March 21, 2019
Posted 9:30 AM ET - Tuesday the market broke out to a new relative high and it looked like we were off to the races. Late in the day we saw profit-taking and most of the gains were erased. Sellers were back at it yesterday and the market closed below the breakout leaving a bearish "evening star" pattern. The S&P 500 is down 10 points before the open and dovish Fed policy did not entice buyers. Fed officials said that they will not hike rates until 2020 and that the balance sheet roll-off will and in September. This was the best possible scenario for the market. Stocks rejoiced initially and then reversed late in the day. Future FOMC statements will be benign. They have adopted a neutral bias and weak global economic conditions are impacting their decision. Trade negotiations with China continue. Trump said that tariffs might remain long after an agreement is signed so that China is forced to honor the terms. The tone has soured a bit, but the market was pricing in a deal in April. I have no doubt that Xi is using North Korea as a pawn and that the summit with Kim Jong-un was orchestrated. China will keep "rocket man" in check in exchange for favorable trade concessions. The summit has been postponed until June (or later) and I believe that China will try to drag this out into 2020. A trade deal with China will not reverse the global economic downturn. Trump is considering auto tariffs in the EU. The trade concessions promised by Claude Juncker have gone nowhere since October and "the EU is not prepared for a comprehensive trade deal". This is the next battle and it could heat up at any time. Theresa May will try to get an extension from the EU, but there will be strict terms. Europe is also negatively impacted by the uncertainty and they might ask England to hold another referendum. Flash PMI's will be released tomorrow and I am expecting weak results. China, Japan, Germany and England have deteriorating economic conditions. Eventually that weakness will spread to the US. Swing traders should short the SPY if we close below $281 today. Only take a half position. The negative reaction to dovish Fed policy is a warning sign. We will add the second position when the SPY breaches the 200-day moving average. Day traders should focus on the short side as long as we are below SPY $281. Use that level as your guide. It feels like we will have a decent range today. . .
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