The Zigmont Report (Daily Market Recap for 12/14/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC.

Heavy.  US equities never had a chance today.  Futures went negative last night as Asia traded down about 2%.  Slightly weaker Chinese economic numbers spooked investors and weakness took hold throughout our early morning.  The S&P opened down about 20 handles, tried to climb but ultimately rolled over by 10:30.  The S&P walked lower consistently from then.  Things never fell apart and they never got sloppy but there wasn’t any upside life in the tape either.  It looks and feels like bears leaned on the tape and they won the day.

Unlike China, US economic data was better than expected.  That data couldn’t change the direction of trading however and now we head into next week with a 70% implied probability of a 25 basis point hike from the Fed.  This positive US data helped cement the expectation for the Fed to go higher on Wednesday by the way.  The forward guidance is the wildcard at this point and 2-ish hikes for all of 2019 is where we currently sit.

If the Fed talks the market back from that, we should get quite a relief rally.

That’s Wednesday however.  Today’s selling might rattle some nerves over the weekend so who knows how Monday and Tuesday goes.

If things go down again on Monday or Tuesday, I would expect fast money to go long into the Fed meeting.  We’ll just have to see if things actually play out that way.  Those players can’t hold back the tide but if we’re dealing with smaller flows due to cold feet, I think the short-term bulls will get a nice flip out of it.

See you Monday, have a great weekend.