Stocks Rise Ahead of FOMC Only to Tumble After Fourth Hike of 2018

by Vlad Karpel | 12/20/2018, 01:44

Stocks rose in early morning trading ahead of the final FOMC meeting of 2018. The policy update saw its fourth interest rate hike of the year and comments following the meeting from Chair Jerome Powell reverted market conditions in the afternoon into negative territory. Currently, all three major U.S. indices are down. Other key factors supporting the market is the recent comments from U.S. Treasury Secretary Mnuchin confirming a January meeting between the U.S. and China and the continued bipartisan effort to avoid a government shutdown before the Friday deadline. This week is a key period in both shaping the final trading days of 2018 and the first few weeks of 2019 as well. If market heads down and breaks $253 support on SPY, expect a correction in the range of 5-10%. However, if the market breaks $260-263 expect the market to retrace back to $280 level. As long as the market is trading above $253, we believe it is oversold and still in the last phase of a bull market which will last through the first quarter of 2019. For reference, the SPY Seasonal Chart is shown below:

The fourth interest rate hike of 2018 was introduced in the final FOMC meeting of 2018, raising interest rates by 0.25%. Powell met with the press afterward for a planned speech and took a more dovish stance as opposed to the last two policy updates. Another change from the previous FOMC saw policymakers suggest two interest rate hikes for 2019 instead of three. Still, some language in the policy softened the actual dovish stance as opposed the expected stance by the FOMC, particularly “further gradual increases” that the fed has remained opened to in the policy for next year.

A bipartisan effort is making its way through Congress in hopes of averting a government shutdown when nine of the fifteen federal departments run out of money on Friday. The breakdown in budgetary negotiations stem from a disagreement on the border wall and funding for homeland security. While President Trump is asking for increased spending Congress is looking to replicate last years efforts. While neither side has yet to budge on the amount or take the budget to a vote, Congress is looking to come together to extend funding through February to provide more time to figure out the funding issue. The stopgap spending bill is gathering good sentiment and is expected to be reviewed, and likely approved, by Trump.

Global trade conditions seem to be improving as trade tensions lessen between the U.S and China. Remaining in contact since the G20 Summit, the two have planned their next meeting for January. A 90-day tariff halt and timeframe has been set for the new year, giving ample time to construct a manageable resolution to the escalating tariffs and trade concerns by two of the world’s biggest economies. Both sides have shown good faith in working towards resolving the ongoing trade war, providing encouraging comments and making “olive branch” like efforts to de-escalate the current situation. China’s recent U.S. soybean purchase was the first major buy since the tariffs began escalating in July while the U.S. has looked to intervene in the Huawei situation in Canada. Globally, Asian stocks were mixed while European markets rose.

Using the “^GSPC” symbol to analyze the S&P 500, our 10-day prediction window shows mixed signals. Today’s vector figure of +0.01% moves to -3.25% in five trading sessions. The predicted close for tomorrow is 2,585.00. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

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Highlight of a Recent Winning Trade

On December 11th, our ActiveTrader service produced a bullish recommendation for Edwards Lifesciences Corp (EW). ActiveTrader is included in all Tradespoon membership plans and is designed for intraday trading.

Trade Breakdown

EW entered the forecasted Entry 1 price range of $161.92 (± 1.11) in its third hour of trading and hit its Target price of $163.54 in that second to last hour of trading that day. The Stop Loss was set at $160.30.

Thursday Morning Featured Stock

Our featured stock for Thursday is Abbott Laboratories (ABT). ABT is showing a confident vector trend in our Stock Forecast Toolbox’s 10-day forecast. This stock is assigned a Model Grade of (A) indicating it ranks in the top 10th percentile for accuracy for predicted support and resistance, relative to our entire data universe.

*Please note: Our featured stock is part of your free subscription service. It is not included in any paid Tradespoon subscription service. Vlad Karpel only trades his own personal money in paid subscription services. If you are a paid subscriber, please review your Premium Member Picks, ActiveTrader or ActiveInvestor recommendations. If you are interested in receiving Vlad’s personal picks, please click here.

The stock is trading at $68.67 at the time of publication, down 2.01% from the open with a +0.99% vector figure.

Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Note: The Vector column calculates the change of the Forecasted Average Price for next trading session relative to the average of actual prices for the last trading session. The column shows expected average price movement “Up or Down”, in percent. Trend traders should trade along the predicted direction of the Vector. The higher the value of the Vector the higher its momentum.

Oil

West Texas Intermediate for January delivery (CLF9) is priced at $47.96 per barrel, up 3.72% from the open, at the time of publication. Looking at USO, a crude oil tracker, our 10-day prediction model shows negative signals. The fund is trading at $10.01 at the time of publication, up 2.20% from the open. Vector figures show -1.41% today, which turns -9.73% in five trading sessions. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Gold

The price for February gold (GCG9) is down 0.48% at $1,247.20 at the time of publication. Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows mostly negative signals. The gold proxy is trading at $117.59, down 0.347% at the time of publication. Vector signals show -0.23% for today. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Treasuries

The yield on the 10-year Treasury note is down 1.78% at 2.77% at the time of publication. The yield on the 30-year Treasury note is down 2.27% at 3.01% at the time of publication.

Using the iShares 20+ Year Treasury Bond ETF (TLT) as a proxy for bond prices in our Stock Forecast Tool, we see positive signals in our 10-day prediction window. Today’s vector of +0.02% moves to +0.19% in three sessions. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.

Volatility

The CBOE Volatility Index (^VIX) is down 2.61% at $22.36 at the time of publication, and our 10-day prediction window shows mixed signals. The predicted close for tomorrow is $23.12 with a vector of -8.07%. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.