Image: iStock.com/Darwel
The market fell this past week after tensions spread regarding the US-China trade talks. For the past few weeks, the market was very extended to the upside and due to pullback. The “news” that triggered the sharp pullback was the US-China trade tensions but that was just the latest headline du jour —and the important thing to keep in mind is that the market pulled back and has worked off its over bought conditions. If we get a deal, the market can easily rip higher. On the other hand, if we don’t, and the talks just somehow “stop,” then it will keep falling. The odds of the former happening are much greater than the latter so I am looking at this pullback as another buying opportunity and for the market to bounce from here. The good news is that the bulls showed up and are doing their best to defend the 50 DMA line which is a healthy sign in the short-term.
Monday-Wednesday’s Action:
Over the weekend, Trump tweeted that he would raise tariffs and that spooked investors because it threatened the China trade talks. On Sunday night, futures plunged nearly 500 points and China’s stock market sank -3% on Monday. At Monday’s open, the market was down nearly 500 points and then spent the rest of the day recovering. The Russell 2000 ended higher on the day and the other popular averages ended with minimal losses. Stocks fell hard on Tuesday after U.S. Trade Representative Robert Lighthizer echoed Trump’s tweet and said the U.S. will increase tariffs on Chinese imports on Friday. That spooked the market and led many people to worry about the fall out to the global economy. Stocks opened lower on Wednesday but closed higher after China said it will take “necessary” countermeasures if US raises tariffs Friday. In other news, Uber priced its IPO toward the lower end of its target range at $45 – still a lofty valuation of $82 billion.
Thursday & Friday Action:
On Thursday, stocks fell hard after the open but recovered after President Trump said, “a deal with China is still possible, but tariffs are an ‘excellent’ alternative.” Trump said that Chinese President Xi Jinping “wrote me a beautiful letter, I just received it, and I’ll probably speak to him by phone.” That helped the market erase most of its earlier losses but investors were still concerned about what will happen on Friday. Stocks opened lower on Friday after the White House raised tariffs on China and the trade talks ended for the week without a deal. Stocks bounced after Treasury Secretary Mnuchin said the talks were constructive. Separately, Uber finally started trading on the NYSE, with the ride-hailing giant trading 185 million shares before closing down at $41.57.
Market Outlook: Bullish Tailwind Continues
Stepping back, the market remains very strong after the Federal Reserve reversed its stance and moved back into the easy money camp. Near-term resistance is the record high while near-term support is March 2019’s low, the 200 DMA line and then 2018’s low. As always, keep your losses small and never argue with the tape.
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