Market Direction Week of August 12, 2019; Stock Market Undecided Up or Down?

Market Direction: BULLISH alert issued 6/20/2019



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Market Direction Week Review: U.S. stocks finished the week modestly lower, and bond yields fell to their lowest level in three years, while volatility remained elevated because of escalating trade tensions between the U.S. and China. Global markets reacted to an unexpected drop in the value of China's currency, which was viewed as a retaliatory response to the recently announced tariffs on Chinese goods scheduled to take effect in September. Chinese officials later sought to reassure markets that they don't plan to embark in a currency devaluation campaign, calming investors. Our view remains that some form of an agreement or compromise can and will be reached, but not soon. The back-and-forth trade tactics will likely continue to stoke market volatility and pullbacks as we advance. However, we think the outlook is still positive based on resilient economic expansion, modestly rising corporate profits, and still-low interest rates. 

Markets staged an impressive rebound from Monday’s sell-off, but don’t get too comfortable. Trade relations between the U.S. & China remain heated, global economic uncertainty is high and volatility is likely to persist. 

After being down over 300 points earlier in the trading session the Dow Jones Industrial Average (DJI) has moved into positive territory at the time of this writing (though the SPX and NASDAQ remain in the red). The market resiliency is a surprise, especially given the comments made by President Trump earlier Friday morning (possible cancellation of China meeting in September and Huawei ban), but perhaps the hope for a trade resolution is increasing alongside the apparent intensification. Regardless, it seems he trade war developments will get worse before it gets better, the potential for volatility is underappreciated and the risk/reward is not favorable for the bulls at current levels. While this week’s recovery in stocks following Monday’s drop is admirable, I think it’s clear that President Trump intends to put more pressure on China in the near-term and suggested earlier in the week that he is comfortable if equity markets fall further as a result of this “process” with China. As a result, more volatility for next week.   

How the market finished last week, the S&P 500 down 0.5%, the Nasdaq down 0.9%, and the Dow down 0.7%.

 

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Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 6/20/19 and we indicated to followers new positions could be entertained at this time. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is under pressure trade with caution (see Market Direction Mid Week Update: Trading Strategies). 

Market volatility has picked up recently as a result of rising trade tensions and it’s likely to stay elevated as long as the trade contention persists. On Monday the VIX closed at an eight-month high but has been drifting lower throughout the week, which was primarily driven by the subsequent rebound in equity markets. Historically these +20 VIX spikes have been relatively short-lived, and it’s possible that Monday’s 24.81 high will represent this spike’s peak, but the trade war appears to be getting worse, not better, and therefore trading with caution is still warranted.  

Roughly 90% of S&P 500 companies have reported earnings and so far 56% have beat estimates on the top line while 76% beat on the bottom line (slightly below the respective 57% and 77% seen last quarter).

Next week we’ll be getting a heavy, steady dose of economic data. Out of everything that I see slated on the economic docket I’ll be keeping an eye on Thursday’s Retail Sales data.

Economic Calendar: CPI (8/13), Import and Export Prices (8/14), Capacity Utilization (8/15), Retail Sales (8/15)

Some of the major earnings announcements on deck: AAP, M, CSCO, NVDA, BABA. 

$tockMarketDirection proprietary model is currently BULLISH. We strongly encourage you to monitor positions closely, exercise proper money management strategies and follow us at $tockMarketDirection for ALERTS we may issue advising a change in the current market direction. Stay tuned and follow us. If you have a testimonial or comment of how this website has helped you we would like to know, email us. Building a community of investors one trade at a time. Share with a friend. Cha-ching!

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