Seven days into May, and while the stock market’s 2019 miracle remains intact, it’s starting to show cracks. A hundred words of Donald Trump tariff tweeting has quickly become $500 billion in value erased in the S&P 500. Dread is creeping in. The index is down 2.1 percent in the five days since Federal Reserve Chairman Jerome Powell played down hopes for a rate cut. All along, as stocks surged, a question has loomed: how would the traumas of last year affect the psychology of today once the market’s straight-up trajectory wavered? For most of 2019 investors have seemed inured to cataclysm, convinced they’d seen the worst and come through alive. After Tuesday, they sounded a little less sure. Stocks capped the biggest two-day slump since early January, with the S&P 500 falling 1.7 percent. Testifying to the stress traders have felt, demand for protection against further losses surged above any level in the fourth quarter in the options market Tuesday. At one point, the volume of shares falling was higher than on Christmas Eve, one of last year’s worst trading sessions. To be sure, the events of the last two days reverse only a fraction of this year’s advance and come nowhere near the panic of last year’s routs. But they feel new next to the almost uninterrupted gains of the last four months. As of Friday, the Nasdaq 100 had climbed in 18 of the last 19 weeks, a feat of consistent upward grind that didn’t even happen in 1999, a year the index doubled. Seeking to ramp up pressure on China for more concessions, President Trump threatened in two tweets to more than double tariffs on $200 billion of Chinese goods and impose a fresh round of duties on top of that. Talks to resolve the year-long trade standoff appeared to be on life-support Monday, with Beijing struggling to fully respond. China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of negotiations, but it was unable to confirm when amid signs that a delay is now being considered.
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U.S. stocks futures slumped following the close of regular trading after President Donald Trump’s top trade negotiator said the U.S. plans to raise tariffs on Chinese goods, accusing Beijing of back-pedalling on commitments it made during negotiations. U.S. Trade Representative Robert Lighthizer told reporters Monday that the Trump administration plans to increase duties on Chinese imports on Friday. Stocks had marched almost all the way back from a sell-off fomented by Donald Trump’s threat to escalate the trade war. The S&P 500 Index closed 0.5 percent lower at 2890 having traded as low as 2863 earlier in the session. Remember we closed last Friday at 2945. The Nasdaq Composite Index also dropped 0.5 percent and the Dow Jones Industrial Average slumped 0.3 percent. Meanwhile in Europe the Stoxx Europe 600 fell 0.9 percent, and the MSCI Emerging Market Index dropped 1.8 percent.
Despite the Equity Market volatility there was little movement in the FX Markets. The Bloomberg Dollar Spot Index gained 0.2 percent. The Euro was little changed at $1.1206 while the yen strengthened 0.2 percent to 110.88 per dollar. The British pound weakened 0.5 percent to $1.3102. Elsewhere, Turkey’s lira weakened past six per U.S. dollar, touching its lowest level in almost seven months as a possible repeat of the March Istanbul mayor’s election hung over the market and added more pressure to emerging-market currencies.
The aggressive sell-off in the Equity Markets saw the yield on 10-year Treasuries fall six basis points to 2.47 percent, while in Europe. Germany’s 10-year yield fell two basis points to 0.01 percent.
It was also a quiet past 48 hours for the commodity markets with West Texas Intermediate rising 1.3 percent to $62.75 a barrel. Gold rose 0.1 percent to close at $1,280 an ounce in New York.
This morning on the Economic Front we have German Industrial Production at 7.00 am. This is followed at 9.15 am by a speech from Bank of England Member Ramsden. At 12.00 pm we have US MBA Mortgage Applications. Next at 12.30 pm the ECB President is speaking. Finally at 1.30 pm it is the turn of Fed Member Brainard and it will interesting to see if he comments on the last two day sell-off in the US Stock Market.
June S&P 500
My S&P plan worked well with the market gapping lower on the re-open of the Futures Market on Sunday night to my 2897 buy level before rallying to my revised 2912 T/P level with a close of 2935. The volatility since Friday has been extraordinary with the VIX moving 46% higher on Monday before reversing most of these gains in the final hour of trading. Yesterday the VIX had an incredible 60% move higher touching a price of 22 before closing at 19.32. It was only last week that the VIX had a 12 Handle. The S&P touched its 50 Day Moving Average at 2862 yesterday before rallying 30 Handles into the close. If we get a Trade Agreement with China then the market will soar initially. However a ‘’No Deal’’ will see an aggressive move lower to the 2783/2805 next support area. Today I will again look to buy the S&P on any further move lower to 2862/2874 with a tight 2854 stop. Even though the S&P closed below the key 2900/2910 support area I am reluctant to go short as a trade deal with China will see a strong rally.
I am still flat the Euro and I will continue to be a small seller on any further rally to 1.1240/1.1280 with the same 1.1305 tight stop.
June Dollar Index
No Change as I am still a seller on any rally higher to 97.85/98.25 with a 98.55 stop.
My DAX plan worked well with the market trading lower to my 12220 buy level shortly after the European Markets opened on Monday before having a strong rally. I used this rally to exit this long position at my revised 12245 T/P level and I am now flat. Yesterday the DAX had a weak close on the back of the strong move lower in the S&P, closing below 12100. The 12250/12400 area has so far proved extremely difficult to stay above as we have seen with yesterday’s price action. Today I will be a small seller on any further rally to 12240/12340 with a 12395 stop.
My FTSE plan also worked well with the market trading lower to my 7260 buy level on Monday morning before rallying to my 7290 T/P level and I am now flat. Despite the sideways trading in the Pound the FTSE has continued to sell-off with the market trading to an overnight low of 7170. The FTSE has strong support from 7080/7120 and I will be a buyer in this area with a 7045 stop.
Dow Rolling Contract
What a few days for the Dow with the market falling over 800 points since the close on Friday. On the re-open of the Futures Market the Dow was trading in the middle of my buy range at 26080 before thankfully rallying to my revised 26210 T/P level with a 26470 closing high. Yesterday the Dow traded below 25800 before rallying over 200 points into the close. Today I will again look to buy the Dow from 25700/25850 with a 25625 stop. Despite the aggressive sell-off over the past few days I do not want to be short the Dow at this time.
Yesterday’s late sell-off saw the NASDAQ trade the whole of my 7610/7660 buy range for a now average long position at 7635. I am still long and I will now lower my T/P level on this position to 7670. If my T/P level is filled I will again look to buy the market on any further move lower to 7540/7600 with a 7495 stop.
Late yesterday following the aggressive sell-off in the equity markets the Bund traded higher to my 166.10 sell level. Despite the insanely low yield I am not comfortable in being short and I will look to exit this position at a price of 166.00. I will also lower my stop on this position to 166.50.
Gold Rolling Contract
I am still flat Gold and I will now raise my buy level to 1258/1266 with a 1251 stop.
Silver Rolling Contract
I am still flat Silver and I will now raise my buy level to 14.40/14.80 with a 14.10 stop and a 15.00 T/P level if executed.