Menu
By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
The S&P 500 popped Tuesday and reclaimed the psychologically significant 2,900 level as trade war rhetoric escalated. As it stands, the US will start applying tariffs to 50% of all Chinese imports and China will retaliate by taxing 85% of our China-bound goods. As bad as that sounds, the market doesn’t care.
But this reaction from the market is not a surprise for readers of this blog. Last week I wrote:
“Confident stock owners made it abundantly clear this summer that trade war headlines and White House scandals don’t matter. If nothing can take us down, it is only a matter of time before we go up.”
Sign up for Free Email Alerts so you don’t miss profitable insights like these.
Some pundits claim the market rallied because these headlines “were less bad than feared.” But that’s hogwash. Trump’s trade war keeps escalating, and it doesn’t look like it will stop until both sides are taxing everything. I’m not sure how a full-on trade war is “less bad than feared,” especially when it is crushing Chinese growth.
No, the real reason the market doesn’t care is a lot simpler than that. We didn’t dip today because everyone who fears Trump’s trade war sold months ago and were replaced by confident dip buyers who don’t mind holding these risks. When there is no one left to sell the news, it stops mattering.
Conventional wisdom tells us complacent markets are ripe for a pullback. But what conventional wisdom fails to mention is periods of complacency last far longer than even the bulls expect. When confident owners refuse to sell, it doesn’t take much demand to prop prices up, and that is exactly what is happening here.
As far as these events being less bad than feared, things could definitely take a turn for the worse. While Trump believes he has China backed into a corner, they still have the nuclear option. They could most definitely wreak total havoc on our economy, and many of Xi’s advisors are pushing him to use it.
While tariffs on imported Chinese goods are most definitely inconvenient and will affect corporate profits and consumer discretionary spending, that is far better than the alternative. Some Chinese advisors want to prevent Chinese companies from selling critical components to US manufacturers. Nearly overnight that would bring our manufacturing sector to a grinding halt. Ford, Chevy, Chrysler, Boeing, Caterpillar, and nearly every other manufacturer uses at least a few components made in China. Take those away, and our manufacturers would be forced to shut down for weeks and even months as they scramble to adjust. The temporary layoffs and inability to sell finished products would trigger a nearly instantaneous recession. “Less bad than feared” could quickly turn into “oh my god, what just happened?”
China’s nuclear option definitely qualifies as Mutually Assured Destruction because it would be equally crippling to the Chinese economy. But just the threat of such a move could send our markets tumbling and force Trump to reconsider his threats. While Trump might have China backed into a corner when it comes to tariffs, you never know what a cornered animal capable of.
I certainly don’t expect the above scenario to play out, but it would be incredibly painful if it did. The market isn’t even considering this, and its “half-full” outlook assume everything will work out in the end. But fear is contagious this is definitely something we need to keep an eye on.
Baring the above scenario, the market is acting exceptionally well. A market that refuses to go down will eventually go up, and we are setting up nicely for a rally into year-end. Assuming Trump and China come to a reasonable compromise, that will be the catalyst for the next leg higher. But if things get ugly and fear starts to spread, get out before things get worse.
If you found this post useful, Follow Me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours.
By Jani Ziedins | End of Day Analysis
Free After-Hours Update:
Thursday morning the S&P 500 popped above 2,900 resistance after China said it was willing to talk with the U.S. This strength put last week’s dip in the rearview mirror and last week’s nervousness is turning into this week’s hope.
Even though the market fell five out of six sessions last week, the losses were modest and contained. As I wrote on Tuesday:
“I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.”
Make sure you sign up for Free Email Alerts so you don’t miss profitable insights like these.
Two days later the market inched its way above 2,900, but rather than trigger a surge of breakout buying and short-covering, the rally stalled and we traded sideways the rest of the day. Small dips lead to small rebounds, exactly as expected.
While there is solid support behind these prices, this market still struggles to find new buyers. There was almost no follow-on buying this morning when we broke through 2,900 resistance. Most of that breakout buying and short covering happened two weeks ago when we first crossed this line. That meant there were fewer people to buy today’s breakout. The slow summer months are winding down, but volume is still pathetically low and it will still take time before those with cash feel comfortable chasing prices higher.
Confident stock owners made it abundantly clear this summer that trade war headlines and White House scandals don’t matter. If nothing can take us down, it is only a matter of time before we go up. The biggest near-term catalyst is the U.S. reaching trade compromises with Canada, Europe, and China. That news will push through 3,000. Unfortunately, politics is a slow and dirty process and it will be a while before we can put this episode behind us.
This market is resting and refreshing following last month’s rally to all-time highs. This is a normal, healthy, and sustainable thing to do. But since we are not refreshing through a bigger dip, that means we should expect a prolonged sideways period. When the market doesn’t scare us out, it bores us out. Things still look great for a year-end rally, but we need to be patient and let those profits come to us. This is a slow-money trade and we will have to wait a while before the next fast-money trade comes our way.
