Will The S&P Hold The Line?

Will the S&P hold its May 13th low of this current sell-off at 2801.43?

Glad you asked.   The market is currently trading at its low of the day, 5 points above that support level.

Tuesday’s Post

The stock market took off on Mr. Toad’s Wild Road just barely after the ink was dry on our late Tuesday night post,  where we suspected stock volatility was about to increase in a big way as the market begins to internalize the seriousness of the shifting domestic and geopolitical tectonic plates.

Our economic and market analysis has focused on the major secular issues, which we believe are starting to send tremors through the markets, mainly the shifting of global geopolitical tectonic plates, which, we believe will soon usher in the Big Dipper or bear market.

If Chimerica has been a major factor driving global growth, corporate margins and profits for the past 20 years, how is its unwind going to be positive for stocks?

We suspect Mr. Toad’s Wild Ride is just beginning.  – GMM, May 22th  12:05 AM   

We are beginning to believe the increase in tariffs and the moves on Huewai are tantamount to the launch of ICBMs or an attack or attempted sinking of China’s economic flagship.   It will be very difficult to walk back with a presidential tweet or even another round of fruitless negotiations.

Almost as difficult as Admiral Yamamoto trying to walk back Japan’s flyover of Pearl Harbor in December 1941.  No comparison, folks, just a simple analogy.

It also limits President Xi’s flexibility in negotiating a deal as the Communist Party hardliners now seemed to have hijacked the trade deal.   Tough to cut a deal when hardliners on both sides are driving negotiations.

An Aside:  Memorial Day

By the way, a million hat tips and eternal gratitude to our great American brothers and sisters who paid the ultimate price fighting for our freedom and prosperity.  Ditto to all the Vets.

We civilians hope to make you just a fraction as proud as we are proud of you.  Apologies for the current state of affairs.

Let us remember and thank you every day not just on Memorial Day.

Secular Changes In Economic Environment

Global trade is tanking and unless the trend in protectionism reverses,  the new economic theme over the next decade will be one of stagflation.  Of course, markets will have difficulting finding their footing in this new environment as inertia, adaptive expectations and the ghosts of Christmas past will take some time to unwind and go away.   Deflation will be the first kneejerk response of Mr. Market.

Rational expectations?  Come on, man, where you been?

We’re talking not cyclical but secular changes, folks, economic problems that will render a 25 bps interest rate cut by the Fed irrelevant and possibly counterproductive.  Though the muscle memory of markets will love the initial honeymoon period of a new round monetary stimulus.

Domestic Politics

Getting uglier.

The Speaker of the House essentially implied in her presser today, at least our interpretation, is that a “Mad King” lives in the White House.   The third in line for the American presidency called for an intervention,

 “I pray for the president of the United States. I wish that his family or his administration or his staff would have an intervention for the good of the country.”  – ABC News

That is as fugly as it gets, yet we suspect it’s going to get much fuglier.

Key S&P Levels

The market is trading at its low of the day about 5 points above the May 13th low of this sell-off.  That needs to hold but we don’t think it will and a trip to the 200-day at 2776.81, another 1 percent lower is a high probability.

Will the S&P break 2801.43 in the last hour of today’s trading or tomorrow?   You decide.

Always tough to sell a market down 50 S&P points but we suspect the shorts are beginning to internalize all of the above analysis and are becoming bolder in holding overnight positions as the fear of presidential tweets fades.  Algos don’t think, however. Therein lies the rub.

As always, we reserve the right to be wrong, and often are.

Stay alert, stay tuned.

 

S&P

 

 

This entry was posted in China, Equity, Politics, S&P500, Uncategorized and tagged , , . Bookmark the permalink.

2 Responses to Will The S&P Hold The Line?

  1. Leonardo Perrotta says:

    Funny divergence here …

    1999 – 2000 While RSI lowering S&P 500 did two back testing before the drop in 4Q 2000
    2007 – 2008 While RSI lowering S&P 500 did two back testing before the drop in 4Q 2008
    2018 – 2019 While RSI lowering S&P 500 did two back testing before … DROP IN 4Q 2018 ?

  2. macromon says:

    Interesting. Thanks, Leo. Kinda feels more like 2000. Not much leverage in the banking system, so collapsing money supply not a worry. Corporates highly levered, however, and many of these stocks are going to zero as in 2000 debacle. Note foreigners largest holders of U.S. corporates.

    https://global-macro-monitor.com/2019/01/23/ownership-and-profile-of-the-corporate-bond-market/

    Also thinking last night that buybacks are similar to the vendor financing of the late 1990’s. Remember how Cisco financed most of its customers, many of which were dot.coms with a high burn rate and no hope of paying Cisco back.

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