1. Moving the markets

Right after the opening bell, equities hit the skids with the Dow dropping some 300 points before finding some footing. Causing this upheaval was the European Central Bank’s (ECB) Draghi, who unveiled a massive monetary easing program and an extended NIRP (Negative Interest Rates) period.

While that should have been a positive for equity markets, it wasn’t! Stocks stumbled, which was a reaction the market has rarely ever seen before considering that a Central Bank announced a surprisingly dovish move, even though it was in the face of a ‘substantial’ downward revision to EU growth from +1.7% to +1.1%.

So, what does that mean? Some analysts think this adverse reaction is a clear sign suggesting that Central Banks are losing control over markets by attempting to push stocks too far. The fallout was worldwide with U.S. equities following the bearish trend.

The ECBs surprise policy move sent shivers through global markets. It remains to be seen whether this is just an outlier, or a sign of things to come, but worries about a slowing global economy just reached a new high.

Since all countries are inter-connected to varying degrees, the U.S. will not be able to decouple and will experience some slowdown as well. Judging by the recent weakness in econ data points, we already have seen this process in motion; the financial markets, however, have so far been oblivious to it.

Domestically, the S&P 500 dropped below its 200-day M/A, managed to crawl back above it but ended up succumbing to bearish forces by closing slightly below it. Remember, for many Wall Street traders, this line represents the divider between bullish and bearish territory and therefore is currently seen as a critical support level which, once clearly broken, could signal the end of this current bullish phase.

Finally, ZH just couldn’t help themselves but pose the question: “It can’t be this easy, right?”

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1. Moving the markets

Aimless meandering probably best describes today’s session during which traders looked in vain for catalysts to establish market direction. There were none, so we bounced around the unchanged line in a narrow range, as neither bulls nor bears could find some footing.

In the end, the major indexes closed slightly in the red; not a bad result considering the violent moves we witnessed yesterday. While some reports noted that a trade solution between the U.S. and China maybe close, there was no market reaction. This makes me think that this type of news may already have been priced in.

It looks like a new driver is needed to attempt another breakthrough of the S&P’s 2,800 level, since it seems that trade optimism has taken us as far as it could. As I posted before, this was the 4^th attempt over the past few months with 3 of them having been rebuffed and ended with a sell-off.

We’ll have to wait and see if “it’s different this time,” otherwise the bears might be able to gain the upper hand—again.

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1. Moving the markets

Sure, eventually there had to be a market pullback, as only hype and euphoria surrounded the U.S.-China trade talks with hard evidence of progress still seeming to be nebulous. This is what we saw today, as optimism about a concrete resolution simply faded.

An early rally vanished in a hurry with the Dow sinking at one point over 450 points, before a slow and steady comeback sharply limited early losses. I took the opportunity to add some sector ETFs to our holdings, as the major indexes were hovering deeply in the red.

The S&P 500 surrendered its hard fought for 2,800 level but only closed 8 points below it. However, more importantly, the index was threatening to break below its 200-day M/A, now seen as a support level, but it managed to reverse course and close safely, at least for the time being, above it by ~1.5%, as the afternoon bounce-back came to the rescue.

At this point, the S&P 500 is stuck in a quadruple top formation, and it is critical for this index to not only to regain its 2,800 marker but also to create further upside momentum. Otherwise, we might see a repeat downside performance, as shown by the previous 3 attempts, of which the third one was the most devastating, which led to the disastrous Q4 2018.

A variety of analysts and newsletters like ZH present this chart from time to time to serve as a reminder of where we might be and what could occur. Look at it and notice how close we are of repeating history.

Will it happen again? Who knows, but I feel that it is imperative to have an exit strategy in place, just in case a similar outcome sneaks up on us with the potential to absolutely pillage investment portfolios. After all, economic realities are far detached from current elevated equity levels.

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