FB is flirting with recent lows as it struggles to overcome the fear of government regulations limiting its ability to make money. But as I wrote the other day, these limitations won’t be as draconian as feared and the stock will recover once these headlines are behind us. Even though prices could slip further over the near-term, this is a buying opportunity, not an excuse to sell a good stock at a steep discount.
NFLX is doing a better job than FB in recovering from last month’s earnings fueled selloff. As expected, last month’s weakness was a buying opportunity and no doubt reactive sellers are already kicking themselves for being so weak.
AAPL is already recovering from Wednesday’s sell-the-news reaction to their new phone lineup. Nothing unexpected or exciting was announced, it was simply more of the same. But more of the same is a good thing because that is what pushed AAPL over a $1 trillion market cap a few weeks ago.
AMZN is recovering from last week’s dip, but this looks more like a consolidation than the start of the next surge higher. We came a long way over the last few months and sideways consolidations are a normal and healthy part of every sustainable move higher. Things still look good for further gains later this year as desperate money managers will be forced chase the biggest winners into year-end.
Bitcoin climbed to the mid-$6k level, but the total lack of demand continues to be a problem. Last month’s bounce to $7.5k fizzled and no doubt the same thing will happen here. We could drift up to $7k resistance over the next few days, but the downtrend is still very much intact. Nothing gets interesting until we recover the previous highs near $8.5k. Unless that happens, expect lower-lows to keep piling up.
If you found this post useful, Follow Me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours.
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Tuesday the S&P 500 slipped at the open after China filed a petition with the WTO to retaliate against US tariffs. But that opening weakness was as bad as it got and we quickly bounced into the green. This was the fourth day the market respected 2,870 support at the old highs. Traders are definitely more inclined to buy this dip than sell the weakness. As long as confident owners refuse to sell, supply stays tight and prices remain resilient.
But this strength doesn’t surprise regular readers. Last week I wrote the following:
“…this latest round of weakness will only be a modest dip, not the start of a bigger crash. We fear what we don’t know, not what everyone is talking about. If we were going to crash because of trade war headlines, it would have happened many months ago. The fact we keep holding up so well tells us this is a strong market, not a weak one.”
Make sure you sign up for Free Email Alerts so you don’t miss profitable insights like these.
Trade war headlines were priced in months ago and we don’t need to worry about them. Owners who feared these headlines bailed out months ago and there is no one left to sell this recycling of the news. When no one sells the news, it stops mattering.
The economy continues to hum along and that is the only thing that matters to the stock market. As long as the economic numbers look good, expect prices to keep drifting higher. Institutional money managers that were hoping for a pullback will soon be pressured to chase prices higher or else risk being left even further behind. Their buying will propel us higher through year-end. Unfortunately that doesn’t mean the ride between here and December 31st will be smooth and uneventful. Expect volatility to persist, but unless something new and unexpected happens, every dip will be another buying opportunity.
Buying this 2,870 dip was better than chasing last week’s 2,920 highs, but it is too bad the market didn’t slip further and give us a more attractive entry point. I didn’t expect much out of this dip and that is exactly what it gave us. Since the market likes symmetry, we shouldn’t expect much out of this rebound either. The next move is most likely trading sideways near the psychologically significant 2,900 level. It will take time for those with cash to become comfortable buying these levels before we will start marching higher again.
It’s been a rough few days for the FAANG stocks, but they bounced back Tuesday. AMZN and AAPL took a much-needed break following their breathtaking climb higher. Pauses and dips are a healthy part of every sustainable move higher and there is nothing unusual about their price-action.
FB and NFLX continue consolidating following their tumble after second-quarter earnings. But there is also nothing alarming or unusual about their behavior here. Those were big losses and it will take a while before the market starts trusting these stocks again. Months ago traders who missed this trade were begging for a dip so they could jump in. Hopefully those traders are taking advantage of these discounts.
Bitcoin keeps slipping and is barely holding $6k support. Last week’s rebound to $7.4k is dead and gave us another lower-high since we failed to match the previous $8.4k bounce. Lower-highs tells us the next lower-low is just around the corner. Since most owners refuse to sell, supply is scarce and we are getting into the grinding part of the selloff where each dip takes weeks and months to play out. The trend is most definitely lower, but we will continue seeing these short, tradable bounces higher. But each bounce is still a selling opportunity. The worst is still ahead of us.
If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours.
By Jani Ziedins | Free Content
Free After-Hours Analysis:
On Thursday the S&P slipped for the fourth time out of the last five trading sessions. But this shouldn’t surprise anyone. It was a strong run following August’s decisive rebound off 2,800 support. Markets cannot go up like that indefinitely and a cooldown was inevitable.
