Market Direction: BULLISH alert
issued 2/15/2018
The economyEverything that was good about this stock market is now bad. President Trump has figured out how to take everything that was going positive with the stock market and make it a mess. The tariff dispute with China changes the whole game for the stock market going forward. The stock market has lost over 1,400 points since the beginning of the week.
The market direction has not changed to bearish, but the stock market is under pressure and all current indicators suggest things are getting worse.
Equities dropped sharply this week, giving up ground for the second week in a row, as investors took in the latest policy directive from the Fed, a new round of tariffs from the White House, and cries for greater data regulation following a scandal involving Facebook (FB). The S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average finished with losses between 5.7% and 6.5%, which marks their worst week since the big sell off in early February.
Facebook kicked off the week by declining nearly 7.0% on Monday following reports that research firm Cambridge Analytica mined the data of 50 million Facebook users without their consent, and then used that data to deliver targeted pro-Trump ads during the 2016 presidential campaign. The incident has given new life to proponents of data regulation and, in turn, been a headwind for shares of social media companies, which would likely see a decline in profits due to said regulations.
Investors turned their attention to monetary policy on Wednesday when the Federal Reserve increased the fed funds target range by 25 basis points to 1.50%-1.75%, as widely expected, and left its forecast for a total of three rate hikes this year intact. The latter was a relief for investors, who thought that the central bank might raise its 2018 forecast to include a fourth rate increase. However, the Fed does anticipate that it will need to be somewhat more aggressive in tightening policy over the next two years (2019-2020).
Trade war fears came back into the mix on Thursday after President Trump signed a presidential memorandum that allows for tariffs on up to $60 billion worth of Chinese goods. The tariffs, which the president says are punishment for China's alleged intellectual property theft against U.S. tech companies, prompted a retaliation response from China, which said it plans to levy duties of up to $3 billion on U.S. imports -- a drop in the bucket considering the overall value of imported goods to China.
11 of 11 S&P sectors finished the week in negative territory, with the top-weighted technology (-7.9%), financials (-7.2%), and health care (-6.8%) groups leading the retreat. The energy sector (-0.9%) was the top performer, benefiting from an increase in the price of crude oil; West Texas Intermediate crude futures jumped 5.7% to $65.87 per barrel -- their best level since late January. The crude rally was helped by the EIA's weekly inventory report, which showed that U.S. crude stockpiles declined for the first time in three weeks.
A breakdown of technical support played into this week's selling after the S&P 500 dropped comfortably below its 50-day simple moving average (2743) at Monday's opening bell. The benchmark index finished Friday just a tick above its 200-day simple moving average (2585).
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By the numbers the weekly closing index numbers compared to the initial BULLISH recommendation closing numbers:
Stock Market Closing Numbers
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compared to Recommendation Numbers
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2/15/2018
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3/23/2018
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Difference
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25,200.37
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23,533.20
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1,667.17
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7,256.43
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6,992.67
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263.76
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2,731.20
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2,588.26
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142.94
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