Stock market futures will be very important to watch on Sunday, December 16, 2018, in the overnight market.
Any type of upward move has been used as an opportunity by institutional investors to reduce equity exposure.
The mainstream financial media has been promoting the idea of an end-of-year bounce for weeks. If it doesn’t happen, it will expand the pool of disappointed traders which will add to selling pressure.
In addition markets being oversold, we have the FOMC interest rate announcement on Wednesday at 2 PM ET. The futures market is pricing in about an 80% chance of a ¼ point rate hike but the main focus will be on the policy statement and what the Fed says about how it hiked too fast and what it’s going to do about it.
Chairman Powell has already gotten a lot more dovish with his flip on how close the economy is to the Neutral Policy rate. If Powell hikes rates again next week, he’d better do it with a big heap of dovish sugar talk else markets could react bad.
Another issue we are having this year is that of tax loss selling. Why hold on to losing positions when you can sell for a loss in 2018 and use the losses to offset your gains for the year?
We are not yet in a stock pickers market which is why I’m pulling back on a lot of the stock research I typically do. We are experiencing bear market action where fundamentals and catalysts are thrown out with the bath water. The first phase of coming out of this correction will be value-investing in individual stocks (i.e a stock pickers market). The reason is that bargain hunters will step into this market with a lot of cash they have protected on the sidelines and they will buy up stocks with excellent valuations. We are in the group of potential bargain hunters when this market turns because we have avoided most of the carnage since October 1, 2018. Until we are in such a stock pickers market, it is better to be out of this market and on the sidelines and in the safety of cash.
Stay open minded, trust but verify. Above all else, your main focus should be capital preservation even if that means sitting back on the sidelines and in the safety of cash for days or weeks in a row.
Stock market futures begin trading in a few hours. Make sure you are tracking overnight futures. If you are a Premium member, I will track overnight futures for you and alert you via text message later tonight if necessary. The other thing you should be tracking tonight is stock market news coming out of China and Asia. As China and other Asian economies slow, it negatively impacts US markets as well.