Monday Market Movement – Bouncing Back to Highs?

Trade War – so what?

Despite Friday’s sell-off, which was more a result of Turkey’s currency issues than the escalating Trade Wars, the markets are still generally shrugging off any and all bad news as they continue to march into uncharted territories.  Nothing has changed today – the Turkish Lira is still collapsing only now it’s taking other currencies with it and the Trade War talk is heating up between the US and China, the US and Japan, the US and Russia, the US and Europe, the US and Canada and the US and Mexico and I THINK that’s all the countries we’re fighting with at the momen- all I know is I’m on a cruise with people from all over the World and they all ask me “What the f*ck is wrong with your President?“

So far, we’re only scratching the surface of Trump’s actions compared to Trump’s threats.  About $700Bn worth of tariffs have been threatened which would tax the American consumers $175Bn at 25% but, so far, “only” $63Bn worth of tariffs have been enacted so 1/10th of the way there and look at all the chaos it’s already causing.  Want to stay for rounds 2-10?

Yet traders seem perfectly happy to ignore the multiple elephants in the room as we party like it’s 1999 and now we’ll see if last week’s dip was the start of a correction or yet another pullback we bounce right back from.  Bounce lines to watch are:

• Dow (/YM) 25,650 to 25,175 is a 475 drop so we’ll call it 100-point bounces to 25,275 (weak) and 25,375 (strong)
• S&P (/ES) 2,860 to 2,820 is a 40-point drop so call them 10-point bounces to 2,830 (weak) and 2,840 (strong)
• Nasdaq (/NQ) 7,500 to 7,375 is 125 so we get 25-point bounces to 7,400 (weak) and 7,425 (strong)
• Russell (/RTY) 1,700 to 1,675 is 25 points so 5-point bounces to 1,680 (weak) and 1,685 (strong)

We’re certainly going to get our weak bounces and probably strong bounces into the open but what matters is what holds for the day from a technical standpoint but, from a psychological standpoint – the bulls are still firmly in charge and happy to pay more and more money for the same stocks that were 16% cheaper just last August (/ES 2,450, for example). 

In fact, Jim Cramer is on CNBC right now telling the sheeple that trade wars don’t matter and are having “far less than the expected effect on earnings than people feared” though Cramer is no idiot and can read the same chart we can which clearly shows that only 10% of the announced tariffs have been enacted so far and most of those too far into the April/May/June quarter to have possibly had any impact on anyone’s bottom line.  So why is Jim Cramer trying to mislead his viewers into a false sense of complacency?  Surely he can’t have completely sold out to CNBC’s Corporate Sponsors who want you to BUYBUYBUY whatever they’re paying to push at the moment?  

It’s not just Cramer, of course, all these Financial talking heads serve at the pleasure of the sponsors and the sponsors are mostly investment banks and brokerages who are NOT looking for people to tell you to stay out of the markets.  Never forget how CNBC and other networks reassured you and told you everything was fine before and during the Financial crisis and then, when the Government stepped in and things were going to get better – they told you NOT to go back in – because their sponsors wanted to get in first!  

Then there’s my fellow newsletter writers.  They don’t like to tell you to worry because people want to know what stocks to buy – telling them not to buy anything causes subscribers to look elsewhere for advice.  I’m fortunate to have a subscription service with a very steady base but the churn of subscribers in a normal market newsletter is 30% PER MONTH – so it’s essentially business suicide to not give the people what they want – even if what they want is all wrong for them.  And I won’t say I’m any better because I don’t need this income to feed my family – so I can say whatever I want but I’m not sure I’d be so honest with you if I needed your monthly check to pay my bills. 

At this point, we don’t need to be too worried as long as the technicals hold up.  We are miles about the 50-day moving averages on all indexes but the Russell (1,677) and it’s not going to be a market turn unless those are breached and bouncing off the 50 dma, like the Russell is doing, is a sign of strength, not weakeness as we bounced of 1,677 on the button overnight. 

We have PLENTY of long positions but we also have PLENTY of hedges – so we really don’t care which way the market goes but I would urge caution as long as trade sanctions continue to be added and not subtracted as there are hundreds of Billions of Dollars that can still be added by both sides and, before you know it, we’re talking Trillions in tariffs and that might, finally, matter.  The week ahead is light on data, we’ll see if the market can keep drifting higher:

And there are still plenty of earnings reports to mull over but most of the majors are out of the way at this point:

Provided courtesy of Phil’s Stock World.