- Sunday, 28 July 2019 22:02
The Fed is about to cut rates for the first time since 2008 as the trade war is weighing on economic growth. Are the rate cuts truly needed to support the economy or is the Fed under political pressure to appease the White House? Last time, the Fed cut rates in 1998 to prevent a slowdown caused by the Asian currency crisis. We all know what happened after the cuts.
This time is very similar to the 1998 rate cuts. The economy is not weak and the rate cuts can only create asset bubbles like easy money always does.
Short term, it is over bought with extreme low volatility. A summer selloff is still on the radar. This selloff will create the last opportunity to get in the market before a grand bull market unfolds.
Long term, this market still has room to run.
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Microsoft Beat the Top and Bottom Line, So What?
- Sunday, 21 July 2019 21:49
Last Thursday after the market close, Microsoft announced earnings that beat the top and bottom line. MSFT ran up immediately after the earnings release, it made a new all time high on Friday’s open, but it was sold off straight from the high at open with higher than usual volume. This is a topping signal, Microsoft stock has topped on a great earnings report.
Microsoft is absolutely the bull market leader which is included in DOW, S&P and NASDAQ, all three indices. When a market leader like Microsoft sells off based on great earnings beat, it gives out hints about the general market condition. The true leaders of a bull market are the last ones to show signs of weakness.
In our last blog, we warned the S&P 500 cash index upside resistance at 3000 and 3077. It broke out at 3000 marginally, not it is showing the bull market fatigue.
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Is The Market Breaking Out to The Point of No Return?
- Sunday, 14 July 2019 21:46
The market went crazy last week with Fed’s dovish statements. The market is banking on the Fed cutting the interest rates at the end of July. Have we been here before? The market was banking on an imminent trade deal at the end of April, only to be shocked with a no deal at the beginning of May.
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S&P 500 Cash Index Cycle Location 07052019
- Sunday, 07 July 2019 20:40
We blogged last week that the market was in a confirmed bullish trend despite the trade war and Fed rate cut noises. Last week was a holiday week so the trading volume was low. As of now, the market is still in a confirmed uptrend. Since the last quarter of 2018, the market has been entirely news driven regardless of the underlining fundamentals, but the cycles have been functioning as they were supposed to. So it’s best for us to listen to the tape and ignore the noises.
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What Trade War?
- Sunday, 30 June 2019 19:05
What trade war? Trump and Xi made a truce at the G-20 meeting on Saturday. It didn’t matter what Trump did, whether it’s real tariffs, Twitter threats of ever increasing tariffs, blacklisting Huawei and five more other tech companies, Trump couldn’t pressure China to make concessions!
China will never change its domestic laws to appease Trump just to make a trade deal. China can wait it out, Trump can’t. Under Trump’s trade war tactics, China didn’t make any concessions while demanding “respect”. Trump made a big concession by throwing Huawei a lifeline just to resume the trade talks.
Trump will not be able to implement the 2nd batch of the tariffs on $300 billion Chinese exports as leverage as it’s getting closer to the re-election season. The 2nd batch of the tariffs will hurt the US consumers more than China. Trump prefers business deals over cold war because he was able to go against the Washington anti-China hawks by letting Huawei off the hook this time. In our opinion, there will not be a deal with the enforcement the Trump administration demanded. Trump’s hands are tied to raise the additional tariffs. The most likely outcome is that we are stuck with the existing tariffs for a while with no clear path to a permanent deal.
The truce will continue to help the market grind higher until early August when it has to deal with the 2nd quarter earnings recession. Seasonally we already had a top in May, which is about sell in May and go away tendency. July to October period is seasonally volatile and has a tendency to make a season low before the holiday season.
Now we are pretty sure the December 2018 low is a 4-year cycle low. The first year in the 4-year cycle is pretty muddy because the fundamental problems exist while the market is trying hard to rise. If the market plays out as historical patterns of the first year in a 4-year cycle this year, we will see a September/October low that will be the last chance to get on the bullish train. The entry area is around the index 200-day moving average, which will be around S&P 500 2800-2850 in September/October seasonal low time frame. The June low of 2728 should not be violated.
In the last two trading days of June, the small caps made surprising strong rallies two days in a row. Many small cap stocks are breaking out while the mega caps remain pretty lame. The smart money are pressing their bets on American domestic companies over the multinationals. Small caps outperformed the S&P 500 index from Jan 2018 to July 2018 which was the beginning of the intense trade war. The investors will prefer the small caps with the trade war threats lingering around. It is a healthy sign to see small caps doing well in the beginning of the 4-year cycle.
In the short term, the S&P 500 index has made the 1st daily cycle bottom on 06/26/2019. It is two days into the 2nd daily cycle that started on 06/27/2019. We expect the market continue to grind higher to meet resistance levels around 3000 and 3077. The current rally will continue throughout the month of July to press for all time new highs.
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