Market Direction Week of October 14, 2019: Negotiations Continue

Market Direction: BEARISH alert issued 10/3/2019



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Market Direction Week Review: Stocks rose globally on optimism that Chinese and U.S. officials made progress in negotiations that laid the groundwork for a truce on additional tariffs. Positive comments on the Brexit front added to the optimism, leading international developed-market stocks to record their biggest weekly rise in four months. We think reduced uncertainty can be a catalyst for improved returns in international equities, but we would also caution that trade negotiations are ongoing, and more twists and turns could prompt volatility, as they have in the past. 

Investors appear to be feeling optimistic about U.S./China trade negotiations as all of the major U.S. indices are higher by roughly 1.5% across the board roughly 30 minutes into Friday’s trading session. Yesterday President Trump said that the first day of (two days of high-level) negotiations went “very well” while a White House official later conveyed the same sentiment, stating that they are going “probably better than expected”. Then this morning, Trump followed up with the following tweet: 

“Good things are happening at China Trade Talk Meeting. Warmer feelings than in recent past, more like the old days. I will be meeting with the Vice Premier today. All would like to see something significant happen!” 

Today’s optimistic tone is somewhat of a contrast to how the week started. China put restrictions on trade topics ahead of the discussions while the U.S. implemented visa restrictions on Chinese government and Communist party officials responsible for the detention or abuse of Muslim minorities and put 28 Chinese public security bureaus and companies on a U.S. trade blacklist. While it remains to be seen what will come out of today’s trade discussions, if anything, this morning’s reaction in stocks demonstrates just how important the topic is to investors.  

How the market finished last week, the S&P 500 up 0.6%, the Nasdaq up 0.9%, and the Dow up 0.9%.

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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 10/3/19 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).

Markets ended the week on a high note, buoyed by positive trade developments, constructive Brexit talks and the extension of Fed T-bill purchases. While trade is not resolved, sentiment appears to have shifted in favor of the bulls this week. 

Towards the end of the trading session we learned that the U.S. and China have agreed upon a partial trade deal (or “phase one” deal as it has been coined), which includes a significant increase in purchases of U.S. agricultural commodities, agreements on certain intellectual-property and financial services issues and a delay of next week’s (previously scheduled) U.S. tariff increase. President Trump said that “Phase two will start almost immediately”. The developments are certainly encouraging but it’s difficult to say how substantive they will ultimately be. Markets also got a lift today from reports of “constructive” Brexit talks and the Fed announcing that it will extend T-bill purchases into Q2 of next year. At this point the trade news is probably priced in to equities and the focus will now turn to corporate earnings. Trade issues still remain and it’s difficult (if not impossible) to predict how earnings reports will turn out next week given the current uncertain environment, but the recent turn in sentiment will likely continue into next week and we will be watching for any change in the current alert.

Economic Calendar: Empire State Mfg (10/15), Beige Book (10/16), Retail Sales (10/16), Capacity Utilization (10/17), Leading Indicators (10/18)

Some of the major earnings announcements on deck: C, JPM, JNJ, UNH, NFLX.

$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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