But I have laid out the reason I think it is going down in a couple of articles this weekend. I have read in some different place that rising Libor is another source of concern, and yes it has increased a lot in recent weeks, and as of March 23 it stands at 2.29 percent. But the truth is that libor has been rising aggressively since the summer of 2015.
I think the increasing spread between Libor and the Effective Funds Rate and the 3-Month Treasury, is nothing more than the Libor anticipating future rate hikes. In fact, that spread between Libor and Federal Funds Rate, already declined from 0.74 percent on March 15, to 0.61 percent currently, all since the Fed raised the effective funds rate. Libor sure isn’t going to go down in a rising interest rate environment.
The outlook for earnings continues to be strong, S&P Dow Jones is forecasting earnings for 2018 to climb by 31 percent, and with the S&P at 2,588 as of March 23, it is trading at 17.97 times 2018 estimates of $144.01, and 16.5 times 2019 views of $156.23. I would not call that expensive. In fact, Tech, Consumer, and Healthcare are pretty cheap based on forward earnings estimates.
Fundamentally speaking the market doesn’t look expensive. But with that said, emotions, Algos, and ETF’s do not care about the fundamentals.
So what will I be watching this week? Well, it starts Sunday at 6 PM EDT, first looking at the currency market and seeing which direction the dollar trades, most notably versus the yen and euro. Remember Japan is an export economy, so a strong yen is bad for Japan’s economy and the stock market, and that means Japan could be down big on Sunday night into Monday. The next thing we want to watch is how Europe trades, followed by the S&P 500 future, and more critical than price, will be the volume in the S&P Futures.
Notice the S&P 500 Future bottomed at 2,531 twice and it happened in the middle of the night, on huge volume! So I want to see if these big buyers come back.
That is all before the market even opens at 9:30 am Monday.
Monday During The Day
During the day Monday, I want to see the VIX spike higher, over 30, and massive levels of volume in the stock market. And as crazy as this sounds, a 1.5 – 2 percent decline in the morning, followed by a turn in the early afternoon with a strong finish into the close pushing the index to the positive, and ending near the highs of the day. If this doesn’t happen Monday, then it likely means this is going to drag on for a few more days.
Also, you need to watch the market leaders the most closely during times like this, such as Apple, Amazon, Netflix, Alphabet, Microsoft. But the Banks will be another big group to watch, as well as Biotech. Biotech is the most aggressive part of the stock market in my opinion, and if risk comes back – it happens in biotech first.
Is it a perfect system? No. But it comes with 25 years of experience at this game, and over the years, I have pieced this all together.
Hope it helps you start off the week. Good luck.
Mott Capital’s Reading The Markets – An In-depth Global Macro Stock Market Commentary – In Video Format – See How Michael Dissects The Markets
Free Articles Written By Mike:
Join our 539 Daily Subscribers And Get This Commentary In Your E-Mail! Subscribe
Michael Kramer and the clients of Mott Capital Own shares of NFLX GOOGL
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
© 2018 Mott Capital Management, LLC. Use, publication or reproduction in any media prohibited without the permission of the copyright holder.