Weekly Review 16-19.1.2018

Bulls are 8:1

The Q4 2017 earnings season opened with the financial reports of the large banks, including J.P. Morgan (JPM), and Wells Fargo (WFC). All-in-all, the results were good enough for the first full week of 2018 to end up, reeling out one new high after the next.

Stocks on Wall Street added to their impressive opening this year, setting historic highs on Monday, Tuesday, Thursday and Friday. In summary for the week, the Dow Jones recorded gains of 2%, the S&P 500 and the NASDAQ trading up 1.6% and 1.7% respectively.

The S&P 500 is already trading up over 4% this year, and in the first 9 trading days of the year, ended down – and negligibly at that – on just one occasion. On the scoreboard, it’s the bulls trouncing the bears, 8 to 1. This is the best opening of a trading year since 2003, when the index kicked off the year by tacking on 5.89%. At the same time, in 2003, the S&P 500 was very close to wrapping up the vicious bear market that began in the wake of the dot-com bubble. In that year, the market soared at the beginning of the year, only to collapse 12% the following month against the backdrop of the war in Iraq – and ultimately test the bottom of the bear market in March.

This year, the S&P 500 rallied higher, opening its 9th year of the bull market. All-in-all, 2003 and 2018 have seen similar opening salvos, but the environment and the background could not be different. The market rallied higher on expectations of a stronger economy and forecasts that earnings reports would be solid and become a lot better later on after the 21% corporate tax rate started being felt. Wall Street firm earnings are expected to report strong and impressive growth of 12.1% in Q4 2017.

Markets that rise linearly are not always so savory in the thinking of a trader, but this market is exception from the perspective of the trading opportunities out there for traders. The market’s strength isn’t limited to a small group of stocks like FAANG. Rather the gains have been founded on a strong base – and day and day out, we’ve seen attractive trading patterns. Even though indexes are traded at extreme overbought level, there are still a lot of stocks available with attractive trading patterns. One such example is the biotech sector.

In the meantime, 2018 hasn’t just been the year of the stocks! Rather, the performance in commodity markets could not have been stronger. We’ve already seen big moves in natural gas, platinum and crude. Crude prices continued to move higher last week and just recently broke up a 3-year high. Crude, which succeeded in freeing itself last year from the crisis it was mired in, has already recorded gains of almost 7% this year. Be prepared for higher prices at the fill-up station, something certainly negative for consumers.

Wall Street will be closed on Monday in commemoration of Martin Luther King day, and a deluge of earnings reports are expected thereafter, starting on Tuesday. The Economic Diary will be thin this coming week, most of traders’ attention being placed on the earnings reports that will be released. On the roster this week – be primed for the continuation of the earnings season for financial firms, with companies like Goldman Sachs (GS) Citigroup (C), Bank of America (BAC) and American Express (AXP). Among tech companies, IBM is expected to report. With that said, most tech firms’ earnings are only expected later this month.

As of now, there’s a lot of optimism that the earnings season will be strong enough to keep up stocks’ upward trajectory. The Q3 earnings season was blockbuster and another strong earnings season is likely to carry the S&P 500 up to the 3,000 point level. The best way to capitalize on the rally as of now is to simply cross your arms and let it to do the trick. If the market moves sideways, don’t panic, hold your horses and don’t bet against it! At the same time, be sure to be attuned to any fault line in the positive momentum. The moment the positive trend cracks – and it will at one stage of the game, it could be a very painful ride on the downside.

Have a great trading day!