Yesterday’s log entries pretty much cover my view of immediate-term conditions. Bottom line; we should be skeptical of the staying power of the three-day rally. Beyond the immediate-term, overall general conditions, while reflecting what I’ll call trade-war strain, are not at this point rolling over and signaling imminent recession/bear market.
The market sold off of its intraday high, but still, the major averages ended up roughly 1%.
The last three-day rally looks to me like nothing more than a relief bounce off of support, after a pretty steep uninterrupted decline. I just don’t see a sufficient short-term fundamental catalyst that’ll push stocks the mere 2% it would take to get them back to all-time highs. If indeed momentum took the market that far, without something substantial and sustainable on the trade front, any move to that level will I suspect be sold hard by short-term traders. Again, while anything can happen, I see low immediate-term odds of stocks even getting there, and I, therefore, expect a move below recent support over the next few trading sessions.
The market is diverging dramatically from my short-term hypothesis this morning.
Good earnings from Walmart and Cisco, along with decent housing data, strong jobless claims and a bullish Philly Fed Survey are certainly not hurting the market; Europe traded higher this morning, and Chinese equities were higher overnight.
As for Europe, I suspect the 6-month delay in U.S.’s plan to tariff autos has much to do with the rally.
Beyond good earnings, better data and tariff delays, Trump is set to sign an executive order blacklisting Huawei from U.S. markets this morning, although Huawei says they’d like to open a dialogue (rather than China, at this point, aggressively snapping back on that topic). On the other hand, Chinese state media is now on the attack regarding the trade war, painting the U.S. as a bully China won’t bow down to; that’s a departure from the virtual silence among China’s media to this point.
Given the political advantage Trump believes a hard approach to China yields him, I don’t see a near-term move by the U.S. that’ll allow current (or substantially higher) levels to be sustained; his move on Huawei today speaks loudly to that.
Technically-speaking: Both the macd and rsi are flashing bearish divergences (1-minute chart) since 7am… I won’t be surprised if spx rolls over before the end of the day. Beyond this morning’s technicals, I gotta believe that in light of the macro/political risk traders will be anxious to cash in on at least some of the last 3 days of gains…