The much talked trade war opened fire on Friday, July 6th as anticipated. The market was calm as it could be. All three major indices rallied with NASDAQ in leading position. The Chinese stock market rallied as well. Is the market discounting the impact of the future trade war escalation?
The market might be doing just so! With all the tough talk, the S&P 500 and NASDAQ both broke out from the trading range in the last eight days and both closed above the trading range as well. The DOW is behind as the trade war worries mainly are focused on the multi-nationals. At the time of writing this blog, the futures are rallying and so are the Asian markets.
Within the bullish general market posture, however we do see both the financials XLF and semi-conductor SMH are in a weak position. The financials XLF is near the low of 2018 and SMH is under performing S&P 500. These two are needed to participate if we are going to have a strong bullish trend. So caution is needed at this time.
Since the January 2018 high, the market made 38% retracement of the price gain during the period from 11/04/2016–01/26/2018. The 38% time retracement is due on 07/13/2018. In this price and time perspective, we either had the market bottom last week or it is due next week. Most likely the bottom was made last week.
When the S&P 500 cash index break out the 2800 resistance level, it should conclude the correction.
At this point, we are maintaining strong biases in the following areas:
- The general market will continue to rally after this correction. The longer the correction is, the bigger will be the size of the coming rally. The amount of cash is building up on the sideline.
- We are favoring the sectors in Artificial Intelligence, Internet of Things devices and cloud software.
- We are looking for businesses that have a subscription model. The subscription economy is taking hold in screaming, services and software, etc.
- We are bullish on the Chinese tech stocks. The Chinese is racing really hard in 5G and AI areas.