Regular readers of this blog saw this coming a mile away. I wrote the following last Tuesday, one day before we rolled over:
If the best trade is buying weakness and selling strength, no matter how safe 2,900 feels, this is definitely the wrong time to be buying. Resist the temptation to chase these prices higher because recent gains make this a far riskier place to be adding new money. The risk/reward shifted away from us because a big chunk of the upside has already been realized while the risks of a normal and healthy dip increase with every point higher. In fact, if the best trade is buying weakness and selling strength, this is actually a darn good time to start thinking about locking-in profits. Remember, we only make money when we sell our winners and it is impossible to buy the next dip if we don’t have cash.
Make sure you sign up for Free Email Alerts so you don’t miss profitable insights like these.
I don’t have a crystal ball and I cannot predict the future, but when the market keeps doing the same thing over and over again, it isn’t hard to figure out what comes next.
As I wrote last week, it was inevitable the Canada trade deal wouldn’t be fast or easy. Missing Friday’s arbitrary deadline is all it took for last week’s hope to turn into this week’s disappointment. But to be honest, Canada’s refusal to be Trump’s lap-dog shouldn’t surprise anyone. The fact most people saw this coming means this latest round of weakness will only be a modest dip, not the start of a bigger crash. We fear what we don’t know, not what everyone is talking about. If we were going to crash because of trade war headlines, it would have happened many months ago. The fact we keep holding up so well tells us this is a strong market, not a weak one.
Thursday’s dip found support at the old highs near 2,870, but that doesn’t mean this dip is over. While I like buying 2,870 a heck of a lot more than 2,920, I still don’t feel the need to rush in at these levels.
Sometimes markets consolidate gains by pulling back. Other times they do it by trading sideways. It is still a little premature know which way this consolidation will go. Maybe we dip a little further, maybe we bounce back to 2,900 but struggle to climb back above. Either creates an effective consolidation, unfortunately right now the only thing we can do is wait for more clues. The good news is we should know more over the next couple of days.
At this point it is still a little too early to buy the dip. The discounts are modest and the profit potential is limited. I prefer better risk/rewards and am willing to wait a little longer. In a perfect world, we crash all the way down to 2,800 support before bouncing. That would give us a second opportunity to profit from the move up to 2,900. If only we can be that lucky.
If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours.
By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
On Tuesday the S&P 500 got off to a rocky start following the Labor Day weekend. Trump and Canada couldn’t come to terms on a new NAFTA and that let air out of last week’s hope-filled rally to all-time highs.
Tuesday’s weak price-action fits perfectly with what I wrote last week:
If the best trade is buying weakness and selling strength, no matter how safe 2,900 feels, this is definitely the wrong time to be buying. Resist the temptation to chase these prices higher because recent gains make this a far riskier place to be adding new money. The risk/reward shifted away from us because a big chunk of the upside has already been realized, while the risks of a normal and healthy dip increase with every point higher. In fact, if the best trade is buying weakness and selling strength, this is actually a darn good time to start thinking about locking-in profits. Remember, we only make money when we sell our winners and it is impossible to buy the next dip if we don’t have cash.
Make sure you sign up for Free Email Alerts so you don’t miss profitable insights like these.
It is little surprise Canada didn’t roll over for Trump and Friday’s arbitrary deadline came and went without a deal. Both sides threw barbs at each other in the press over the weekend, but this is little more than grandstanding for the cameras that accompanies all political negotiations.
Even though we didn’t get a deal this weekend, there is no reason we shouldn’t expect one over the next few weeks. Canadian and American businesses are far too reliant on NAFTA and it would be incredibly disruptive to both economies to throw it out. Even the president of the powerful AFL-CIO union came out strongly against excluding Canada. If the unions are against it, you know it must be really bad for business.
While the market dipped Tuesday, the losses were modest and we are still at levels that were all-time highs last week. This is more of an exhale following a strong run than the start of a bigger correction. This is an incredibly resilient market and owners have refused to sell far more dire headlines this spring and summer. There is no reason to think anything changed this week.
As I wrote last week, there are plenty of good reasons to take profits at these highs, but selling because Canada didn’t jump aboard Trump’s ‘new and improved’ NAFTA deal by an artificially imposed Friday deadline is not one of those reasons.
We take profits because it’s been a nice run. We take profits because we are running into resistance. We take profits because we buy weakness and sell strength. We take profits because we need cash to buy the next dip. But we definitely don’t sell because we are afraid of Canada collapsing this market.
Personally, I would love it if this selling spiraled out of control so that we could jump in at much lower levels. Unfortunately, I doubt we get that lucky. Instead, I expect this dip to bounce quickly. Support at the old highs near 2,870 is as far as this goes, and most likely we won’t even get that far. This is simply an exhale after a nice run and we shouldn’t read too much into this normal, healthy, and periodic gyration.
Until further notice, keep doing what has been working. That means buying weakness and selling strength in our short-term trading account and sitting on our favorite stocks with our longer-term investments.
If you found this post useful, join the thousands who follow me on Twitter so you don’t miss future updates: Follow @crackedmarket
Jani
What’s a good trade worth to you?
How about avoiding a loss?
For less than $1/day, have analysis like this delivered to your inbox every day during market hours.
You must be logged in to post a comment.