- Trump can’t do much to hurt Amazon and the tech industry. Not a medium-long term bearish factor for the stock market.
- A close below the S&P’s 200 day moving average is likely.
- Nobody wants a real trade war with Trump and the U.S.. Not a medium-long term bearish factor for the stock market.
- The S&P’s Total Put/Call Ratio is at 1.22. Downside risk is limited.
Read Study: high volatility is bullish for the stock market
6 pm: Trump can’t do much to hurt Amazon and the tech industry. Not a medium-long term bearish factor for the stock market.
Trump has threatened to go after Amazon over “unpaid taxes and hurting retailers”. This isn’t a medium-long term threat to Amazon, the tech industry, or the stock market. There’s a difference between what Trump wants to do and what he can do.
Trump might want to push for probes into antitrust issues (claim that Amazon is a monopoly). He can also encourage states to collect sales tax on third party purchases from Amazon. He can also seek to have the Postal Service charge more to deliver packages.
Reality is far different from Trump’s wishes:
- Amazon isn’t a monopoly. Retailers generally aren’t considered monopolies. In addition, it’s up to the Justice Department and FTC to decide whether Amazon is a “monopoly” or not. These cases take years and require a high burden of proof.
- Changes to sales tax law requires Congressional approval, and Congress really doesn’t have time for this with the mid-term elections coming up.
- Amazon is building its own package delivery service to bypass third-party services.
Trump can do little to stop Amazon’s growth.
1 am: A close below the S&P’s 200 day moving average is likely.
Quantitative studies show that the S&P will probably close below its 200 day moving average before this correction is over. Chartists agree with this.
The S&P is hugging its 200 day moving average right now.
This is called an “oreo pattern” and usually results in a breakdown below the 200sma in 1-2 weeks. It is a short term bearish pattern for the stock market. It isn’t medium-long term bearish.
1 am: Nobody wants a real trade war with Trump and the U.S.. Not a medium-long term factor for the stock market.
Countries don’t put up a trade war fight if they know they’ll lose.
- South Korea has quickly folded and signed a revised trade deal with Trump. This deal is better for the U.S. (Investing.com)
- China is about to announce a list of retaliatory tariffs. (Investing.com). But the key point to remember is that China and the U.S. are negotiating behind closed doors. China stands to lose much more than the U.S. from a trade war (China is a net exporter).
- Germany – the leader of the EU – wants to quickly offer Trump concessions and avoid a trade war. From Investing.com: Germany is in favor of any EU deal covering new rules on tariffs for a series of products including cars, machinery, foodstuffs and pharmaceuticals. Merkel’s government is already sounding out the German car industry on whether it would support a reduction in the 10 percent EU tariff on autos to avoid a trade dispute. Carmakers responded positively to the idea.
The U.S. is still the world’s biggest economic force, and these countries know that they will lose to the U.S. in the event of a trade war. So they’d rather avoid this outcome altogether. Threat of a trade war is not a medium-long term bearish factor for the stock market.
1 am: The S&P’s Total Put/Call Ratio is at 1.22. Downside risk is limited.
The S&P 500’s Total Put/Call Ratio is a contrarian indicator. The S&P’s medium term downside risk is limited when the Put/Call ratio exceeds 1.2.
- This is either the market’s correction bottom, or..
- The S&P will bounce and make a marginal new low.
Here’s what I think will happen based on my discretionary outlook.
- The S&P has made a 6%+ “small correction”. This will not turn into a “significant correction”.
- 2018 will trend higher but also be a choppy year. There will be another correction later this year.
- Why I’m medium-long term bullish on the stock market from a discretionary point of view.
- The S&P 500 has approximately 1-2 years left in this bull market.
I do not use my discretionary outlook to place entry/exit trades. I am 100% long SSO (2x S&P 500 ETF) because my Medium-Long Term model does not foresee a significant correction at this point in time. I ignore small corrections. I only sidestep significant corrections and bear markets.
I have been long the S&P 500 since September 7, 2017 when it was at 2465.
*I also have a small Day Trading portfolio. Click here to view my day trades.