Saturday, May 4, 2019

A Telling Two Weeks to Come!

The next two weeks will be telling for equity market price action going forward.

Aside from all of the earnings releases to come, rumor has it that a U.S./China trade deal will be agreed upon by next Friday. Then, if that's not enough to get the market's attention (it will!), the following Friday happens to be the deadline for the President to decide whether or not to impose tariffs on EU auto imports -- based on a Commerce Department (non-public [for now]) report, that Trump ordered, on their potential national security threat  (I kid you not!).

Apparently Trump is at odds with his Republican colleagues (and yours truly) on the efficacy of tariffs. While the stock market's current level may contradict my, and Trump's colleagues' view, I suspect that my and their concerns will be validated (I hope otherwise!) soon enough if indeed the coming China trade deal does not eliminate the lion's share of the tit-for-tat tariffs, and, especially, if the President goes the same route with the EU thereafter.

Aside from the risks outlined above, I'm finding a few cracks in the near-term market setup.

Here's a look at my weekly short-term trend analysis from April 15: click to enlarge...

The above represents a cyclical (growthy) bias among traders, all areas considered.

Here's from this morning:

This week's analysis reflects an on balance deterioration in confidence among the trading community.

I.e., technically-speaking, the charts offer a somewhat dicey short-term picture:   click to enlarge...

Add the above to other data that -- contrary to the implications of my latest sector and asset class snapshot, yet consistent with virtually nothing by way of dire warnings in the financial press -- suggests there exists a high degree of complacency and you have a recipe for some potentially serious volatility. Not, by the way, to say that upside volatility is completely out of the question.

Bottom line folks, securities markets are precarious things, especially when we're talking short-term probabilities.

Now, all that said, how bad can 2019 get, after starting with such an epic upward thrust? A great question, that of course I cannot answer. The best I can do is offer up some history:

In Bespoke Investment Group's weekly analysis (premium content), they show the rest-of-year results for the years that have historically correlated the strongest with 2019 (from 1/1 to 5/3). I added the red rectangles:    click to enlarge...

The above presents quite the positive picture, as additional gains were realized in all but two instances. Note as well that in every instance the path beyond May 3rd was fraught with periodic dips and dives, each no doubt preceded/accompanied by the sort of data and price trends I've illustrated above.

The ultimate good news is that present macro conditions point to this year finishing along the lines (in the green) of the majority of the highly-correlated cases charted above. Although, and alas, a protracted trade war(s) would I assure you eventually turn the macro setup, and, thus, the stock market on their heads. Therefore, speaking of heads, let's hope that cooler ones prevail, and soon!

We'll keep you posted...

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