Week-In-Review: Stocks Tank As Trade Woes Continue

Stocks Tank As Trade Woes Continue

Stocks fell hard last week as renewed trade woes from both China and Mexico dragged the market lower. May 2019 was a brutal month for the market as the benchmark S&P 500 plunged nearly 7% from peak to trough. The tech-heavy Nasdaq Composite shed nearly 9% during this latest pullback. The Dow Jones Industrial Average & the small-cap Russell 2000 both slid 8% and 7%, respectively. Clearly, the selling is widespread and unless something changes quickly this pullback may quickly enter “correction” territory (defined by a decline of 10-19.9% from a recent high). The internals look awful and the market is now deeply oversold. I wouldn’t be surprised to see it bounce from here in the near future. On the other hand, if the selling continues, investors will be looking for the Fed to step in help curb the selling with more easy money. 

Monday-Wednesday’s Action:

Stocks were closed on Monday for Memorial Day. On Tuesday, the market opened higher but closed lower after treasury yields and trade woes dragged the market lower. On Wednesday, the yield on the benchmark 10-year note slid to 2.26% which was the lowest level in 19 months. Remember, bond prices are inversely related to yields. So when bond prices rally, yields fall and vice versa. On Tuesday, stocks sliced below near-term support as a trifecta of negative news hurt the market. First, China fired back and used very harsh language and told the U.S., ‘Don’t say we didn’t warn you.’ That is considered very harsh language and led many to worry that the trade war will get worse. Secondly, Mueller gave a statement and said, ‘If we had had confidence that’ Trump ‘did not commit a crime, we would have said so.’ Trump reacted to the report by tweeting, “Nothing changes from the Mueller Report. There was insufficient evidence and therefore, in our Country, a person is innocent. The case is closed! Thank you.” The third piece of news that hurt stocks was that yields continued to weigh on investor confidence. Buyers showed up after the S&P 500 traded near its 200 DMA line (near-term level of support). 

Thursday & Friday Action:

On Thursday, stocks were quiet as investors digested the recent and sharp sell-off. After the close, Trump announced near tariffs on Mexico and that sent futures sharply lower. On Friday, stocks fell hard after the U.S. Chamber of Commerce is mulling legal options in response to Trump’s new tariffs on Mexican imports. In other news, a slew of apparel stocks reported earnings and the group has not seen earnings this bad since the 2008 Financial Crisis. According to Retail Metrics apparel retailers’ earnings, as a group, are down a whopping -24% for the first quarter of 2019 which is the worst reading since 2008. The market is now hoping the Fed will step in and help stem the decline. 

Market Outlook: Sideways Action

Stepping back, the market is pulling back as trade woes continue to hurt stocks. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is the 50 DMA line then the recent high while near-term support is March 2019’s low and then 2018’s low. As always, keep your losses small and never argue with the tape.

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Week-In-Review: Stocks Fall For Second Straight Week As Trade Tensions Rise

Stocks Fall For Second Straight Week As Trade Tensions Rise

The market fell for a second straight week as tensions continued to rise between the U.S. and China. The Dow fell 700 points on Monday, then bounced back Tuesday-Thursday but still ended the week lower. For most of this year the 50 DMA line has served as support but it may now become resistance. The bulls want to see the major indices get- and stay- above that important level. There is an old saying on Wall Street, Sell In May & Go Away. In recent years, that has not been the case, but so far May has not been a kind month to Wall Street. On a bullish note, if the market quickly repairs the damage and gets back above the 50 DMA line then this can easily become another bullish buying opportunity.

Monday-Wednesday’s Action:

Stocks plunged nearly 700 points on Monday after China retaliated and announced $60 billion in new tariffs against the U.S. Starting on June 1, the new tariffs will largely target agricultural products. China said that the U.S. decision jeopardized the interests of both countries and does not meet the “general expectations of the international community.” In response, Treasury Secretary Steven Mnuchin told CNBC the two countries are “still in negotiations.“ Separately, Trump said the U.S. is in a “great position,” in the negotiations, and shed light on the fact that “our economy has been very powerful; theirs has not been.” On Tuesday, stocks rebounded sharply erasing half of Monday’s losses after some of the fear eased regarding the escalating trade rhetoric. President Trump tweeted, “We can make a deal with China tomorrow, before their companies start leaving so as not to lose USA business, but the last time we were close they wanted to renegotiate the deal. No way! We are in a much better position now than any deal we could have made” which helped allay concerns. Separately, rumors spread that the Fed may have to cut rates if conditions worsen and Morgan Stanley told clients that higher U.S. tariffs on Chinese goods will likely turn into a headwind for corporate earnings — and the economy could fall into a recession if the country’s trade war keeps escalating. On Wednesday, stocks opened down 190 points but quickly recovered and closed higher after the US said it will push auto tariffs back by six months. That was viewed as a positive signal and the market closed higher on the day.

