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Stocks Mauled On Global Recession Fears

Markets across the globe plunged last week which reiterates our cautious stance. As a quick refresher, we first turned cautious last summer – BEFORE the big crash in Aug 2015 and have been very selective since. Thankfully, we entered the year with a very strong cautious stance and FindLeadingStocks.com’s Model Portfolio actually locked in profits and is now in cash while the market has plunged. The fact that sellers continue to relentlessly sell nearly everything they can get their hands on clearly shows you that we are in the early stages of a new bear market for stocks and a global recession is imminent. Several important areas of the market are already in a bear market (defined by a decline of 20% or more from a recent high) which means it is just a matter of time until the major indices play catch up to the downside. These are some of the important areas that are already in bear market territory: Commodities, The Small Cap Russell 2000 ($IWM), Transports ($IYT), Biotechs ($IBB), Retail ($XRT), Junk Bonds ($JNK), Materials ($XLB),  In the short term, the markets remain deeply oversold and way overdue to bounce. The fact that they can’t bounce speaks volumes to how weak the market is right now. 
Monday-Wednesday’s Action: Sellers Shows Up With A Vengeance 

Stocks traded all over the map on Monday. Overnight, Chinese stocks plunged another 5% which was not idea. US stocks opened higher but quickly turned negative after new sellers showed up and distributed stock. Crude oil plunged over 6% and hit the lowest level since 2003! Copper prices plunged to a fresh 6 year low which illustrates the market’s concern about weaker global demand. The JP Morgan ($JPM) health care conference started which is the biggest health care conference of the year. Biotech stocks ($IBB) fell over 4% and took out September’s 2015’s low which is not ideal for the bulls. In M&A news, Shire ($SHPG) said it will acquire drug maker Baxalta ($BXLT) for $32 billion in cash and stock. Stocks ended higher after vacillating between positive and negative territory on Tuesday as oil prices traded all over the map. In the morning, oil prices up nicely but turned negative and actually fell below $30 a barrel for the first time in 12 years! Stocks turned higher after oil prices stopped falling. Stocks are trying to bounce from deeply oversold levels.The inability for stocks to bounce speaks volumes at how weak the market is right now. Stocks plunged on Wednesday as a new round of selling hit Wall Street. This time the bears went after almost all areas of the market including the big glamour names such as Amazon ($AMZN) and Netflix ($NFLX) that had been holding up rather well in late 2015. The fact that Wall Street can not bounce from deeply oversold levels clearly illustrates how weak the market is right now.

Thursday-Friday’s Action: Stocks Can’t Bounce From Deeply Oversold Levels

The long overdue pullback finally arrived on Thursday after the S&P 500 came within a few points of “retesting” Aug and September 2015’s low. The S&P 500 actually turned higher for the week which is a strong defensive stance in the near term. Several high beta stocks bounced after big investors showed up and defended their longer term 200 DMA lines (FB, HD, NFLX, just to name a few). The market is way overdue to bounce and the key now is to analyze the health of this bounce to see it it lasts more than a few days. That didn’t last long. Stocks fell hard on Friday as oil prices plunged nearly 5%. The fact that they can’t bounce from deeply oversold levels shows you how weak the market is right now. Stocks will be closed on Monday for the holiday but markets overseas will be open.

Market Outlook: A Big Top

From where we sit, this aging bull market is over or on its last breath. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market – Join FindLeadingStocks.com.

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The Most Important Question to Ask Your Advisor In 2016:
What Are You Going To Do In The Next Bear Market?
If You Don’t Like The Answer, Get In Touch Now

Stocks Mauled On Global Recession Fears

In our intra-week note we wrote, “Allow us to be clear, the major indices are in the process of topping out and barring some large unforeseen reversal to the upside – we are headed into a long overdue bear market for stocks (and possibly a global recession). A few of the major indices are now in correction territory (defined by a decline of 10% from a recent high) while several important sectors (transports, commodities, biotechs, just to name a few) are already in bear market territory. Thankfully, our defensive/cautious stance has been right on the money since last summer (for our newer members, we first turned cautious before the big crash in Aug 2015 and have been very selective since).” This was the weakest first week of a new year in Wall Street’s history. The popular indices were crushed this week with the small cap Russell 2000 breaking below last year’s low and it is now down 19% from its record high. Remember, the media defines a bear market as a decline of 20% or more from a recent high. Oil prices tumbled a whopping 10% last week and Chinese stocks continued to plunge which triggered fresh concerns about a slowing global economy. Meanwhile, several important sectors are already down over 20% from their highs such as the Transports (IYT), Biotechs (IBB), and Retail (XRT), just to name a few.
Monday-Wednesday’s Action: Sellers Shows Up With A Vengeance 
Stocks tanked on Monday after a new round of selling began in China. Overnight, Chinese stocks plunged a whopping 7% which triggered a worldwide sell-off. Stocks in China were halted after new circuit breakers were introduced. Monday was the first trading day for the month, quarter and year and the worst opening day for Wall Street since 1932! Stocks were relatively quiet on Tuesday as the market paused to digest Monday’s very sharp sell-off. Reuters reported that the People’s Bank of China (PBOC) injected nearly $20 billion into money markets to help calm markets. That was the largest cash injection since September 2015. This led people to be concerned that China’s central bank was interfering with markets again and using state banks to prop up the yuan at the same time. In the U.S., motor vehicle sales pointed toward a record year. Stocks tanked again on Wednesday as the selling continued to hit markets across the globe. Oil prices plunged over 5% and Gasoline futures plunged over 8% which illustrates how weak global demand is right now. On the economic front, the ADP said private employers in the U.S. added 257k new jobs in December, beating estimates for 190k. Factory orders slid by 0.2% in November matching Briefing.com’s consensus estimate. Finally, the ISM Service Index fell to 55.3 in December missing estimates for 56.4.

