July 2, 9:13 AM
July 2, 9:13 AM
PRE-OPEN MARKET COMMENTS MONDAY - The S&P 500 is trapped in a 40 point range and the pressure is building. Support is at SPY $270 and resistance is at $274. A major holiday will bisect the trading week and major economic releases will be in focus. This market compression will be resolved shortly and the it will breakout or breakdown.
Trade wars are escalating and all of our partners have outlined retaliatory tariffs. The steel and aluminum tariffs will go into effect at the end of this week. China, the EU, Canada and Mexico will respond if Trump follows through. Mexico elected a hard left candidate who is demanding respect from the White House. Trump said that he will wait for the November midterms before he negotiates NAFTA.
China's stock market has been dropping and it is down more than 20% from its high this year (bear market). The PBOC has injected $70B into the financial system and they could devalue the Yuan to offset tariffs. Xi also said that China would stop buying US Treasuries. China has kept North Korea at the table and now we are hearing that Kim has increased production at its primary nuclear facility. From the very beginning I believe China used North Korea as a pawn to secure a favorable trade deal. Now that US trade negotiations have stalled, China could lift sanctions against North Korea. I hope I am wrong – time will tell.
China plans to become the most powerful country in the world by 2025. The biggest threat is that China’s economic growth stalls and that the shadow banking industry starts to default. If Trump knows one thing it is real estate. He knows that China has incredible exposure (50-60 million vacant homes). I will be watching for signs of strain. Credit is the only thing that can cause a prolonged market correction.
Trump is spread very thin and he has picked fights with friends and foes alike. He needs to close the loop and formalize trade agreements with countries one by one. This needs to start right away if he is going to maintain his popularity into the November mid-terms.
This negative backdrop is weighing on the market. If not for trade wars, the market would be making a new all-time high. The economic numbers this week will be excellent.
Official PMI's were little soft and China's number slipped (51.5 vs 51.9). ISM manufacturing will be posted after the open. ISM services, ADP, the FOMC minutes and the Unemployment Report will be posted this week.
Next week companies will start announcing earnings. Profits excite investors and stocks have the potential to bounce on the news.
Swing traders are long IWM around the $166 level. The rebalancing is over and the dividend will be paid tomorrow. After that I expect IWM to outperform the S&P 500. That does not mean that it will go down if the market breaks key support. The Russell 2000 is less exposed to the impact of tariffs. We will hold without a stop until earnings season is underway.
Day traders should let the early action play out. Use SPY $270 as your guide. I will be looking for stocks with relative strength this morning. If the SPY bounces I will buy these stocks and I will use $270 as my stop. If I don't get the move I will stay sidelined and I will wait for the momentum to be established. Go with the flow and use $270 as your guide.
Swing trading is been extremely difficult with these political crosswinds. I am focusing on day trading until we breakout of this range.
July 2, 9:13 AM
July 2, 9:11 AM
TRADE COMMENTS MONDAY – We missed our exit on CELG Fri by $.02 - very frustrating. We are going try and sell the July $80 calls for $2.00 today. FB had an upgrade and the stock should hold up well relative to other tech stocks today. Our QQQ calls will take a hit today, but we have seen buying at this level. We need to get to earnings season and then I believe the QQQ will rally. This is just another dip we have to weather.
July 2, 9:11 AM
June 29, 12:10 PM
June 29, 12:08 PM
June 29, 9:27 AM
June 29, 9:27 AM
PRE-OPEN MARKET COMMENTS FRIDAY - 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.
June 29, 9:26 AM
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