1. Moving the markets

It appears that finally the U.S. equity markets got the message that not all is well with the world, as the gloomy trade news and a host of other events combined forces to not only push the major indexes below the unchanged line right after the opening bell, but also keep them there for the entire session.

The Dow has now closed in the red for 8 straight days, which ties its worst losing streak in some 40 years. The “most shorted” stocks found some relief by ending up having a long hoped for down day. The FANG stocks dipped and ripped but ended lower for the day.

The VIX supported the bearish mood by rising above the 15 level (rising VIX is bearish and vice versa), a point at which in the recent past dip-buyers have stepped in, however, today, they were conspicuously absent.

Regarding important data points, the headlines were simply not conducive to bring out the bulls, maybe in part due to some of these reasons:

1. The Philly Fed (business optimism/pessimism) crashed the most in 4 years
2. Italian fears back on the front burner with the appointment of 2 Euro skeptics to their parliament
3. Internet stocks skidded as SCOTUS rules in favor of internet tax collection
4. Dollar plummeted but limited losses late in the session

In the end, I suspect that maybe, just maybe, today the reality became clear that the actual implementation of trade tariffs will cause retaliations of equal or greater impact.

Our Trend Tracking Indexes (TTIs) slipped again with the Domestic one remaining on the bullish side of its trend line. The International one slipped below its dividing line between bullish and bearish territory by a small -0.36%. See section 3 for my plan of action.

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1. Moving the markets

The market’s divergence continues with the Dow struggling and notching its 7^th straight losing day, which is its longest streak since early 2017.

In contrast, the Nasdaq continued to blast higher, along with SmallCaps, seemingly not yet negatively affected by the worsening trade battle between the U.S. and China but instead receiving a strong assist by the continued short squeeze.

As ZH pointed out, not only have 13 of the last 15 days seen “most shorted” stocks rise, it’s also been the biggest short squeeze in the history of the data. Just look at the parabolic rise in the S&P stocks. Makes me wonder if this could be a blow-off top?

Interest rates rose modestly with the 10-year bond yield adding 4 basis points to end at 2.93%, which is still a respectful distance from the 3% level that has been troublesome in the past.

Today’s market activity had the feel of a relief rally, despite Trump increasing the rhetoric with the Chinese last night when accusing them of “waging a systematic campaign of economic aggression.” Not exactly soothing words for the Wall Street crowd but sufficient to at least temporarily halt the downward swing in the broader markets.

Our Trend Tracking Indexes (TTIs) recovered with the International one remaining in striking distance of breaking through its trend line to the downside and signaling a “Sell.” See section 3 for more details.

It appears, the markets have not yet priced in any potential global issues affecting earnings negatively, should these trade talks stay in that fragile state as they’ve been. Things could explode in a hurry, which is why we need to be prepared to deal with a sudden turnaround in sentiment or possibly stay on board a while longer until more consequences become obvious.

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1. Moving the markets

Last night’s elevated tit-for-tat trade battle between the U.S. and China finally was too much for equities to ignore causing a sharp drop right after the opening. Despite a slow crawl back towards the unchanged line, the damage was done, and the major indexes ended in the red with the Dow scoring not only its 6^th straight decline but its performance also went back to “unchanged” for the year.

Trump’s latest threat to put an additional $400 billion of tariffs on a wide variety of Chinese goods simply rattled the Wall Street crowd, and it remains to be seen if this was just a quick reaction or if the fallout will be deeper and longer lasting. The immediate effect was that only risk-off sectors benefited, such as utilities, telecommunications and consumer staples.

However, it appears that the trade party is just starting, as India fired the next shot by proposing to raise import duty on some 30 U.S. products, ranging from motorcycles to steel and iron products.

Makes me wonder as to “who’s next?” For sure, if this theme spreads worldwide, with actions being followed by equal of greater reactions, you can kiss this aging bull market good bye. Since nothing is certain during these uncertain times, we simply must let this battle play itself out but take evasive action once our indicators give the signal to do so.

Today, we came close, as our International TTI showed its best interpretation of a swan dive, but it managed to find resistance just before breaking its trend line to the downside (see section 3 for more details.) A potential “Sell” signal for that arena is now a distinct possibility. Stay tuned!

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