Since the Fed’s verbal intervention about a possible rate cut, the market rebounded from the 38% retracement level on June 4th. The Sp&P 500 rallied 5 days for a total gain of 6.66% from high to low. Then it bumped into resistance around 2900 level. The volume of the five-day rally has not been impressive though.
With a hint of rate cut, the market immediately pivoted to the upside. Last Tuesday, we sent out a member blog that detailed the reasons why we had a first valid rally attempt after last Tuesday’s close. Now the question is when will the May high be taken out?
The stock market usually is chaotic and full of madness. This time with a Twitter happy President, we have had unusual amount of madness that can make anyone dizzy. The President’s economic policies are totally geared toward manipulating the stock market with the end goal of re-election in 2020.
This is evident with the passage of the Tax Cuts and Jobs Act of 2017 in December 2017. Normally a fiscal stimulus is not deployed after an extended period of easy money policy, it is reserved for bad economic times to save the day. The market was anticipating the good news in 2017, therefore it didn’t even have a 5% dip throughout 2017, which is quite unusual. The equities surge in January 2018 promptly produced a two-year cycle top. The market was sucker punched between the trade war and rate hike in 2018. Therefore the 2nd half of the four-year cycle was cut short, it couldn’t surpass the first two-year cycle high and only lasted seven months from February to September 2018. The four-cycle that started in February 2016 ended in December 2018 with a total of 34 months. The presidential economic policies definitely shaped how the four-year cycle played out. It produced a rare four-year cycle bottom in December which is totally against seasonal tendencies.
With the recent development of blacklisting the Chinese tech giant Huawei, the scope of the trade war has expanded much larger than originally thought. The semi-conductor sector has been hit really hard as China is the largest buyer of the U.S. made semi-conductor products. This action against Huawei sure does look like an existential risk for Huawei.
The market has been so bullish since the December bottom that even with the worst kind of announcement about the trade war, it refused to believe that the reality is finally here. The major indices suffered only minor damages. Last Friday the market had an intraday bullish reversal indicating it should go higher on Monday.
