Summary 

• The selling continues as markets fret about the Trump administration’s tariff wrecking ball
• The S&P closed below its 200-day moving for the second straight day,  the first time since early March
• 2722 is the key Fibo level to watch, which is above today’s low of 2728.81
• The S&P remains around 12 percent above the hairy, scary level of 2400ish that puts the secular bull into play
• Markets are giving up hope on a China trade deal and now looking to the Fed for another rescue
• The market still has considerable more downside, in our opinion
• Of course, not in a straight line

The ugly May for stocks has come and gone and the selling continues.  This is all about trade worries and the market is beginning to contemplate, though hardly priced, what we have been posting for quite a while, the geopolitical and economic framework, which has driven stocks since 1982 may be on the brink.

Markets have been so invested in the ideas of globalisation, free-flowing capital, and “convergence” – the idea that the “world is flat” (as Thomas Friedman once put it) – that they can’t bear to do the work involved in changing their minds.

Note also that many in the financial industry are heavily dependent on the “buy and hold forever” model. So the message to clients is “don’t worry, markets always go up in the long run, this is just a storm in a teacup”. That encourages the creation of arguments to support the status quo, even as it is increasingly challenged.

This is why investors would rather believe that Trump is a player of 3D chess – a master strategist and negotiator, bringing his business experience into the rarefied, stuffy halls of government.  – MoneyWeek

Even after the 7.63 percent sell-off from the May 1st high to today’s low,  the January to May rally has only retraced about one-third of its gains and has yet to violate the key .618 Fibo at 2722.05.  The S&P closed below its 200-day for the second straight day, which hasn’t happened since March 8th.

Also note, the S&P is still about 12 percent of the huge level of 2400-ish, where things get very hairy and scary.   We do think that is where the market is headed albeit not in a straight line and not without the Fed trying to rescue the market.

Key ST Levels

To the upside, the 200-day at 2775.02 and the 2781.99, the first Fib retracement level of the current sell-off.   The big downside level is today’s low at 2728.81 and the Key Fibo of the January-May rally at 2722.05.

Gun to head, unless a positive trade tweet with some beyond meat, a few days of chop before the 2722.05 is taken out.  This said with the caveat that short-term moves are noise and a mug’s game trying to predict them.