Market Direction: BULLISH alert issued 10/24/2019
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Market Direction Week Review: Stocks
extended their recent gains, finishing higher for the fifth straight week.
Recent signs of progress on trade negotiations, along with better-than-expected
corporate earnings, has helped recession fears to subside over the past month,
boosting investor sentiment. With the global growth backdrop starting to
stabilize, Treasury yields climbed to their highest level in three months. Uncertainties,
especially on the trade front, remain, but on a positive note, earnings are
expected to bottom out this year and reaccelerate next year to a
mid-single-digit pace. Given current reasonable valuations, we think this sets
the stage for moderate returns as we advance in this bull market.
Trade
data released this week showed that the US/China trade war resulted in a
decline of 4.9% in US imports from China, while US exports to China declined
10%; probably a key factor in why both sides seem to be more willing to try to
get a deal signed. While optimism has grown about the phase-one trade deal,
President Trump said the US has not agreed to roll back any existing tariffs.
Trade advisor Peter Navarro did confirm that postponing the already scheduled
December tariffs is a possibility however.
This
week Chinese trade negotiators said that they would like President Trump to
remove existing tariffs on $110B in goods imposed back in September, before
President Xi signs the “phase one” trade agreement. This relatively new demand
follows an existing request to postpone new tariffs on $156B in new goods that
were scheduled to take effect on December 15th. Chinese officials
see this as a reasonable and equivalent move by the US, if China is expected to
crack down on intellectual property theft. Whether these demands are met or
not, Commerce Secretary Wilbur Ross said that it is quite possible the
phase-one signing could slip into December.
This
week in Brexit news: Prime Minister, Boris Johnson apologized for his failure
to deliver Brexit on October 31, “do or die”, as he had repeatedly pledged;
pledging to do all that he can to push the Brexit deal though Parliament if his
Conservative Party wins the general election scheduled for December 12th.
Complicating matters further this week, Johnson pledged that there would be no
border between the UK and Norther Ireland; a statement that seems to contradict
other members of his own party; thus no one really knows at this point.
How
the market finished last week, the S&P 500 up 0.9%, the Nasdaq up 1.1%, and
the Dow up 1.2%.
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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).
Q3
earnings season is nearly over now. With 444 companies (89%) of the S&P 500
reporting so far.
A steady flow of earnings and economic data are expected to keep investors busy in the upcoming week. High levels of complacency from some indicators, combined with high levels of uncertainty from others point to a possible turning point in the markets for next week. While outright direction is unclear, traders should be on high alert for potentially larger price swings and a pickup in volatility.
The moderately bullish outlook we’ve had for the past 4 weeks has been quite accurate given the SPX is +5.0% since October 11. For next week however, the indicators seem to be pointing to something different. While some of them are showing unusual levels of complacency, others are showing high levels of uncertainty; two perspectives that can’t easily coexist.
Federal Reserve Chairman Jerome Powell and President Donald Trump will take centerstage this week.
President
Trump will be speaking at the Economic Club of New York during a luncheon
Tuesday. Market participants will be listening for details and clarity
regarding a potential trade deal between the U.S. and China. In the past week,
there have been conflicting messages on whether or not additional tariffs will
be imposed on Chinese goods.
President
Trump told reporters Friday that he had not yet decided on whether or not to
roll back tariffs as part of a phase one trade deal with China. His comments
follow reports earlier in the week a spokesperson for China’s Ministry of
Commerce said that both the U.S. and China agreed to reduce tariffs in the face
of a phase one deal. There are another round of U.S. tariffs on Chinese goods
set to go into effect December 15.
Economists
are cautious about the potential trade deal, as the impact of the ongoing trade
war continue to affect the economy. “As the talks go on, tariffs continue to
hammer the US economy,” UBS economist Seth Carpenter wrote in a note to clients
Friday. “Imports of goods tariffed in the first $250 bln tranches continue to
drift lower and are now 40% below the pre-tariff peak. Goods tariffed on Sep 1
fell 20% in the first month. Examples of tariff avoidance are scarce and even
amongst that set we see some successes (mattresses) and some failures (toys).”
Meanwhile,
Fed Chair Powell will head to Capitol Hill to testify before Congress. Tuesday
at 11 a.m. ET, Powell will go before the Joint Economic Committee to discuss
the economic outlook, and on Wednesday at 10 a.m. ET, Powell will testify
before the House Budget Committee.
Investors
will look for clues on the rate decision in December, comments on the effects
of the phase one trade deal and handling of the Fed’s balance sheet. Capital
Economics expects that Powell will likely to reinforce the Fed’s wait-and-see
message when he testifies on the Hill.
And while the eventual direction is unclear, the market’s vulnerable position (at or near record highs) leads me to believe there may be a greater chance of a pullback than is shown in the indicators. Don’t forget though, regardless of what the data shows, the usual caveat remains until further notice, “Trump’s tweets still trump everything else”. Economic Calendar: CPI (11/13), PPI (11/14), Retail Sales (11/15), Industrial Production & Capacity Utilization (11/15), International Trade (11/8)
Some of the major earnings announcements on deck: AAP, AMAT, CSCO, WMT, NVDA.
$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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