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By Jani Ziedins | End of Day Analysis
End of Day Update:
On Thursday the S&P 500 rallied after Trump unveiled his less-bad-than-feared tariff plans. He included exemptions for Mexico and Canada and left the door open for further flexibility with other allies. The market’s strength puts us just below the 50dma, a level that has acted as resistance the last few weeks.
I’m impressed with the market’s resilience in the face of what could have been interpreted as bad news. Most Republicans and members of the business community opposed Trump’s tariff plans because they believe it will cost more jobs than it creates. But either the market doesn’t care, or it doesn’t think it will be a big deal because we already erased the losses following Trump’s surprise announcement.
A market that rallies on bad news is a strong market. It doesn’t matter which side of the tariff debate we fall on, we are traders and the only thing that matters is what the market thinks. When confident owners refuse to sell, it doesn’t matter what the headlines are. I’m impressed with the market’s strength and the path of least resistance is still higher. If we were going to crumble on these headlines, it would have happened already. That means there is not much downside risk over the near-term.
Bitcoin finds itself in a bit of a rut as it stumbled under $9k for the first time in several weeks. What started as a routine dip a few days ago built downside momentum and we already exceeded the lows of a couple of weeks ago. Either we are carving out a near-term double bottom and will resume the rebound over $12k. Or owners will panic and bailout before “things get worse”.
While I still think there is more downside for BTC over the medium and long-term, it takes six months or more for a bursting bubble to find a bottom. That means there are still many months of bounces along the way. Now that we undercut the late February lows and triggered all that reactive and defensive selling, we should be in better shape. I wouldn’t rush in at these levels, but if we bounce above $10k, we should be on our way past $12k.
By Jani Ziedins | End of Day Analysis
End of Day Update:
Tuesday was a relatively benign session for the S&P500 with prices bouncing between modest losses and gains. But that no longer matters because shortly after the close, Trump’s top economic advisor dropped a bombshell by resigning in protest over the proposed tariffs.
This is a major blow to business groups because Gary Cohn was the leading proponent for business interests inside the Trump administration. Unfortunately he lost the tug-of-war with the pro-nationalist advisors. Potentially this marks a big shift in Trump’s policy priorities going forward.
The market is most definitely concerned about this development and futures are down more than 1%. Previously prices had been recovering from last week’s selloff on hope Trump would moderate his stance on universally applied tariffs. But now it looks increasingly likely we are headed for a trade war with our North American and European allies. I warned readers last week this could get ugly and unfortunately it looks like that is the way this is headed.
I most definitely disagree with Trump, there are no winners in a trade war. The proposed steel and aluminum tariffs will raise prices on goods Americans buy. Higher prices means less money left over for other things. And that is just the start. Europe already outlined retaliatory tariffs they will apply to American made products. As a whole, the EU’s economy and population is larger than the United States, so that will definitely have an impact on domestic exporters. Even the Aluminum Association that represents 144 producers wrote a letter to Trump saying they don’t support these tariffs because they think it will harm their customers.
Different reports I’ve seen said these tariffs will add about 1,000 jobs in the steel and aluminum industry, but costs us tens of thousands of jobs in other industries because of the higher steel and aluminum costs as well as the consequences of foreign retaliatory tariffs. The math just doesn’t add up and is why almost all business leaders and most Republicans in Congress are strongly opposed to Trump’s plan. The only logical conclusion is Cohn resigned because he felt like his views were not being listened to and that most likely means Trump is siding with the pro-nationalists on this issue, not the business community and fellow Republicans.
Inevitably this won’t be as bad as people fear because lobbyists will put loopholes large enough to drive a truck through, but we should expect a lot more volatility over the near-term as the trade war rhetoric ramps up. We will likely see further weakness over the next week. I don’t think this is a reason to dump long-term positions unless the retaliations get ridiculous, but swing-traders should wait for better prices before buying the dip.
Bitcoin prices continue to hover above $10k despite a wave of negative headlines over recent days. There was more talk of Korea and other countries banning Bitcoin. A month or two ago this would have sent prices tumbling. Instead we are only down $1k from recent highs. That tells us sentiment is improving as prices rebound from the $6k lows. The path of least resistance remains higher over the near-term, but it will take weeks for us to break $12k, $13k, and flirt with $14k. In the meantime, expect lots of back-and-forth.
