[Chart courtesy of MarketWatch.com]

1. Moving the markets

There was nothing for the computer algos to be optimistic about, as far as uplifting news headlines was concerned. There simply weren’t any, and the Dow started the session with a 400-point drop and ended up below its 200-day M/A for the first time since the beginning of the year.

Even a hint of a rebound was quickly wiped out, as traders worldwide seemed to have finally gotten the idea that the widely touted trade deal had bitten the dust, and a protracted U.S.-China confrontation has morphed into a lengthy standoff. These increased frictions weighed heavily on the markets in general and on the tech sector specifically.

The jawboning between the countries went on with China stating the talks would only continue when the U.S. adjusts its “wrong actions,” etc., etc., etc. with the tit-for-tat sinking to new lows.

None of this helped equities, which were struck be several economic data misses. New home sales collapsed in April, despite a soaring median price, even though they were expected to slide only -2.5% but instead plunged -6.9% MoM after an upward revision for March.

Business Confidence followed suit by tumbling to 7-year lows, while Crude Oil crashed to 2-month lows, likely as a result of trade tensions reducing hope for a revival of global growth.

The bond market was in panic mode, as yields plummeted with the 10-year touching 2.29%, the lowest since December 2017, as traders moved out of equities and into the perceived safety of bonds.

During the last 30 minutes of trading, some dip buyers showed up to pull the indexes off their lows, but it was not enough to affect the sea of red we witnessed all day.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After yesterday’s strong rebound, the markets opened on a weak note with the major indexes spending the entire session below their respective unchanged lines trying to find some footing.

Not helping matters early on was a worsening of trade relations with China, which to me has now morphed into an all-out trade war, as a Chinese company has told all of its employees to boycott American products and halt international travels to the U.S. That kept the markets on a slippery footing until the Fed released its minutes on interest rates from its last meeting.

The Fed, as expected, revealed that their members are comfortable being “patient” on their current stance on interest rates, a position which could last “for some time.” While officials were split on the rate outlook over the long term, no one wanted to rock the boat “and push for a near term policy shift in either direction.”

In the end, the Fed’s announcement was not enough to keep the bears in check, and, after a mid-day rally, we dove into the close with selling picking up due to the White House ramping up its trade war rhetoric.

Where do we go from here? While our Trend Tracking Indexes (TTIs) continue to support the bullish theme, there are two indicators, which are flashing warning signs. The first one, thanks to Bloomberg, is a Boom-Bust indicator charted against the S&P 500, while the second one is the Global Money Supply Index.

Both are forecasting a potential decline in stocks, however, as always, the timing of it is the big unknown. For that, we will rely on our Trend Tracking Indexes (TTIs) to point the way towards the exit doors, once the need arises.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The White House walked back some of its tough talk last night by announcing that they are offering some temporary exceptions to export limitations against China’s Huawei Technologies. While the mudslinging continued, it was enough of a conciliatory gesture to soothe the anxiety among Wall Street traders, which had been focusing on pressing the sell buttons all day yesterday.

Dip buyers emerged and drove the major indexes to some solid gains, with especially the Nasdaq recouping some of yesterday’s sharp losses. Support also came from a short squeeze in SmallCaps, as this chart shows.

The fallout from yesterday’s threat by the Chinese to curtail the export of rare-earth minerals was immediate, as China’s rare earth holdings catapulted some 132% in a market that does not have upside/downside price limits.

On the domestic front, the news was not good, as existing home sales tumbled YoY for the 14^th month. Expectations had called for a +2.7% rise in April, which was not even close, as reality showed a decline of -0.4%, which comes after a shocking -4.9% drop in March. At least for today, this “bad” news was good news, as the bullish market theme was not even interrupted to let this realism set in.

Let’s see if this comeback has legs, or if it is simply a “one-off” in a market that is predominantly headline driven.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The trade war rhetoric between the U.S. and China heated up over the weekend, with both sides threatening a variety of consequences. The major indexes headed south with the Nasdaq taking the brunt of the losses.

Chipmakers took it on the chin, as U.S. tech companies, in compliance with White House requests, have begun to implement the ban on Huawei Technology products. The company will be cut off from receiving Android updates and will be restricted to use only public open-source versions of the software program.

AAPL stock fell after warnings of retaliatory action from China, which plays a big role in how Chinese consumers perceive U.S. products, and “acceleration” to adopt local iPhone substitutes could be damaging to say the least.

To further put the heat on the U.S., China’s Xi threatened to use one of their nuclear options, namely banning Rare-Earth mineral exports, which for sure would cripple supply chains of these rare commodities necessary in all tech products and military applications.

In other words, the tit-for-tat continues with no end in sight, and it appears that trade differences are about to morph into an all-out trade war. That will not be a positive for equity markets, unless the bizarre theme of the past that “bad news is good news” still makes its presents felt.