Market Direction: BEARISH alert issued 8/14/2019
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Market Direction Week Review: Stocks
declined for the third straight week on persisting signs of a global economic
slowdown and renewed yield-curve worries. This rally was later reversed by
disappointing German and Chinese economic data, and by a brief inversion of a closely
watched portion of the yield curve. The 10-year rates dipped below two-year
rates for the first time since 2007, and 30-year yields fell to a record low
near 2%. Economic news was not completely lopsided to the negative, however.
U.S. productivity grew at a healthy pace, and retail sales for the month of
July were up the most in four months. In our view, recession fears are
overblown, but lingering global uncertainties are likely to keep volatility
elevated. We believe reasonable valuations, low interest rates, and still-solid
economic fundamentals are all supportive of stocks to continue to move higher,
but with periodic hiccups along the way.
The
big news this week was the announcement on Tuesday (8/13) that the U.S. will
delay applying additional tariffs on some Chinese imports until December 15.
The list of exempted items which includes Cell phones, video game consoles,
certain toys and footwear, are all part of the basket of $300B in consumer
goods that were originally set to have a 10% tariff applied to them on
September 1. U.S. trade representatives cited health, safety, national security
and other factors as the rationale for the exemptions.
As
protests in Hong Kong escalated further this week, mainland China appears ready
to mobilize troops to restore order. Protests have begun to inflict economic
damage in the province as demonstrators at the airport shut down all air
traffic into and out of Hong Kong. President Xi Jinping has called the
protestors terrorists and has subsequently assembled a large riot control force
just across the border in Shenzhen. While President Xi has not given in to
protestor demands, he is trying to strike a tricky balance in dealing with the
disruptions. Unilaterally removing Hong Kong’s autonomy could have significant
political and economic impact; which some analysts say he cannot afford at the
moment with the U.S./China trade war already causing an economic slowdown.
The
longstanding Brexit deadline of 10/31/19 is still intact and quickly
approaching. Despite the U.K. having a new Prime Minister, Boris Johnson, the
probability of a hard (no-deal) Brexit has not diminished at all; in fact, it
may have increased. While Parliament will not be able to request another
extension (should they decide to do so) until early September, the U.K. economy
continues to soften in anticipation, as evidenced by the first GDP contraction
of -0.2% in Q2, the first decline in over 6 years. This followed an expansion
of +0.5% in Q1.
How the market finished last week, the S&P 500 down
1.0%, the Nasdaq down 0.8%, and the Dow down 1.5%.
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Market Direction This Week: We track the stock
market based on our Bullish and Bearish Alerts a new Bearish Alert
recently started on 8/14/19 and we suggested to our followers not to trade any
new long positions. We will continue to provide you the current stock market
conditions as they develop. The current stock market environment is in a correction
trade with caution (see Market Direction Mid Week Update: Trading Strategies).
With the VIX up and the SPX down this week, volatile and bearish outlook was certainly on the mark and huge concerns. And while the market has calmed just a bit in the last couple of sessions, the prospects for next week aren’t much better. While earnings season is mostly over and the economic calendar it light, there is likely to be plenty of news coming from the President’s Twitter feed, events in Hong Kong, and discussions about the upcoming central bankers retreat on 8/23 and the G7 summit on 8/24.
Based on market indicators we follow there is still significant disagreement among them. As a result, the consensus is the stock market will still be very volatile for some time.
The economic calendar is very light this week.
Economic
Calendar: Existing Home Sales (8/21), Leading Economic Indicators (8/22), New
Home Sales (8/23)
Some of the major earnings announcements on deck: BIDU, HD, TJX, TOL, VMW.
$tockMarketDirection proprietary model is currently BEARISH. 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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