As President Trump promised, the United States has exited its failed nuclear agreement with Iran, imposing on it new and far-reaching sanctions. Iran will now try to turn to diplomatic channels and see whether it will tenable for it to uphold the agreement reached in 2015 with China, Russia and European countries – without the U.S. At the same time, if the deal fails – Iran is likely to yet again continue developing its nuclear program.
Over the last few months, the market has experienced a significant change in the way it responds to news headlines. Prior to February, all news was seen as good news. The market, time in and time out, ignored everything and anything that could have been seen as negative: the North Korean nuclear threat, Trump’s political difficulties, and the Fed, which had been gradually tightening its monetary policy.
Since the market peaked at the end of January, it has become more and more sensitive to news. Fears of a trade war caused the market to bounce around like a hot potato, jogging volatility. The market failed to rally in response to a very positive earnings season and needed Warren Buffett to create positive upward movement.
Technically speaking, the rebound that kicked off after the intraday reversal last Thursday very quickly transposed the market from being at an oversold state to an overbought state. The indexes have now encountered significant resistance levels. Technical analysts are already anticipating a retreat – and a price correction. It’s important to recall that the uptrend the market has long enjoyed and which carried it into the month of February, is now over. From February on, the market has experienced a series of failed attempts to climb back to its previous highs. We’re no longer seeing automatic buying in the face of corrections, and the market has responded strongly to headlines.
Yesterday, the market traded around the zero line, traders anticipating a reaction to the news that the U.S. had abandoned its nuclear deal with Iran, imposing in its stead a series of new sanctions. That was expected, the market, when push come to shove, closing flat. Early reports from media networks had added a level of confusion of their own, and we saw a number of computerized buying and selling programs set into motion throughout the day. With that said, a rally prompted by “buying the news” towards the end of the trading day, pushed indexes back to the zero line, satisfying most market players.
The question now is whether, in the long haul, we’ll see the market respond to the news. Technically speaking, the market had anticipated selling yesterday. Also, not moving in sync with the news was crude, which was supposed to be the biggest winner of the U.S. decision, but which traded in very volatile fashion, likewise ultimately ending unchanged.
The market will now await the next catalyst, which will either be the issue of the trade balance with China, or interest rates. Since negotiations between the U.S. and China ended over the weekend, not much interest has been vested in the topic of trade.
The S&P 500 is trading at the upper edge of its trading range and technical analysts expect resistance levels on the upside to hold their ground. On the other hand, a breakup past the 2,683 point level is likely to create a short squeeze, followed by another push to higher ground.
Wednesday: Investors will be primed and ready for producer inflation figures (PPI) at 8:30 N.Y. time. Wholesale trade figures will follow at 10:00. The companies expected to report before opening include: BUD, GRPN, and TM. The market will also respond to the earnings numbers of these companies which reported yesterday after the closing bell: DIS, EA, ETSY, and MAR.
Have a great trading day!
Today’s Picks – Day Trading!