Since the beginning of the breakdown of the trade war negotiation, the S&P 500 index only suffered a decline of 5.17% from high to low. Despite the severity of the consequences of a prolonged trade war, the investors refused to believe the reality. The S&P 500 made a temporary bottom around 2801 level on Monday May 13th,
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.
The PHLX semi-conductor sector index has always been the great tech bubble indicator since the advent of the semi-conductor sector. Every tech bubble was led by the semi-conductor sector. The present stock market rally has all the hallmarks of a pending tech bubble. So we went back to look for a time when PHLX semi index made an all time high.From the October 1998 four-year cycle bottom, the PHLX semi index rallied 134.47% in 15 weeks. It only took 7 weeks from the October 98 bottom to take out the all time high that was previously made in August 1997. From the weekly cycle top in January 1999, it only corrected 19.22% to make the weekly cycle bottom in March 1999. From the March 1999 bottom, it traded sideways for 12 weeks, then it blew up 294% to make the dotcom top in March 2000.
The present rally in PHLX semi index took out the all time high that was made in March 2018 in the week of 04/05/2019. It only took 14 weeks from the December 2018 bottom to make that high. So there are plenty of similarities between this rally and the October 1998 rally. We don’t know with certainty that if we are going to have a dotcom 2.0, but we do know something is up. Despite the warnings from Texas Instrument and Intel about the weak fundamentals in the semi-conductor sector, the market is fully discounting the warnings.
On the political front, we can’t ignore the repeated messages from the White House about the need to lower interest rates. The administration is working very hard at ramping up the stock market to gain advantages in the coming re-election. All factors considered, you just have to follow the flow and buy all the dips.
2019 is on target to be the fifth best year-to-date performance through April since World War II. There has been a trend since World War II that a best performing first four months may presage the “sell in May and go away” phenomenon. This coming week is the busiest week for earnings report. The earnings data
The emerging markets have shown signs of a new life with the recent development of trade war. The White House is equally eager to resolve the trade war headline risk for the stock market.
