The Market Told Us What It Thinks About the Trade War: It Doesn’t Care

This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.

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Michael Kramer owns IWM Calls

Michael Kramer and clients of Mott Capital own Netflix and Apple

First off I want to apologize. I noted in the commentary this morning the trade tension sell-off would last until lunchtime. I’m sorry, it wasn’t until 3 PM that the first of the four major averages went into the green. Of course, I was sarcastic this morning when I wrote that. But what I am not joking about the major averages and their comebacks.

So what do you think the equity market premium is for a trade deal now? I’m not sure that there is a premium for a deal in the market at this point. A 2% decline to start the day? It doesn’t seem like a lot if that is all that it is. Either that or investors in the US are saying deal or no deal, it doesn’t matter, because rates are low, the economy strong, and there is no inflation. Perhaps that matters more than the $100 to $150 billion in potential import tariffs that will need to be paid on goods imported from China.

Besides what’s the difference, the PBOC will just let the Yuan devalue like they did the last time to offset those rising taxes.

Honestly, I don’t think that the market cares so much about the trade deal; I think it cares more about the health of the US economy and even more about the Fed. At least that is what today’s price action suggests. Maybe I’m wrong, or naive; I don’t know. $150 billion in taxes doesn’t seem like such a big deal in a $20 trillion US economy.  Sorry. I can’t help it, that is the way I feel, and how I’m interpreting today’s action.

china currency

I mean even the 10-Year fell only 2 bps. It tells us that bond investors aren’t so scared either.

Russell 2000 (IWM)

The Russell had an incredibly important day, and it could not have worked out any better.  I wrote this last night for the subscribers Reading The Markets on SA:If the Russell does pull back on Monday, support for the index will be around 1,590 and given how hard it was for the index to break out, I’d expect that it holds. “

Pretty much that is what happened this morning. The index fell right to support around 1,590 and never looked back.  The good news is that I believe today’s reversal was more than an algo driven gap fill because the index finished up on the day.

russell, iwm

S&P 500 (SPY)

The S&P 500 also had an incredibly sharp come back falling around 50 basis points on the day. It even retested last’s week lows of 2898. That is a big come back. The gap hasn’t been filled yet, but it likely will be tomorrow.

spx , spy

Biotech (XBI)

How about the Biotech XBI ETF, up over 1.5% and is looking more and more like a double has been put into place. The ETF is likely on its way back to $90.

biotech xbi

Apple (AAPL)

Apple did fall today, and it is one of those stocks that does have exposure to China, so it does seem right. However, the good news is that an uptrend has formed and it seems to have kept the stocks decline from becoming a disaster. I think the stock will be fine, and will likely rise back above $209 and back towards $217.

apple, aapl

Amazon (AMZN)

Amazon tested support to at $1900, bounced and recovered most of its losses too. I still think this one is heading towards $2025.

amazon, amzn

Netflix (NFLX)

Netflix is down some today, probably because of all that business in China they have. Oh wait –they don’t have any business in China.  Who cares that is was down a little, you have to love that it continues to hold around $378 like a champ.

netflix, nflx

AMD (AMD)

AMD has gone nowhere recently, but that sure is better than going down. I still think $31 is in the stock’s future.

amd

Alibaba (BABA)

Things were looking pretty bleak for BABA earlier today but the stock bounced where it should, and I think $200 is still in the cards.

baba

JD (JD)

There was a lot of damage done to JD’s chart, so I don’t know what happens next. The stock needs to get over $29.50 to keep the trend rising.

jd

Square (SQ)

Square reached support today at $65.50 and bounced. The upside, for now, is limited to around $71 at the moment.

square, sq

Until tomorrow

-Mike

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Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

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