By Jani Ziedins | End of Day Analysis
End of Day Update
It’s been a rough few days for the S&P500. First the new Fed chairman hinted at four rate-hikes this year versus the previously expected three. Then Trump blindsided the market Thursday by announcing 25% across the board steel tariffs and 10% on aluminum. Those headlines sent us crashing through 2,700 support on the highest volume since February’s big selloff.
Prior to Trump’s announcement, it looked like the market was coming to terms with a fourth rate-hike. This story is a close cousin of the inflation concerns that sparked February’s correction. Many of the owners that fear inflation and rate-hikes had already bailed out of the market, meaning there were fewer sellers this time. The lack of wider supply likely meant we would have bounce near 2,700 support.
But then Trump’s protectionist stance went far further than most were expecting, both in the size of the tariffs and the universally applied nature of them. While it is true that those mid-west, blue-collar voters are the ones that put him in the White House, this is definitely a case of hurting the many to help a few. The cost of these tariffs will be carried entirely by American consumers through higher prices. Higher prices means lower demand and less discretionary income. All to help the small segment of uncompetitive metal producers. And it doesn’t stop there, many countries will slap retaliatory tariffs on US made goods, decreasing demand for US products, directly affecting a wide swath of manufacturing jobs.
The sad thing is these tariffs won’t even bring steel and aluminum jobs back because anything that can be done with this president’s pen will likely be undone by the next president’s pen. Most steel and aluminum manufactures know this and is why they won’t do much except crank up their old, dirty, and inefficient plants. They’re not going to invest new money when they know this boon is only fleeting. But common sense has no place in politics and midterm elections are coming up.
Assuming Trump doesn’t back off due to the huge amount of criticism his proposal has gotten, starting trade wars will be bad for American consumers and businesses. That will directly impact earnings, growth, employment, and discretionary income. If Trump follows through and foreign nations retaliate, stock prices will suffer. These proposed tariffs are bigger and more severe than expected and most definitely not priced in. It will take a while for the market to come to terms with these headlines we could see prices slump further as investors weight the ramifications.
That said, I don’t think this will be enough to trigger a recession. If it is like any other bill, it will be crafted by special interest groups and have loop-holes large enough to drive a truck through. But it will be significant enough to undo a lot of the economic growth from the tax cuts. If Trump follows through, it could turn this year’s bull market into a sideways market.
At the moment there is no reason to sell long-term positions, but this weakness could persist and give dip-buyers a better entry point over the next few trading sessions. Or Trump could do what Trump does and change his mind. If he takes it all back, prices will surge higher in relief.
Bitcoin prices continue to do well. As I wrote last week, selling pressure over the near-term abated and the path of least resistance was higher. And so far that has been the case with prices now creeping above $11k. Breaking $12k is a no brainer and we will likely surpass $13k and even flirt with $14k over the next few weeks.
But this is a trade, not an investment. Major selloffs like we are in the middle of take 6, 12, even 24 months to bottom. We are still in the early innings of BTC’s correction. While there will be lots of profitable swing-trades along the way, lower-lows are still ahead of us. That means take profits when you have them and resist the temptation to hold too long.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 started Tuesday with modest gains, but the new Fed chief spooked the market when he hinted at four rate-hikes this year instead of the previously expected three. That was enough to send us into a tailspin that erased Monday’s breakout.
The Fed told us the economy is getting stronger and the market sells off. That’s like someone complaining about making $3 million because their taxes will go up. (If anyone feels that way, send the money my way and I will happily pay the taxes!)
Anyway, the market is fretting that things are too good. When is too good ever a problem? Well there is the inevitable excess that leads to the next economic contraction, aka a recession. But that is still a ways off because there are few claiming our economy is already overheated. In reality we are just starting to warm up following a prolonged period of lethargic growth. The Fed raising rates is simply us returning to historically normal levels and it is most definitely not yet approaching smothering levels.
Most market participants agree with the above assessment and is why we shouldn’t expect Tuesday’s dip to go very far, especially since it follows February’s selloff. That plunge under 2,600 scared off most of the weak holders and they were replaced by confident dip-buyers. Out with the weak and in with the strong means we are standing of fairly stable ground. Conceivably we could slip as far as 2,700, but that is unlikely and would represent a dip buying opportunity, not a justification to sell reactively.
