Week-In-Review: Selling Continues Ahead of Long-Weekend As Trade Woes Linger

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The market fell again last week after China said the trade talks will stop until the U.S. addresses its ‘wrong actions.’ The latest negative headline du jour aside, the market was way overdue to pullback after a strong year-long rally. For the past few weeks, the market has been living below the 50 DMA line which is not ideal in the near-term. In the short-term, the next levels of support to watch are May’s low, March’s low, the 200 DMA line and then 2018’s low. Meanwhile, the next levels of resistance to watch are the 50 DMA line and then 2019’s high. Until the 50 DMA line and or May’s low is breached, I have to expect this sloppy/sideways action to continue. If the 50 DMA line is broken, then higher prices will follow. Alternatively, if May’s low is breached, then lower prices will likely follow.

Monday-Wednesday’s Action:

Stocks fell on Monday after Google decided to cut ties with Huawei. That move sent a slew of semiconductor stocks lower as more and more companies will cut ties with Huawei. The move came after President Donald Trump’s administration added Huawei to a list that requires U.S. companies to get a license before doing business with these companies. Elsewhere, Bloomberg News reported that companies like Intel, Qualcomm and Broadcom will stop supplying Huawei until further notice. On Tuesday, stocks rebounded after the U.S. eased restrictions on Huawei. In other news, a few retailers reported earnings and the results were mostly negative. Shares of Kohl’s tanked 12.4% after the company reported weaker-than-expected earnings and shares of J.C. Penney plunged 7.4% after reporting its numbers. On Wednesday, the market fell after China said it has to “rethink economic ties with the U.S.” and the Federal Reserve released the minutes of its latest meeting. The Fed said it will not be raising rates anytime soon, even if the economy strengths. The market still fell on the day.

Thursday & Friday Action:

On Thursday, stocks fell after China said trade talks can’t continue until the U.S. addresses its ‘wrong actions.’ That spooked the market and sent futures down 250 points before the open. The market enjoyed an impressive rally for most of this year thanks in part to two major points: the Fed would shift back to an easy money stance and the U.S. China trade spat will be resolved. The former occurred and for the past few weeks the second is in limbo. In other news, IHS Markit said U.S. manufacturing activity slid to a nine-year low. Stocks were slightly higher on Friday after Trump said Huawei could be included in a trade deal with China and that a trade deal could be reached very soon. Separately, U.S. durable goods fell -2.1% last month as exports swelled and inventories rose. In other news, Theresa May resigned as Prime Minister as Brexit pressure continues to rise. 

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 May’s low, 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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