Thursday & Friday Action:

On Thursday, stocks jumped over 200 points after shares of Walmart and Cisco Systems jumped on earnings. Walmart rose 1.4% after the retail giant posted first-quarter earnings for fiscal 2020 that beat estimates and said it is in a good position to hit 2019 estimates despite tough comparisons for the second quarter. Meanwhile, Cisco Systems jumped nearly 7% after the stock posted stronger-than-expected earnings raised guidance as well. Stocks fell on Friday after consumer confidence jumped to the highest level in 15 years, the US ended tariffs on Canada and Mexico and rumors spread that the U.S.-China trade talks “stalled.” Elsewhere, shares of Pinterest plunged after the company reported earnings. 

Market Outlook: Bullish Tailwind Continues

Stepping back, the market remains very strong after the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is the recent high while near-term support is March 2019’s low, the 200 DMA line and then 2018’s low. As always, keep your losses small and never argue with the tape.

 

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Week-In-Review: Stocks Fall As US-China Trade Woes Intensify

Market Ends Week Lower As US-China Trade Woes Intensify

The market fell last week after tensions spread regarding the US-China trade talks. For the past few weeks, the market was very extended to the upside and due to pullback. The “news” that triggered the sharp pullback was the US-China trade tensions but that was just the latest headline du jour —and the important thing to keep in mind is that the market pulled back and has worked off its over bought conditions. If we get a deal, the market can easily rip higher. On the other hand, if we don’t, and the talks just somehow “stop,” then it will keep falling. The odds of the former happening are much greater than the latter so I am looking at this pullback as another buying opportunity, if the market bounces from here. The good news is that the bulls showed up and are doing their best to defend the 50 DMA line which is a healthy sign in the short-term.

Monday-Wednesday’s Action:

Over the weekend, Trump tweeted that he would raise tariffs and that spooked investors because it threatened the China trade talks. On Sunday night, futures plunged nearly 500 points and China’s stock market sank -3% on Monday. At Monday’s open, the market was down nearly 500 points and then spent the rest of the day recovering. The Russell 2000 ended higher on the day and the other popular averages ended with minimal losses. Stocks fell hard on Tuesday after U.S. Trade Representative Robert Lighthizer echoed Trump’s tweet and said the U.S. will increase tariffs on Chinese imports on Friday. That spooked the market and led many people to worry about the fall out to the global economy. Stocks opened lower on Wednesday but closed higher after China said it will take “necessary” countermeasures if US raises tariffs Friday. In other news, Uber priced its IPO toward the lower end of its target range. 

Thursday & Friday Action:

On Thursday, stocks fell hard after the open but recovered after President Trump said, “a deal with China is still possible, but tariffs are an ‘excellent’ alternative.” Trump said that Chinese President Xi Jinping “wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone.” That helped the market erase most of its earlier losses but investors were still concerned about what will happen on Friday. Stocks opened lower on Friday after the White House raised tariffs on China and the trade talks ended for the week without a deal. Stocks bounced after Trump said the talks will continue and Treasury Secretary Mnuchin said the talks were constructive. Separately, Uber finally started trading on the NYSE and the ride-hailing giant started trading near $45 which was in the lower end of its range. 

Market Outlook: Bullish Tailwind Continues

Stepping back, the market remains very strong after the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is the record high while near-term support is March 2019’s low, the 200 DMA line and then 2018’s low. As always, keep your losses small and never argue with the tape.

 

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Bear Bull 2

Week Ahead: Trifecta Of Data Boosts The Market Higher

Trifecta Of Data Boosts The Market Higher:

The market ended higher last week helped by a trifecta of positive data: The Fed, earnings, and economic data. The big move came from the Federal Reserve, after it said it will pause and not raise rates in the foreseeable future. That is a BIG shift from the Fed’s stance in October 2018 which sent the market diving 20% in a few weeks. After that big sell-off the Fed did a 180 and has now shifted back to an easy money stance. Remember, the market is very sensitive to easy money and that has been one of the primary catalysts for this entire 10-year bull market. Stocks also rallied nicely on a slew of positive reactions to earnings and economic data. For now, near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low.