Stocks End 2015 Mixed to Mostly Lower

Stocks ended 2015 mixed to mostly lower. The S&P 500, Dow Jones Industrial Average, DJ Transports, Small Cap Russell 2000, Mid Cap S&P 400, NYSE Composite all closed in the red. Meanwhile, the Nasdaq composite and Nasdaq 100 ended 2015 higher. The move in the latter two indices was largely due to big moves in a very concentrated area of the market that continues to lead (for now). For the year, the big (deflationary) take-away was that the huge multi-year bear market continued for a slew of commodities. In fact, nearly every major commodity in the world except for Canola, Cocoa and Orange Juice futures ended the the red. That typically is not a healthy sign for other asset classes, like U.S stocks. Remember these are not one-off declines. Gold and silver have been falling since 2011, Oil is down for the second straight year. A slew of other commodities like: Soybeans, wheat, sugar etc are all down for several years and in steep bear markets. All this clearly shows you that demand is waning across the globe. Looking forward, the bullish argument for stocks is twofold: 1. Valuations remain fairly attractive: Bull markets rarely end when the P/E ratio for the S&P 500 is 19 (the last few bull markets ended when the P/E ratio was in the 20’s). 2. Easy Money continues from global central banks. So far, we have never seen a bull market end with the Fed keeping rates at 0.25% and other central banks printing billions of dollars everyday to “reflate” markets. That doesn’t mean the bull market can’t end now – just that we haven’t seen it happen before. On the other hand, the bears argue that the bull market is nearly 7 years old and the market is forming a large topping pattern as leadership dries up. Both factors are classic signs of late-stage toppy action. What does all this mean for you? A defensive stance is prudent until more cards come out of the deck. We remain flexible and will be prepared for either scenario to unfold. If the major indices breakout of their year-long trading ranges (S&P 500 2,134) then odds favor we head higher. Conversely, if we break down below Aug’s low (1867), odds favor we head lower. Until then, we have to expect this choppy action to continue.
Monday-Thursday’s Action: Final Week Of Year Is Quiet on Wall Street

Stocks Back To Break-Even For The Year

Stocks rallied sharply last week, led by beaten down areas (energy, materials, transports, etc) that bounced from deeply oversold levels. Not much changed last week as the same underlying conditions, we have outlined for you in recent months, continue to exist beneath the surface. The S&P 500 is back to breakeven for 2015 and the best trade of the year has been a counter-trend mean-reversion trade. Meaning, short the index when it is in positive territory and buy it when it dips into negative territory. This year has been an anomaly because most years we see the market trend (either up or down), rarely does it finish flat the year. The last time it was flat for the year was 2011 and that led to a strong rally 2013-2015. The big difference was that in 2011, the bull market was only two years old and it is turning 7 in March 2016. Clearly, we are very late in the game. That doesn’t mean the bull market has to end, just that odds favor we are getting closer to the inevitable end. The bullish argument is twofold: 1. Bull markets rarely end when the P/E ratio is 19 for the S&P 500 (the last few bull markets ended when the P/E ratio was in the 20’s) and 2. We have never seen a bull market end with the Fed keeping rates at 0.25%. That doesn’t mean the bull market can’t end now – just that we haven’t seen it happen before. On the other hand, the bears argue that the bull market is nearly 7 years old and the market is forming a large topping pattern as leadership dries up. Both factors are classic signs of late-stage toppy action. What does all this mean for us? We remain flexible and will be prepared for either scenario to unfold. If the major indices breakout of their year-long trading ranges (S&P 500 2,134) then odds favor we head higher. Conversely, if we break down below Aug’s low (1867), odds favor we head lower. Until then, we have to expect this choppy action to continue.
Monday-Thursday’s Action: Stocks Bounce From Deeply Oversold Levels