Market Direction: BULLISH alert issued 9/5/2019
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Market Direction Week Review: Stocks
finished higher for a second week in row, with the S&P 500 sitting within
striking distance of a record high. News that the U.S. and China agreed to hold
trade talks in Washington in October was the main catalyst for the rally.
Economic data was mixed as the manufacturing activity contracted, falling to a
three-year low, while non-manufacturing activity (which accounts for the bulk
of economic activity) expanded and accelerated versus the pace of activity in
July. August's jobs report showed that hiring slowed, but to a level strong
enough to hold the unemployment steady at a near 50-year low, with solid wage
growth. A healthy consumer, positive economic growth, and low interest rates
provide a good environment for stocks, in our view, although we still expect to
see volatility given the ongoing trade headlines.
On
Thursday, the office of the United States Trade Representative (USTR) and China
jointly announced that new face-to-face meetings in Washington are indeed being
scheduled for “early October”. Like previous meetings, this one will include
Chinese Vice Premier, Liu He, Treasury Secretary, Steven Mnuchin and U.S. Trade
Representative, Robert Lighthizer.
As
a reminder, on Sunday (9/1) new 15% tariffs were added to $112B worth of
consumer goods such as condiments, household goods and apparel. On 10/1,
tariffs will increase from 25% to 30% on an existing $250B of goods, and on
12/15, new 15% tariffs will be added to another $188B worth of consumer goods such
as video game consoles and laptops.
As
a result of the ongoing trade war with the U.S., the People’s Bank of China
(PBOC) announced a reduction in the amount of cash banks must hold in reserve,
to its lowest level since 2007. The new reserve ratio will take effect on
September 16, and will likely result in another drop in the already weakening
yuan, a move that will undoubtedly not be well received by President Trump.
Separately,
as protests in Hong Kong continue, this week appears to have provided somewhat
of a breakthrough. Hong Kong Chief Executive, Carrie Lam finally announced on
Wednesday (9/4) that she would withdraw the unpopular extradition bill that
sparked the protests in the first place. This move resulted a 3% rally in the
Hang Seng index and contributed to a strong open in US equities. And while some
protestors say the bill is not the only source of protests, Mrs. Lam’s move
seems to be aimed primarily at calming the protests enough to allow for the
resumption of normal business activities and creating some semblance of normal
everyday life.
This
week in Brexit news, U.K. Prime Minister, Boris Johnson was defeated when
legislators voted to seize control of Parliament in an effort to stave off his
insistence that Britain exit the European Union on Oct. 31, “come what may”.
The vote passed by a 327 to 299 margin in favor of a proposal requiring the
government to seek a 3-month extension to the Brexit deadline if it can’t agree
with the E.U. by Oct. 19. The measure had widespread support not only from
opposition legislators, but also from members of Mr. Johnson’s own party, who
risked losing their seats and membership in the Conservative Party, effectively
counterpunching Mr. Johnson after he succeeded in stalling parliament for 5 weeks.
In response, Mr. Johnson vowed to seek a snap general election if necessary,
but the House of Commons also rejected that initiative. As a result, the
standoff between Parliament and the Prime Minister may still result in the
third nationwide poll in only four years, though probably later in the fall.
How the market finished last week, the S&P 500 up 1.8%,
the Nasdaq up 1.8%, and the Dow up 1.5%.
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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 9/5/19 and we suggested to our followers they can trade any new long positions based on are model. We will continue to provide you the current stock market conditions as they develop. The current stock market environment is in an uptrend (see Market Direction Mid Week Update: Trading Strategies).
The economic calendar is fairly light next week and the Fed will be in a quiet period. However, it’s likely that President Trump will not be in a quiet period and with equities overbought in the near-term, a cautious approach would be prudent.
Yes,
manufacturing was weak, but services were stronger. Yes, new tariffs went into
effect this week, but new negotiations are being scheduled for October. Yes,
things have calmed down a bit in London and Hong Kong, but China is adding
stimulus which could strengthen the dollar. Yes, long-term interest rates
bounced a bit, but that also likely means fewer or smaller cuts from the Fed.
And finally, yes the SPX broke above technical resistance after a month of
trying, but with less than 1.5% to go to reach a new high, it is probably a bit
overbought in the near-term.
This
week offered plenty of news and data to move markets but from my perspective,
the overall net impact was mixed. Equities however, are at a 5-week high which
likely means a little softening or consolidation is in order for next week. There
were a few upgrades in the indicators we follow this week, and while volatility
has moderated somewhat, the consensus outlook for next week remains positive.
However, regardless of what the data shows, this caveat shall remain until
further notice, “Trump’s tweets still trump everything else”.
$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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