June 29, 2018
Posted 9:30 AM ET - This week the market sold off on trade war tensions. The rhetoric is heated between the US and its trading partners. Stocks dropped on the news and the S&P 500 challenged key support at the 100-day moving average. Buyers stepped in and support held. Major economic releases, end of month fund buying and earnings season lie ahead. These "market friendly" events are overpowering trade concerns. I have been mentioning that traders are numb to trade war rhetoric. Tariffs will take time to implement and the impact is unknown. Trump is testing the waters so that he can find middle ground. His popularity is on the rise and he needs to carry that momentum into the November mid-term elections. He is likely to win seats in the Senate, but maintaining a House majority is in question. Without both his agenda will be impossible to execute. The market does not like uncertainty (trade war) and he knows a steep market correction could negatively impact November elections. I believe China is the key. They are keeping North Korea at the table by participating in economic sanctions. Almost all of North Korea's exports go to China and if Xi resumes trade with them Trump’s leverage will be diminished. The prospect of de-nuking North Korea has helped his popularity. Trump needs to reestablish trade negotiations with China. If he can get a deal done with our largest trading partner it will put pressure on other countries and it will keep North Korea at the table. The market has shouldered negative news the last two weeks and that is a bullish sign. Next week ISM manufacturing, ISM services, ADP, official PMI's, the FOMC minutes and the Unemployment Report will be released. I am expecting strong results across the board. In two weeks earnings season will begin. Profits will be robust and guidance will be strong. There might be some comments about the possible impact of tariffs, but we don't know if those taxes will be imposed. Stocks have dropped in anticipation of the actions and buyers are likely to scoop them once profits are posted. The financial sector will get a boost today. Banks passed the stress test and they have announced major stock repurchases. This sector has been a drag on the market, but the news today will help the S&P 500. If Trump stays quiet for a few weeks the market will grind higher. If he suggests that trade talks with China should resume, the market will make a new high. Swing traders should be long IWM calls from the $166 level. We will hold them without a stop. This index will complete its rebalancing today and the price action will normalize. Small cap companies will be less affected by tariffs and I'm expecting money to flow into these stocks. IWM has been strong on a relative basis. Day traders should focus on the long side today. As long as we are above SPY $270 I am buying. If the market can rise above the first hour high I will be more aggressive with my longs. The market is up this morning and we should see a nice rally. Support is at SPY $270 and resistance is at $274. . .
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