August 19, 2019
Posted 9:30 AM ET - There are plenty of cross-currents and market volatility is high. The news cycle is light and traders will go off of what little news they have. This week the FOMC minutes, flash PMI's and “Fed speak” in Jackson hole will drive the action. Trading volume will be relatively light during the week. When the market is soft we can expect encouraging statements from Trump. Record highs for the S&P 500 have been used as a battle cry during his rallies and he watched the market. Over the weekend there were suggestions that trade negotiations with China are improving. Xi is just toying with us and there will not be a trade deal before the 2020 election. Trump needs to focus on USMCA and a trade deal with Japan. Both seem attainable and this would calm investors who are concerned that the US has trade wars with the world. There have been mixed reports on Huawei restrictions being delayed. Any postponement might help trade negotiations with China. China will lower interest rates for business loans and this is a form of easing. Protests in Hong Kong continue and to this point they have been peaceful. The movement is gaining traction. Hong Kong has proposed a $3 billion stimulus program to offset economic weakness caused by the protests. Japan and South Korea are in a trade war. This could impact both economies. The FOMC minutes and "Fed speak" won't reveal much. I believe that we will get a September rate cut if (and only if) the market is below the 200-day moving average ahead of the next meeting. The Fed will signal future rate cuts, but no time line will be provided. Germany is considering a $50 billion stimulus plan. Last week we learned that Q2 GDP declined .1%. Economic growth in Europe is dismal. British Prime Minister Boris Johnson will travel to Germany and France this week. He will tell EU leaders that parliament cannot stop Brexit. The EU has two months to propose a deal that is acceptable to the cabinet and parliament and that England is prepared to exit without an agreement. This feels like a train wreck is coming. Argentina is on the ropes and credit concerns are an issue. Their bond rating has been lowered and the Minister of Finance resigned. Earnings season is over and stocks are trading at the upper end of their valuation range. Any slowdown in domestic economic activity will spark selling. Earnings guidance needs to remain strong or profit-taking will surface. Swing traders are in cash. We will let this rally run out of steam and we will look for an opportunity to short again. Resistance is at SPY $294. Day traders should be a little cautious with this opening gap higher. I don't believe the "tidbits" of news justify the rally this morning. The selling pressure will increase the closer we get to resistance at SPY $294. I will be looking for a shorting opportunity near the open if the bid starts to crumble. If we take out the low of the day I will get more aggressive with my shorts on the notion that we will test $290.22. Trading volume will be light and daily ranges should compress this week. Look for choppy trading on light volume this week. Support is at the 100-day moving average (SPY $290.22). . .
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