What's going on with the Stock Market? (Week 3)
Here we go! This is an enormous week for stocks. The 2 biggest factors are both front and center this week. Let's take a look at the lineup: Wednesday 12pm EST - Powell speaks at the NY Fed Thursday - Fed meeting notes Friday - Trump meets with Xi
If there was ever a decision point for the market this is it. Let's take a look at the charts then tie the weeks events and charts together.
DOW (graphs are from Yahoo)
Ok here's the DOW. Solid chart here in my opinion (relatively to the recent weakness we have seen). You can see a double bottom and even a slight uptrend in the recent highs. This makes me feel like we are consolidating and the DOW is hopeful for a deal with China which would boost Boeing (BA) and other DOW components that do lots of business with China.
Here's the S&P which also shows a nice consolidation pattern, though quite volatile. We see a double top and a double bottom. So now it's time to decide if we break through to lower lows or rally back to the highs. A lot of this will depend on the tech sector and how the sector reacts to China and Fed news.
Speaking of the tech sector, here is the Nasdaq. And yes this is a scary chart. Just a solid downward pattern with lower lows and lower highs. That's because tech is exposed to both of our big issues right now, trade and the fed. Trade effects tech as Apple (one of the largest weighted sectors) does a large amount of production and business in China. The fed effects tech because tech is traditionally high growth, and what do you need to grow? Money. If money costs more to borrow (aka higher fed interest rates) then tech cannot grow as fast. Tech has the most to both gain and lose this week based on the Fed and the trade events.
Figured I'd throw the russell in here too as the chart is showing a strong bottom here ranging back the whole way to the February lows. Small caps were the first to fall as the Fed became more hawkish about raising interest rates. This is because many of the small cap loans are floating rate loans. Which means the money they borrowed is literally getting more expensive for them to pay back...but they already took the money so they are in a tough spot. If the Fed comes out this week and talks about doing less interest rates you may see the russell be the first to rally, but I believe that will be short lived.
The problem here is that the Fed slowing down is only temporary good news. The reason the Fed would slow is because the economy isn't doing well enough to continue hiking interest rates, and if the economy isn't doing well then smaller business also won't do well. It's kind of a lose lose right now for the Russell, but it could be a nice trade for you with the chart pattern.
Long story short, we need a china trade deal. If we get a trade deal with china, you'll see the market rally like a rocketship headed to mars. Will that happen? Right now it's unclear, but it does seem closer than most people think based on the article we published here. If the Fed slows down there interest rate hikes, that would likely produce a rally followed by another sell off. Now if the Fed indicates slowing rate hikes, AND a light at the end of the tunnel, aka when they plan to pause hiking rates again, then we may see a solid and sustainable rally. The light at the end of the tunnel would allow everyone to recalculate their models, price in the rates, then return to a focus on earnings and actual company technicals and fundamentals...wouldn't that be nice?
As always, Good luck out there and may the odds be ever in your favor...
Also here's a disclaimer that you should read:
This stock advice are just my personal opinion. I am not a professional stock picker or analyst. I may make trades on the information provided here and as a result it is possible for me to hold a position in the mentioned stocks.
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