IT40 Places & Things in the Media for 12/27/2018

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#1 Stock market surges after Christmas


All that holiday shopping helped boost stocks after Christmas.



Dow plunges after biggest point gain in history

The market recovered some losses by late morning. The Dow was down 225 points, the S&P 500 fell 1% and the Nasdaq was down 1.5%. The Nasdaq fell back into bear market territory.
Wednesday's super-sized gain was a much-needed breather for a market that is having its worst December since the Great Depression. The Dow had its best point gain ever, and the S&P 500 and Nasdaq posted their best performances since March 2009.
But one day is not a trend. Anyone watching stocks this month knows that sentiment can turn on a dime. Jittery investors trying to read the tea leaves have seen bad omens practically everywhere over the past few weeks — even good news has rattled the markets at times.
The Dow has either gained or lost more than 350 points in seven of the past eight trading sessions. Thursday would make eight of nine. Those huge gains and (mostly) losses suggest investors remain on edge about the economy, monetary policy, trade and Washington dysfunction. December has been a very rough time for investors.
"Human nature is very consistent — pain is the ultimate motivator for change, and a 20% market swoon in under three months has most tactical and historical indicators suggesting extreme pain," said Tony Dwyer, market analysts at Canaccord Genuity, in a note to analysts.
The firm said investors should expect more volatility and attributed the unease to "chaos in Washington," as well as the Federal Reserve's decision to stick to plans for gradual interest rate increases despite the recent stock turmoil. President Donald Trump, after ripping up trade policies aimed at stitching global economies together, has further unsettled markets by signaling he wanted to fire Federal Reserve Chairman Jerome Powell. Trump appointed to his post last year but has since turned on him for raising rates.
The American economy remains strong, and most economists expect solid, if slower, growth in 2019. That's why some market analysts believe stocks are oversold. The S&P 500 is 8% lower this year, while unemployment is near a 50-year low and GDP grew at 3.4% in the third quarter.
But fear has taken over the stock market. Practically every movement lower has precipitated another big selloff.
"Obviously, oversold can become more oversold in a panic-based market environment," said Dwyer.
But markets that fall around 20% when the economy is strong typically bounce back. That's what happened in 1987 after Black Monday, 1998 after the Russian debt crisis and 2011 following the American credit rating downgrade. In 1987, the market soared 50% in the following two years. Stocks bounced back 20% within four months of their lows in 1998 and 2011.
Stocks could roar back to new highs next year as they did this summer. Or this could be a recession warning sign and a signal of worse news to come.

Stocks do a reversal, global stocks caught in the tumult

On Thursday, some of the market's big winners the prior day lost ground.
Tech, which led yesterday's rally, dived this morning. Amazon (AMZN), Facebook (FB), Alphabet (GOOGL), Netflix (NFLX) and Apple (AAPL) all fell between 1% and 3%.
GE (GE) had its fifth-best day of the year Wednesday but fell 3.6% Thursday.
Oil, which rose 9% a day ago, was down 2.1% Thursday.
European markets fell sharply on their first day of trading since Monday. The FTSE was down 1.5% and Germany's DAX fell 2.4%.
The Hang Seng in Hong Kong and the Shanghai Composite both shed more than 0.6% after weak Chinese industrial data highlighted the difficulties facing the world's second largest economy.
But Japan's Nikkei jumped nearly 4% on Thursday, pulling the index out of the bear market it had entered just two days ago. Stocks also climbed more than 1% in Australia and Singapore.
"The market was pressured by worries over Washington, the Fed and the threat of the trade war sparking a global recession," said Sam Stovall, chief investment strategist at CFRA Research.
Stocks were also pressured Thursday by a pullback in the monthly consumer confidence tracker. Confidence is still strong, but the report indicates that the government shutdown, volatile stock market and trade jitters are affecting consumers.
"If the consumer gets cold feet, then one of the economy's major engines may fail to keep the economy flying high," said Chris Rupkey, chief financial economist at MUFG Union Bank.

Opinion: This contrarian stock-market signal is flashing green

Sentiment indexes are among the lowest ever, signaling that stock-market timers remain extremely pessimistic

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Red or green for the New York Stock Exchange?



CHAPEL HILL, N.C. — Contrarians are betting that Wednesday’s 1,000-point Dow rally is more than just a dead-cat bounce.

That’s because the typical stock-market timer remains extremely pessimistic. That, according to the contrarians’ logic, is a good sign.

This doesn’t mean that the stock market will now go up in a straight line, of course. In fact, from a contrarian point of view, a straight-up rally over the next several days would actually be worrisome, since it would almost certainly lead the erstwhile bears to jump back on the bullish bandwagon — thereby eroding the rally’s sentiment foundation.

In other words, contrarians aren’t particularly concerned that the stock market isn’t continuing its Wednesday rally in Thursday’s trading, when the Dow Jones Industrial Average DJIA, -1.92%   opened down more than 300 points. Instead, from the contrarians’ point of view, the key to the rally’s longevity will be the extent of skepticism from the market-timing community.

Early indications are encouraging in this regard, since the average market timer reacted to Wednesday’s big rally by actually becoming even more bearish. The Commentariat also appears to be solidly bearish, confidently announcing that the bear market remains alive and well, as evidenced on MarketWatch Thursday morning by Michael Sincere and Lawrence McMillan.

Consider the average recommended equity exposure among a subset of short-term stock market timers I monitor, as measured by the Hulbert Stock Newsletter Sentiment Index (HSNSI). This average currently stands at minus 15.6%, which means that the average timer is allocating about a sixth of his equity trading portfolio to going short.

This minus 15.6% reading is one of the lowest on record. Only 4% of readings since 2000, in fact, were any lower. The last time that the HSNSI was as low as it’s been this month was February 2016, which was the bottom of the correction (some say bear market) that began in May 2015.

A similar picture is painted by the sentiment data for stock market timers who focus on the Nasdaq market in particular (as measured by the Hulbert Nasdaq Newsletter Sentiment Index, or HNNSI). They’re even more bearish than those reflected in the HSNSI; the HNNSI currently stands at minus 61.1%. Only 3% of readings since 2000 have been lower than this.

The usual qualifications apply, of course. Contrarian analysis isn’t always right, needless to say. And even when it is, the insight it affords is only over the very short term—the next couple of weeks to a month or two, typically.

Nevertheless, so long as the market timing community remains as pessimistic as it is now, the sentiment winds will be blowing in the direction of higher prices.

For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email


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