How Long Will Market Weakness Persist?

March 22, 2019, 13:33 pm ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The economic data from Germany on Friday was weak, and more will come on Monday.  Investors are likely to remain nervous in advance of what they think could be another weak number.  Germany’s IFO Business climate data is scheduled for Monday before the open.

What should we expect from the market?

On Friday the Manufacturing PMI from Germany showed a contraction, and when coupled with the general concerns vocalized by the FOMC this week, which directly influenced their decision on rates and future guidance, Wall Street is asking itself if the recent rally is warranted.

Economic growth matters more than interest rates.

The NDX lead the march higher in recent days, which was arguably fueled by Apple Inc. (NASDAQ: AAPL).  The increase in AAPL over the past few days has caused the NASDAQ-100 (INDEXNASDAQ: NDX) to increase faster than all other markets, but the DOW, the Russell 2000, and the NASDAQ itself did not show the same degree of exuberance.

In fact, the Russell 2000 has been much weaker than the other markets, and it was the leadership group all year until AAPL started to increase aggressively recently.

The Russell 2000 is a much broader market, and the rally earlier in the year that was lead by the Russell 2000 was quite broad, but that changed in recent days.  When the NDX took over, the leadership stocks were isolated to large cap tech, and that is concerning.

• When the market that has lead the way up starts to turn, that’s a concern.
• When the new leadership group is only a handful of stocks, that’s a concern.
• When economic concerns arise, that makes investors questions the rally.

Not only that, but the Dow Jones Industrial Average in expected to have a 15.6% earnings contraction in 2019, but this year, so far, investors have been ignoring that.

The technicals are not pretty either.  The Markets all tested longer term resistance levels this week, and after Friday’s decline those resistance levels are holding.  Technical Resistance Levels

The carrot in front of this rally has been the potential for a trade deal with China, and face-face talks will happen next week, but a deal has also likely been priced in, and then some.  Expectations surrounding what an official trade deal with China might do to the market should be moderated.

There are reasons for concern, and instead of buying the dips, the market is likely to be much more rewarding for persons who short the peaks.

Support and Resistance Plot Chart for

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