Mike’s Morning Brief – January 23, 2019

What’s going on in the world…

Market opens higher on the back of some better than expected earnings, led by IBM. Big Blue is a big driver of the DOW, accounting for over 60 points alone. 2/3 of yesterday’s losses have been erased at the open. But was yesterday’s selloff, which erased Friday’s gains, an anomaly or sign of more to come? Our sense is that the explosive start to the year came off extreme oversold conditions in December and oversold became overbought in short order. The Market needs a breather. It has gone a long way to price in a potential trade deal with China, which would only cover tariffs in our mind. The issue of IP is much more complicated, and will not be resolved anytime soon. So we’re at a place where a deal is factored in, setting up a sell the news event. So if a deal does not get done, it would cause an even worse reaction. So at this stage, the risk-reward balance has shifted to the downside. We expect back and filling to continue, but a re-test of the December lows might be pushed out to later in the Spring. That’s how we are playing it, at least for now. Sentiment has shifted back to positive, with a growing herd believing the correction is over and better days ahead. We’re not in that camp, but will let the Market continue to be our guide. Earnings beats will go a long way to this end. Expectations have fallen quite a bit. The question is, have estimates too? There are still the issues of Brexit, the government shutdown and global slowing. These should all keep a bit of a ceiling on stocks until there is a turn. Crude prices are higher in early trading. Interest rates are ticking up as well, both good signs for growth. Gold is giving a little back.

Have a great morning,

Mike Frazier

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