Monday-Wednesday’s Action:

On Monday, stocks fell more than 200 points after shares of Caterpillar and Nvidia plunged on earnings and weak guidance. Caterpillar’s stock fell hard after the company reported earnings. Separately, shares of Nvidia plunged after the company lowered guidance and warned of a weak quarter. Stocks were quiet on Tuesday as investors digested the latest round of earnings and waited for Apple to report after the close. Apple rallied after reporting earnings and this was a classic case where the tech giant lowered guidance before announcing numbers. If the company didn’t lower guidance significantly, it would have been a big miss. Wednesday was a big day on Wall Street as the market soared after the Fed said it will be patient and not raise rates again in the near future. That was a complete shift from what the Fed said in October (it would continue raising rates) and that comment sent stocks plunging 20% before bottoming on December 24, 2018. This lesson reiterates the importance of paying attention to the Fed. After Wednesday’s close, Facebook gapped up after reporting numbers.   

Thursday & Friday Action:
Thursday was the last day of the month and January 2019 was the strongest January since 1987. That could be a good thing or a bad thing depending on what happens later this year. Remember, the stock market crashed in October 1987 and lost over 22% in one day! Let’s hope that doesn’t happen again. Before Friday’s open, the Labor Department said US employers added 304,000 jobs last month (despite the government shutdown) which easily beat estimates. That was a very strong report and signaled continued economic strength. 

Market Outlook: Market Rally Continues 
The market has turned around after the Fed reversed its stance and moved back into the easy money camp. Near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low. As always, keep your losses small and never argue

Week Ahead: Global Central Banks Juice Stocks…Again

Global Central Banks Juice Stocks – Again:

The market opened lower last week but closed mixed to higher after the Federal Reserve and the European Central Bank (ECB) made it abundantly clear that easy money is here to stay for the foreseeable future. The big bullish change is that the Fed put (which means the Fed will step in to help the market when it gets in trouble), is alive and well. Since the Great Recession, every time the market fell 10% or so, the Fed, and other central banks, would step in and announce more easy money. In October 2018, the Fed tried to shift its stance but the market quickly plunged 20% before the Fed blinked and reversed back to an easy money stance. For now, the market continues to react well to that easy money and as long as it continues to act well, the bulls are getting stronger. Near term, the 50 DMA line is support and the 200 DMA line is resistance. Longer-term, December 2018’s low is major support and 2018’s high is major resistance. The fact that the market refuses to fall is very bullish and, as long as that continues, it should be respected. To be clear, if the market starts falling again, and ignores all the easy money, then we will be in for a very ugly bear market. 

Monday-Wednesday’s Action:

On Monday, global stock markets ended mixed as the U.S., stock market was closed in observance of the MLK holiday. China said its economy grew +6.6% in 2018 which was the lowest rate in 28 years. Separately, the IMF cut its forecast for global growth to 3.5% in 2019 and 3.6 percent for 2020. On Tuesday, when markets reopened in the U.S., stocks fell hard as global economic growth concerns spooked investors. But the bulls showed up right near important support (50 DMA line) and defended it by the close. On Wednesday, stocks opened higher, after IBM, Comcast, and a handful of other companies reported earnings. But sellers showed up after the open and stocks fell into the red for the day before a late day rally helped the market close mostly higher. Stocks ended mixed on Thursday as investors digested the latest round of earnings and digested the recent (and robust) rally.

Thursday & Friday Action:
Before Thursday’s open, the European Central Bank (ECB) said that easy money is here to stay for the foreseeable future but that was not enough to send stocks higher as the market ended mixed. In D.C., the government shutdown continued which is a drag on the economy but it was resolved on Friday after Trump opened it up until Feb 15, 2019. Stocks soared on Friday after the Fed announced that it is open to scaling back its program to reduce its balance sheet. That is another way of them shifting back to an easy money stance. 

Market Outlook: Market Rally Continues 
The bulls are doing their best to rescue the market from falling any further. The market was extremely oversold and is currently bouncing to help work off that oversold condition. Resistance is the 200 DMA line for the major indices. After that, the next big level of resistance to watch is 2018’s high. Meanwhile, support is December 2018’s low. As always, keep your losses small and never argue with the tape.

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