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The market spit in the face of common sense to rally on the Fed’s action of raising rates and reduced earnings estimates. We climbed to the high volume/high time spent 2074’s. We were there for a few blinks of the eyes and raced completely through to Weekly Developing Value Low 1992 and settled at 1992. It appears the Grinch wanted an early snatch of the Christmas presents.
It is a notable occurrence that the Fed timing for a rate increase, the first one in nearly a decade, is occurring in the month of December. Fed Officials stated if we have growth the rate increases are likely to increase about 1% per year for the next three years, if we have growth. It is interesting.
Radar’s beef is that while the Fed is doing its “thang” of managing full employment and stable prices, who is managing the Debt? Are the inmates are running the asylum? The credit cycle is mature IRHO. Without a tango between the Fed and the Government, the pairing of prudence with management; the growth of credit without growth becomes an elephant on the back of the economy. Elephants are very heavy. It would appear that before too long, reversion of prices would need to discount a hefty reality that one day there will be a heavy price to pay. While we see these things happening, “the when is enough,” is far more difficult to forecast.
In addition, The Sage Ones (Analysts and Strategists) are casting a shadow on the promised $127.23 12 month forward estimates. For example, two weeks ago we began to see the minds of the Sage Ones estimating lower Q4 EPS. Initially it was -4.1%. As revisions came in last week they trickled lower to -4.5% this week. 12 months out EPS estimates declined to $126.99. Will this be the third quarter of an earnings recession?
Radar’s goal is to Observe and suggest possible actions at various levels of Value. Radar does not call tops and bottoms. It observes and recommends modest and incremental decision-making at solid value level considerations.
The market traveled completely through value highs and ended the week lower than the prior week. Value and a base camp may not have been established yet. The weekly low was 1983.25. If 1983.25 and Developing Value Low for the week 1992 cannot hold, then the market will be saying let’s establish value lower. 1974.50/1969, 1963.50 to 1966 area is one-half back Q3’s range as possible test areas. 1954 and 1936’s 1927’s below that. Should we travel below 1936’s email Radar at meee646@email for updated technical levels.
If the 1983.25’s hold and we can see volume come in to support there then 2027.75/2031, 2041.75 and December 31 2014 settlement in the 2050/2060 ES and SPY’s could still be in order to finish the year. Christmas may still provide its holiday cheer.
Some reasons the market is seeking a base camp are:
The market’s failure to hold value.
Market leadership is narrow and the number of stocks below longer term moving averages is high.
Company margins are fighting a strong dollar and may have reached their peak.
12 month earnings estimates are again being reduced.
Commodities prices are still weak.
For Longer Term Investors: Keep building extra cash into strength and keep a healthy balance of shorter term high quality debt in place, complete your tax planning and look for the Fallen Angels.
For Traders: Volatility is high. Thin into strength and look to rising developing value low areas as possible bounce areas. Do not be stubborn with your trades. In Radar’s opinion, 1963’s need to hold this week, below that selling could intensify. Prices still have the ability for Christmas/New Years 2050/2060’s.