Range-Bound Action Continues…For Now
After all the dust settled, the market is still range-bound as it is trading between support and resistance. One must expect this sloppy range-bound action to continue until either resistance, or support, is taken out. Until either event occurs, we have to deal with this messy action. In the short-term resistance is the 50 DMA line and the first level of support to watch are August’s lows and then the 200 DMA line. Stepping back, we closed about 6% below a record high in the S&P 500 and other popular indices, so, as long as the market stays above support, I have to expect sideways or higher prices to follow. On the other hand, if we break below support, then we will likely head lower. For now, we are long and will remain long until our stops are hit.
Monday-Wednesday’s Action:
Stocks rallied on Monday as the major indices continued bouncing off their respective 50 DMA lines. In other news, The People’s Bank of China unveiled an interest-rate reform over the weekend aimed at stimulating economic growth The PBOC lowered borrowing costs for Chinese companies which is another form of easy money. In other news, Commerce Secretary, Wilbur Ross said the U.S. extended a license for 90 days that will allow Huawei to continue business with the U.S. companies to service existing customers.On Tuesday, the market fell as the major indices rallied into their declining 50 DMA line. Before Tuesday’s open, Home Depot gapped up over 4% after the company reported better-than-expected earnings. The home improvement giant did cut its full-year revenue outlook and warned that tariffs could hit adversely impact consumer spending. Stocks rallied nicely on Wednesday after shares of Target and Lowe’s gapped up on stronger than expected results.
Thursday & Friday Action:
Stocks opened higher on Thursday but sellers showed up after the major indices hit their respective 50 DMA lines and then pulled back. Central Bankers met in Jackson Hole for their annual meeting and the chatter suggested that the Fed may not cut rates at its September meeting. In other news, the yield curve inverted again after investors were concerned that the Fed may not step in to rescue the economy. Before Friday’s open, China announced retaliatory tariffs which sent futures lower before the open. After the open, Jay Powell spoke and reiterated he will continue to watch new developments. The bigger news came from President Trump when he lashed out against Powell and China’s President Xi. Trump also ordered U.S. companies to pull out of China. Stocks tanked after Trump’s tweet storm and erased its gains for the week. In other news, the G-7 meeting is this weekend and we will see what happens there.
Market Outlook: Easy Money Is Back
Once again, global central banks showed up and juiced markets. 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 more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks hit a hiccup and that is the primary reason for the recent pressure. As always, keep your losses small and never argue with the tape.
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