March 6, 2018.
“I think I can sum up the show for you with one word: NOTHING.” That’s how George opened up his pitch for the program Jerry and he marketed to NBC at the beginning of Seinfeld’s fourth season. The logic behind yesterday’s trading was that the market is going to fall because of concerns that President Trump had initiated a global trade war. Throw in the face that the S&P 500 traded beneath its 50-period EMA and it wouldn’t seem like the worst bet out there to anticipate losses.
Movement yesterday started slowly, but a little bit more than an hour into trading, the automatic algorithmic computerized programs went into motion, and what we go was no less than the market moving straight up – on a bee line – for the next few hours. The movement, of course, put traders going short in a headlock, causing investors underexposed to the market to chase after gains.
There was no news out there to explain the sharp upward movement on the indexes and that’s one of the reasons that so many market players positioned themselves incorrectly, in the wrong camp. The rally was based on utterly nothing, though many a time, these are the strongest rallies because of the fear of the unknown.
Of course, the business media vehicles create headlines that concern about a trade war has dwindled. That’s very far from the truth. What happened is that the market rallied, and the media simply couldn’t find a reason – so they assumed that something changed vis a vis tariffs. Remember: It’s not the news that’s spurring price movement. It’s price movement that’s creating the headlines.
If the latest pattern repeats itself, the market has more upward potential in the short-run and will try to slash up past the 50-period EMA again. The last time the market broke up the 50-period EMA it didn’t go the distance and failed to prompt sharp downward movement. Further short-term gains will create discomfort among market players who have started to anticipate a downward reversal in the near future.
Daily Summary: The Dow rose 1.4%, the S&P 500 tacking on 1.10%. The NASDAQ also added on 1%. The market, essentially, broke a 4-day losing streak, prompted in large part by Trump’s steel and aluminum tariffs. All 11 S&P 500 sectors ended up, led by utility and financial stocks.
The jury is still out whether a trade war is around the corner. Whereas Trump’s advisor, Peter Navarro, pointed the finger of blame on the media for fueling anxieties about a trade war, Trump, himself, had boasted on Friday in a tweet, “Trade wars are good and easy to win.”
The question, now, though is “Are the gains here to stay?” With algorithmic trading, sometimes, it’s anybody’s guess. SIA Wealth Management saw in yesterday’s movement more of a technical rebound rather than something with lasting power: “I see today’s rebound as more of a technical bounce. After two days of declines on big volume last week, stocks are bouncing back today on light volume. This suggests that the bears have backed off for now, allowing the market to recover a bit. We may also be seeing a bit of bargain hunting or short covering.”
Like always, we advise exercising a measure of caution. It’s almost impossible to gauge if Trump will back off to some degree to save face. Also, if he goes through with the import taxes, to what extent will domestic steel users be hurt? And, what’s happening with NAFTA? And how will China retaliate – if at all?! All of these questions engender more than a little uncertainty for traders and investors alike.
With that said, Trump seemed to back off, holding his hand really tight while putting all options on the table. In yesterday’s twitting rampage, Trump wrote, “We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.” So it seems like Trump is considering backing off, but using that prospect as leverage now in NAFTA negotiations.
In yesterday’s news, a number of stocks saw very large movement. Dermira (DERM) plunged 66% after its acne drugs after clinical trials didn’t materialize as expected, accentuating the dangers of pharmaceutical stocks whose fate relies on approvals of regulatory agencies. XL Group (XL) soared 29% on the heels of the announcement by French rival, AXA SA (CS) that it would buy out the insurer for $15.3 billion, pending shareholder and regulatory approval. Walmart (WMT) surged 1.36% after announcing a plan to launch meal kits at over 2,000 stores. Amazon (AMZN), which has seen meteoric gains this past year rose 1.6%, riding the wave of reports that it was in discussions with JPMorgan Chase (JPM) about crafting checking-account services. JPM was up 1.54%.
In today’s Economic Calendar, be primed for factory order numbers at 10:00.
Hot Stocks: JWN, ALOG, TGT, CIEN
|Monday||9:45||PMI Services Index||55.9||Medium|
|Monday||10:00||ISM Non-Mfg Index||58.8||Medium|
|Tuesday||10:00||Factory Orders||-1.2 %||Medium|
|Wednesday||8:15||ADP Employment Report||203,000||Medium|
|Wednesday||8:30||International Trade||$-55.1 B||Medium|
|Wednesday||8:30||Productivity and Costs||-0.1 %||Medium|
|Wednesday||10:30||Oil Inventories||3.0 M barrels||Low|
|Thursday||8:30||Jobless Claims||220 K||Medium|
|Friday||8:30||Unemployment Rate – Level||4.0 %||High|
|Friday||8:30||Average Hourly Earnings||0.2 %||High|
|Friday||10:00||Wholesale Trade||0.7 %||Medium|
|ROST||Ross Stores, Inc.||PM||Tuesday|
|URBN||Urban Outfitters, Inc.||PM||Tuesday|
|DLTR||Dollar Tree, Inc.||AM||Wednesday|
|COST||Costco Wholesale Corporation||PM||Wednesday|
|CZR||Caesars Entertainment Corporation||PM||Wednesday|
|AEO||American Eagle Outfitters, Inc.||AM||Thursday|
|NAV||Navistar International Corporation||AM||Thursday|
|DVMT||Dell Technologies Inc.||AM||Thursday|
|KR||The Kroger Co.||AM||Thursday|
|MRVL||Marvell Technology Group Ltd.||PM||Thursday|
|UNFI||United Natural Foods, Inc.||PM||Thursday|
|BIG||Big Lots, Inc.||AM||Friday|
|XRAY||DENTSPLY SIRONA Inc.||AM||Friday|
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