This Market Threat Is Starting To Build
Posted by Pete Stolcers on February 28
Posted 9:30 AM ET – The overnight news was not good on a multitude of fronts. The threat of new Chinese tariffs remains and their manufacturing PMI hit a 3-year low. Peace talks with North Korea ended abruptly and Kim Jong-un is not ready to denuke. The chance of a hard exit for England is increasing and the EU is reluctant to extend the deadline. Today we will see if the market can shoulder negative news.
Trade Representative Robert Lightheizer said that the threat of tariffs will remain for years even if an agreement is reached. The US does not want promises, they want contracts. Xi is growing increasingly anxious about the risks facing the country and he issued a wide-ranging warning to leaders.
China’s manufacturing PMI fell to 59.2 (a three-year low). Europe and Japan will post their PMIs tomorrow. Japan’s industrial production dropped 3.7% (-2.5% expected) and their retail sales fell 2.3% (-.08% expected).
Talks with North Korea ended abruptly. Kim Jong-un asked for sanctions to be lifted, but he did not offer anything in return. Trump did not want to waste his time so he left.
The EU said that it will not delay Brexit unless there is concrete evidence that England has a plan that they can agree to. Parliament has reached a stalemate and the chances of a hard exit are increasing. The next vote is scheduled on March 12th – just 17 days before the deadline.
I have not mentioned India and Pakistan, but tensions between the two countries are rising after a conflict in Kashmir.
This morning we learned that the advanced reading for Q4 GDP came in at 2.6% (2.3% expected). This report was delayed due to government shutdown and the S&P 500 did not have much of a reaction. Chicago PMI will be posted 15 minutes after the open this morning.
The market is pricing in positive outcomes and any surprise favors the downside. Earnings have been excellent, but stocks are trading near the upper end of their valuation range. With each economic release I believe the bid will soften and we will be one step closer to a decline. A decline in global economic activity is the greatest threat to the market.
Swing traders should short the SPY if it trades below $274. Use $276 as a stop on a closing basis once you enter. Until that happens we will remain in cash. The downside risks are greater than the upside rewards.
Day traders should remain balanced. As long as we are inside of the prior day’s range, keep your size small and your activity low. Resistance is at SPY $279.60 and support is at $277.60. If we are able to break through either level, favor that side. If not, use the first hour range as your guide and fade the extremes. The market momentum is stalling and the intraday ranges are tight.
End of month fund buying is providing support. The next round of soft economic data should spark selling.
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