Market Direction Week of February 10, 2020: Caution Is Key

Market Direction: BULLISH alert issued 10/24/2019



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Market Direction Week Review: As expected, on Wednesday (2/5) President Trump was acquitted by the Senate on both of the impeachment charges brought forth by the House. Largely a political issue, it never really had any impact on the equity markets or the economy. 

Separately and related to the story below, on Wednesday (2/5) China announced that it will reduce tariffs on about $75B of US imports as a result of the potential economic fallout related to the coronavirus. President Trump has publicly praised Chinese President Xi for “strongly” leading the country during the virus threat, and reiterated that the US is working “closely” with Chinese authorities to fight the outbreak. 

The top news item for the 3^rd week in a row in Asia, was the further spreading of the new respiratory coronavirus. At the time of this writing, over 31,000 cases of the illness have been confirmed in China, including over 630 deaths, but only 2 of those were outside mainland China. Additionally, the Chinese doctor who was the first to alert the government about the virus, died on Thursday (2/6). The outbreak has triggered a world-wide shortage in surgical masks and other bio-protective clothing.

How this virus compares to others in the past shows us the total number of cases now far exceeds the combined total of the 2003 SARS outbreak and the 2015 Zika outbreak. Historically previous viral outbreaks have not had a significant or lasting impact on the US economy, though some private estimates say it could subtract as much as -0.4% from US GDP in Q1, whereas government estimates say that -0.2% is more likely. We should continue to watch this closely and anticipate the effect on the economy. 

President Trump and UK Prime Minister Boris Johnson are apparently at odds over the latter’s decision to allow Chinese telecom giant Huawei to supply some technology in the buildout of 5G networks across the UK. Two weeks ago Prime Minister Johnson cited a lack of available alternative technology as a factor in the decision. While he is no doubt attempting to make good on a promise to deliver 5G technology nationwide by 2027, he could be greatly hampering his ability to negotiate a post-Brexit trade deal with the US; something the UK urgently needs following their recent exit from the European Union on 1/31.

How the market finished last week, the S&P 500 down 2.1%, the Nasdaq up 4.0%, and the Dow up 3.0%.

Market Direction This Week: We track the stock market based on our Bullish and Bearish Alerts a new Bullish Alert recently started on 10/24/19 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).  

We’re approaching the half-way point in Q4 earnings season. With 319 companies (64%) of the S&P 500 reporting, EPS beat 76% and Rev beat 67%.

As equity markets have recovered all of the losses of the last 2 weeks and then some, be concerned that it puts the market right back at the same risk level it was before the virus outbreak. Traders seem to be acting as if this issue is over, but economic risks are still growing. 

There are more positive changes in the indicators this week than negative indicator changes. If not for the fact the volatility remains moderately elevated, and the virus outbreak is not yet contained, an outlook of neutral might make sense. However, with these two factors in mind, this market remains volatile and investors should on high alert. Indications of an eventual direction however, are completely unclear. The standard caveat still applies; “President Trump’s tweets still trump everything else”.  

Economic Calendar: CPI (2/13), Retail Sales (2/14), International Trade (2/14), Business Inventories (2/14)

Some of the major earnings announcements on deck: LYFT, CSCO, ROKU, PEP, 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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