It is not unusual to experience some downside volatility following the recent gains and lingering uncertainly. But market crashes are brutally quick and false bottoms last days, not weeks. The fact the market held up so well the last few weeks tells us most owners still believe in this market and Tuesday’s headlines didn’t change that. These owners will keep holding and their confidence is keeping supply tight. If we were going to plunge further, it would have happened by now. Tuesday’s dip was much-ado-about-nothing and any near-term weakness is a dip-buying opportunity.
As expected, Bitcoin slipped under $10k over the weekend, but the selloff failed to build momentum and we have since recovered above this psychologically significant support level. Runaway selling is taking a break because the weak hands have already been flushed out. Selloffs cannot get started when there is no one left to sell the dip. Things look good over the near-term the path of least resistance is higher. We will most likely break $13k and even push toward $14k over the next few weeks.
But the thing to remember is BTC is still very much in a downtrend. While we can buy this rebound for a quick trade, this is most definitely not a good place to invest in BTC for the long-term. These rallies are to be sold, not held or chased. Lower-lows are still ahead of us and we haven’t seen the worst of this selloff yet. Bitcoin prices peaked at the end of 2013 and it took nearly two-years before the selloff and consolidation ended. Most likely it will be another six-months before BTC finally reaches a bottom. Until then expect lower-highs and lower-lows.
Jani
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By Jani Ziedins | End of Day Analysis
End of Day Update:
The S&P500 started Thursday with healthy gains, unwinding all of Wednesday’s losses and then some. Unfortunately the buying didn’t last and prices slipped back near breakeven by the close. This is the fifth day the 50dma has been a ceiling for stocks.
There were not any economic headlines to speak of and instead investors are still grappling with the ramifications of rising inflation and interest rates. Some people think these will smother a fragile economy. Other feel this is the economy finally returning to more normal levels following a prolonged stretch of lethargic growth.
Count me as a member of the latter group. Even though inflation and interest rates have jumped a substantial amount, we are only approaching what used to be considered low rates during more normal times. Traders fretting the worst are fearing something that hasn’t shown its face yet. So far the economic data does not show any hints the economy is slowing down. These skeptical traders fear what “could” happen, but so far the data doesn’t support their concerns.
Even though the fears that triggered February’s correction appear overblown, the large selloff brought the rally back to earth. A substantial amount of technical damage occurred and we shouldn’t expect prices to zoom back to the highs any time soon. As I was wrote last week, the rebound’s rate of gains was unsustainable and prices would likely stall at the 50dma. And so far that is exactly what happened.
But it is not all bad. Even though we are struggling with 50dma resistance, holding these levels for five days shows support for prices. Prices tumble from overbought and unsustainable levels quickly and so far that hasn’t happened. That tells us the worst of February’s selloff is already behind us and we don’t need to fear another big selloff. That said, the selloff damaged sentiment and technicals enough that it will take time for traders to trust this market again. That means we will trade sideways for a while and consolidate the previous rally’s gains. This is normal and healthy behavior and there is nothing to fear.
The thing to remember about sideways consolidations is they include moves in both directions. At times the market will look like it is breakout out. Other times is seems like it is breaking down. But these are just gyrations inside a trading range. Over the near-term, weakness should be bought and strength sold. Don’t be one of those people the market fools into buying high and selling low. Have the confidence and conviction to trade against these swings.
As expected, Bitcoin’s surge to $12k stalled and pulled back. As I’ve been writing, the time to buy the dip is when everyone is scared and fearing the worst. Not after a rebound spread a sigh of relief through the crowd. Even though prices slipped back under the psychologically significant $10k level, the selling largely stalled and prices are not entering free-fall. Even though I think BTC’s worst days are still ahead of us, we are in the eye of the storm and prices will stabilize over the near-term. If we can hold $10k for another week or two, a follow-on rally up to $14k is not unreasonable. But since lower-lows are still ahead of us, any rallies should be sold, not chased. Previous crashes in BTC resulted in price declines greater than 80% and it took half a year or longer to finally bottom. Since we are only two months into this and only down 50%, we still have a ways to go. In the meantime, enjoy this brief reprieve and for the bravest of the brave, there might be a chance to buy the dip in a week or two.
Jani
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