*These are my discretionary thoughts on the market. My Medium-Long Term model determines my trades.
Go to the homepage for my latest market outlook. I update this webpage throughout the day.
- NAFTA renegotiation is on the right track. Not a medium-long term bearish factor for the stock market.
- Difference between today and 1987
- Crazy conspiracy theory: what if the stock market’s selloff was being coordinated?
- I don’t expect Trump to escalate China’s tariffs into a trade war. Not a medium-long term bearish factor for the stock market.
- ISM Manufacturing Index fell, but is still trending higher. A medium-long term bullish sign for the stock market.
5 pm: NAFTA renegotiation is on the right track. Not a medium-long term bearish factor for the stock market.
Trump’s goal is to successfully renegotiate, and his bark is louder than his bite. The U.S., Canada, and Mexico are making good progress on NAFTA renegotiation talks. The U.S. is softening its stance and wants a quick victory (possibly to make the Republicans look good before the midterm elections). From Investing.com
Mexico, Canada and the United States have made good progress in their bid to rework the NAFTA trade pact but still have work to do, Canadian Foreign Minister Chrystia Freeland said. U.S. Trade Representative Robert Lighthizer is pushing hard for a quick deal in principle to avoid clashing with Mexican presidential elections in July. The three members of NAFTA could soon announce the outlines of a deal that would likely tackle the key issue of autos content while leaving other contentious chapters to be dealt with later, three sources familiar with the matter said on Tuesday.
NAFTA renegotiation is not a medium-long term bearish factor for the stock market.
8 am: Difference between today and 1987.
Bearish investors and traders continue to make comparisons between today and 1987, suggesting that the stock market is about to crash very soon.
There is a huge difference between the economy today vs. 1987.
- The U.S. economy is improving today.
- The U.S. economy was deteriorating by 1987.
- The USD Index CRASHED before 1987. The USD Index is going down at a moderate pace today.
Here’s New Home Sales.
Here’s the USD Index.
8 am: Crazy conspiracy theory: what if the stock market’s selloff was being coordinated?
I generally shun conspiracy theories because 99% of them are just crazy. But here’s something I thought of today. Take this thought with a grain of salt because this isn’t data-driven analysis.
This correction is very standard. Almost too standard. Crash, bounce, retest. But what’s even more striking is the way the S&P is retesting its February 9 lows.
- This tariff-related news isn’t even that bad. “Tariffs on $50 billion worth of goods”, not “$50 billion in tariffs”.
- The S&P is literally falling on every single piece of tariff-related news.
- The most important thing is that none of these tariff-related news were unexpected. People knew that Trump would announce steel and aluminium tariffs. Yet the stock market still tanked on that announcement. People knew that the USTR and Trump would announce tariffs on China a week in advance of the announcement. Yet the stock market still tanked on that announcement. People knew that China would retaliate. Yet the stock market still tanked on that retaliation news.
- The stock market isn’t falling when on no-news days, even though people know that further announcements are in the pipeline (because the U.S. and Chinese governments signal their announcements a few days in advance).
It’s almost like these tariff-related news are being used as pure triggers. It’s almost as if someone is trying to send The Donald a message. Who? The selling seems way too coordinated.
I think this might be China. China is known to operate openly in its own financial markets, and I would not be surprised if China was selling U.S. stocks on tariff-related news.
Notice how China’s stock index has been flat after an initial drop. The Chinese government is openly buying Chinese stocks.
Meanwhile the U.S. stock market continues to fall.
We all know that The Donald loves the stock market and economy. China might want to hurt the U.S. stock market, thereby causing the Donald to end his trade dispute with China.
And we are indeed starting to see this. The Donald is softening his tone after seeing his beloved stock market fall.
3 am: I don’t expect Trump to escalate China’s tariffs into a trade war. Not a medium-long term bearish factor for the stock market.
Trump has named his tariffs on $50 billion worth of Chinese exports to the U.S.. China plans to launch $50 billion in counter-tariffs against U.S. exports to China (see CNBC). I expect this to be the climax of the U.S.-China trade row.
There is nothing surprising about China’s counter-tariffs. The Trump administration must have been prepared for the possibility that China would respond with counter-tariffs of similar or equal size. Trump’s goal is not to escalate this into a full blown trade war, and I don’t expect him to increase tariffs on China “in a fit of anger” like some analysts expect.
Now that the U.S. and China have put their cards on the table, both countries are working to negotiate a trade agreement that’s slightly better for the U.S.
To put things in perspective, these tariffs are relatively small. From Bloomberg:
The tariffs may have only a minor economic impact, increasing levies by $12.5 billion on Chinese shipments to the U.S. which came to $506 billion last year, said Shane Oliver, the head of investment strategy at AMP Capital Investors Ltd. in Sydney. That’s an average tariff increase on overall imports from China of just 2.5 percent, he said.
Hardly a “disaster”. China’s counter-tariffs will be equally small. Remember, this is not “$50 billion in tariffs”. This is tariffs on $50 billion worth of goods. That’s a big difference.
1 am: ISM Manufacturing Index fell, but is still trending higher. A medium-long term bullish sign for the stock market.
The latest ISM Manufacturing reading fell a little. But overall the data series is still trending higher.
This is a medium-long term bullish sign for the U.S. stock market and economy. Historically, ISM Manufacturing trends lower before a bear market and recession begins. ISM Manufacturing is trending higher right now.
Read Stocks on April 3, 2018: outlook
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.