Here’s how the S&P 500 can avoid the next ‘Big Red Wave’ of selling

After a gloomy patch for the markets around Thanksgiving, there is a more buoyant mood to start the new week.

Jani Ziedins, of the CrackedMarket blog, says the equity slide could be nearing its bottom, though only “if this selloff stays confined to people who actively follow the market.”.

Ziedins warns that if the negativity spreads to the average investor “who only looks at their quarterly statements, prices could fall a lot further if that much larger crowd starts dumping stocks too.” The good news is that most investors won’t see September-December statements until the new year, and next month’s stock performance is still up for grabs.

Our call of the day offers a more immediate picture of what lies ahead for battle-weary investors. It comes from Sun and Storm Investing Market Timing Blog’s David Durand, who lays out five factors that could decide if the S&P 500 will get taken down by a “Big Red Wave,” in the near term.

Durand, a fan of Fibonacci levels, says such selling could bring the S&P 500 down nearly 16% from an all-time high reached in September, to 2,442.36—another 7% drop from here. As for what could help avoid that move, he lays those five here:

1) Ho-ho-holiday sales beat forecasts. (Black Friday sales may have been the start of some good news, see buzz for more)

2) Buenos Aires bonanza. Trump and China’s Xi Jinping end-week South American gathering turns into a real lovefest. The best news? U.S. sidesteps 25% tariffs on China or an “even more comprehensive agreement,” is pounded out.

3) Low, but not too-low U.S. interest rates (bad for financials) and signs the Fed has turned “marginally more dovish” at least in the statement or presser at the Dec. 19 meeting.

4) Low oil, but not low enough to trigger shut downs for drilling operations. “Oil is a big cost to the economy, so the current lower oil prices (despite the higher natural gas prices) should help both corporations and consumers,” says Durand.

5) Stability for techs—not necessarily Apple AAPL, +1.22% but yes on Amazon given its internet sales dominance. While Apple has previously come down in a bullish overall market, it’s hard for the overall market to rally if many big tech companies are not holding up, he says.

So if you see weak holiday sales, a Trump Xi stalemate, interest rates falling steadily and a stubbornly Bearish Federal Reserve, as oil collapses further with tech stocks selling off, it may be time to take off even more stock exposure,” says Durand. Read his whole blog here, where he also talks about the dangers of too aggressively selling off stocks.

The market

Dow YMZ8, +1.07% S&P 500 ESZ8, +1.14% and Nasdaq NQZ8, +1.59% futures are powering ahead on the heels of the worst Thanksgiving week since 2014 for the S&P SPX, -0.66% Dow DJIA, -0.73% and Nasdaq COMP, -0.48% —all of which fell at least 3.5%.

That’s as crude US:CLU8 is on the rebound, with gold US:GCU8 and the dollar DXY, -0.17% is flat.

Check out the Market Snapshot column for the latest action.

Europe SXXP, +1.05% is xxx and Asia stocks also rose, with the Nikkei NIK, +0.76% gaining almost 1%.

The chart

Speaking of Amazon, our chart of the day looks at how much the retailer matters when it comes to expected earnings for the sector in the fourth quarter. The chart, from John Butters, senior analyst at FactSet, shows what that dominance is all about:

If Amazon.com were excluded, the estimated earnings growth for Q4 for these two retail industry groups [Retailing Industry Group and Food & Staples Retailing Industry Group] would fall to 6.8% from 15%. Thus, Amazon.com alone accounts for more than half of the projected earnings growth for all S&P 500 retailers for the fourth quarter,” Butters writes.

The buzz

It’s a big day for Amazon AMZN, -0.97% and other retailers as Cyber Monday—set to be the biggest online shopping day in history—gets under way. But smartphones and electronics are among the items you shouldn’t get lured into buying on Monday. Amazon is up nicely in premarket.

Logitech LOGI, -0.64% says while it had been in early talks to buy Plantronics PLT, +1.58% that’s over now.

The board of JPMorgan Chase JPM, -0.92% had a little chat with CEO James Dimon regarding those “smarter” than POTUS remarks.

U.S. border officials fired tear gas at migrants that tried to cross a southern border with Mexico, as they closed off that section.

Geopolitical tensions are flaring up in a familiar spot. Russia’s coast guard detained three Ukrainian naval ships and injured a handful of crew members in the process. Ukraine’s parliament said it could introduce martial law on Monday.

U.K. Prime Minister Theresa May got the EU’s stamp of approval on her Brexit deal, but will face much bigger headwinds selling it to parliament early next month.

The economy

A busy week for data will kick off slow, with the Chicago Fed national activity index due this morning. Home prices, third-quarter GDP, consumer spending, home sales and Fed minutes will pepper the rest of the week. It’s also a busy week for Fed speakers, with Vice Chair Richard Clarida and Chairman Jerome Powell speaking Tuesday and Wednesday, respectively.

The quote

Essentially, the company was bleeding money like crazy, and if we didn’t solve these problems in a very short period, we would die. And it was extremely difficult to solve them.”—That was Tesla CEO Elon Musk in an interview Sunday evening, recounting how the company came within “single-digit weeks” of going under earlier this year.

The stat

Between 600,000 and 800,000—that is how many bitcoin miners have shut down since mid-November as the price of the central cryptocurrency has fallen off a cliff this month, according to so-called hash rates reported by CoinDesk reports. Bitcoin CoinDesk BTCUSD, -3.33% is back below $4,000 after hitting a fresh 14-month low last week.

 

/reuters.com

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