Are Asset Managers Anxious To Take Profits? We’ll Find Out Today
Posted by Pete Stolcers on March 1
The upward market momentum has stalled in the last week and horizontal resistance at SPY $281 is stiff. News that the MSCI index will quadruple their weighting in Chinese stocks boosted their market by 1.6% overnight. This could attract an additional $80 billion in foreign inflows to China. I don’t view this news as significant to US equities and we will see if stocks are repelled from horizontal resistance a second time.
China’s official PMI showed weakness in manufacturing and it is in contraction territory (49.3). The Caixin Manufacturing PMI was released this morning and it was also in contraction territory (49.9). It rebounded slightly from its biggest drop since July 2015. Without question China’s economy is softening. Trade negotiations are progressing, but officials said that the tariff threats could remain for years. Our trade team is not satisfied with promises, they want contracts. Some feel that a trade deal could be drafted in 2-3 weeks.
Economic activity in Japan and Europe has been contracting. A global recession is the greatest threat to the market.
Domestic numbers (Q4 GDP and Chicago PMI) were better-than-expected.
Brexit is approaching and there is no resolution in sight. A hard exit is very likely and it will be disruptive.
Tension in India and Pakistan is running high after a border conflict in Kashmir.
Trump returned from his trip in Vietnam and the meeting with Kim Jong-un was unproductive.
Swing traders should remain in cash. Today we will see if horizontal resistance holds. The economic news this week was better than feared, but soft outside of the US. Stocks will tread water at this level until the weakness spreads to our economy. The Fed has taken their foot off of the brake because they recognize that global risks are elevated.
Day traders should watch for an early reversal. If this is a “sell the news” event, the bid will crumble in the first half hour. If gains hold through mid-morning, we could challenge SPY $281. Support is at SPY $278 and resistance is at $281. We have been compressing the last few days and at least we will have some movement this morning. Use the first hour range as your guide. If we can’t get out of it, fade the extremes.
The economic news will be heavy again next week.
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