HOW TO MAKE MONEY IN STOCKS

Stock Market Update: May 18, 2019

David Saito-Chung, deputy markets editor

IBD Weekly and Investors.com

Twitter: @IBD_DChung, @SaitoChung

Email: david.chung@investors.com

“I had fun once; it was miserable”

Monday, May 13:

A change in the current outlook Jan. 4 – “Market in confirmed uptrend”

May 7 – “Uptrend under pressure”

May 13 – “Market in correction”

Why? We saw a flurry of distribution days hit the Nasdaq and the S&P

500 starting on April 30. Institutions actively took profits amid

concern of no trade deal between U.S. and China. (Distribution

day: a 0.2% drop or more in the S&P 500 or Nasdaq composite in

higher volume vs. the prior session.)

5 Distribution Days: 4/30, 5/1, 5/7, 5/9, 5/13

S&P 500, Nasdaq through Friday

Severe Selling In Some, Not All, Leaders

The Bad! (for now) • Apple (AAPL): Recent cup with handle breakout at 197.79 fails after a mild gain.

• Alibaba (BABA): 200-day moving average still sloping downward.

• Arista Networks (ANET), Intel (INTC), SS&C Tech (SSNC): All three crash

below the key 50-day moving average (see daily chart) on Q1 results

• The Good! (for now) • Atlassian (TEAM), ServiceNow (NOW), Veeva Systems (VEEV), Ulta Beauty

(ULTA), Paycom Software (PAYC), Lululemon (LULU), Mastercard (MA): all still

in healthy uptrends.

• “Even Elephants Can Dance” -- Disney (DIS) joins the stock market leadership

on Disney+ news, hits all-time highs.

What’s Next For U.S. Stocks?

In the short run: A further pullback would not at all be

unusual. Why?

1) A 26% rebound by the S&P 500 since Dec. 24 low.

2) Will a raging trade war stunt economic growth, or cause a recession?

3) Is the U.S. at “peak employment?”

4) Crude oil: Recently hit $66/barrel, up 45% for the year! Could it crimp

consumer spending? Or help boost jobs in the energy sector?

5) Banking sector is lagging.

6) Are UBER, LYFT the new Pets.com and TheGlobe.com? (SNAP still

66% below its all-time high of 29.44)

7) Rumblings of a potential U.S. war with Iran

What’s Next?

In the long run: Still on course for a secular bull market.

1) low interest rates

2) no “earnings recession” yet; S&P 500 earnings yield of 6% tops 10-

year Treasury yield of 2.42% (as of 5/15/19)

3) dollar strong, inflation gauges still low

4) U.S. innovation ongoing, entrepreneurship unbridled

5) High-quality IPOs (COUP, KL, PUMP, ZM, ZS break out or near

new highs)

6) The market still rewards growth: IBD 50 shows a 17.4% CAGR

(4/11/03 to 3/29/19) vs 9.9% CAGR for the S&P 500.

7) Margin debt falling, points to underlying skepticism in the market

(margin loans down 11% YOY in March 2019)

197 IBD Industry Groups, 6-mth rankings

197 IBD Industry Groups, 6-mth rankings

Front page, of IBD Weekly: May 6, 2019

Excerpts

Mike Webster, senior vice president and portfolio manager for O'Neil Capital

Management, believes the stock market is in the midst a major bull market that’s less

than three years old. Webster contends the new bull trend began in July 2016 in the

wake of the Brexit vote, which tanked the Nasdaq as much as 6.4% over two days. That

final scare ended 14 months of sometimes punishing sideways action, punctuated by

two painful intermediate corrections.

"People thought the market was ready to implode like in the financial crisis," Webster

said. "But the Brexit rebound confirmed that a new phase had begun, which was similar

to June 1949 when the Dow began a 16-year major bull market."

"I don't expect it to be a straight line up. There will most likely be at least one more

normal bear market as well as several intermediate corrections along the way, so it is

critical to interpret what the market is doing every day.“

Nasdaq in 2019 vs Dow Jones in 1949

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Stock Market Update: May 18, 2019

David Saito-Chung, deputy markets editor

IBD Weekly and Investors.com

Twitter: @IBD_Dchung, @SaitoChung

Email: david.chung@investors.com

HOW TO MAKE MONEY IN STOCKS