Market Briefing For Monday, Sept. 30

Restricting Chinese stocks from listing on U.S. stock exchanges, of course would throw-off-balance quite a few Indexes at this point. While it is arguable if many should ever have been allowed to be listed here, or do their IPO's on the Nasdaq or New York Stock Exchange (we've discussed lack of accounting transparency or even the deep influence Beijing has on many companies there); they are here now; and hence the ramifications of tossing all of them would have significant impact.

First of all, there's no clarification as to what extent (if any) Bloomberg's story on the topic has validity. And it's coming days before negotiators from China are scheduled to arrive in Washington for further discussion and hopefully (at least as relates to Agriculture) some substantive deal. All this matters, because you know Trump wants them to buy products, and you know it makes no sense for such talk to surface 'today', unless there's a nefarious objective of 'derailing' these talks before they start. I hasten to add, unless of course the story happens to be true.  

Regardless, it creates yet-more uncertainty; combined with everything markets are already concerned about (in so many areas). Our view has tried to distance the rolling 'rave show' (the political noise has been just about as intense as an electronic music rave) from technical analysis.  

I pointed out for more than two weeks the erosion of cohesive breadth in S&P and NYA, as the market repeatedly rappelled from essentially a double-top. And I've been looking for negative behavior especially with October on-tap. However there was the prospect of holding together to a degree ahead of the China negotiations; even though downside risk has exceeded upside prospects throughout this period.  

In sum: this remains a 'waiting for Godot' market; with China as Godot. It's taking on a degree of importance which is justified; so that's exactly why stories thrown at the market, like Bloomberg did Friday morning, do matter. It would matter more (in a bearish way) if the story were true.  

More likely the idea of 'investment flows' relates to U.S. money going in funds and other Chinese investment vehicles, where there's concerns. Some of that relates to the accounting and regulatory variables that are not necessarily at Western standards. However, those are improving at the behest of Beijing actually; and I suspect this story was trotted-out in a headline-grabbing fashion, that was 'updated' (veracity reduced) as the day wore on.  

So yes, trade matters a lot here (perhaps more than domestic politics); and I'm not necessarily suggesting Bloomberg threw that story out just to evoke a market decline, or to embarrass the White House and force them to also clarify. However I am suggesting that this is not inhibiting a 'deal' such as the market initially took it for Friday; but rather reflects an ongoing process, as this area was already 'on the docket' with the Chinese, so perhaps the news service dropped the context of how it's a part of the process. Clearly there's no logical reason for the US 'now' to suddenly throw new wrenches into negotiations; as we want to get a deal done, at least partially it seems (and especially Agricultural).

  

Bottom line: a lot of issues (not just China and not just impeachment processes) are hampering investor enthusiasm, and that's been clearly anticipated for this general time-frame, regardless of the daily headline grabbers. 

Summary of non-political non-chaotic factors (although chaos sure creeps into consideration as TINA (there is no alternative to including news in this case.... a pun on interest rates issues relative to stocks):  

• S&P has a declining minor channel as the chart noted; and slight erosion changing into a more aggressive downside is dependent on news of course; but also upcoming (maybe mostly mediocre) earnings reports;

• An ebbing or end to the liquidity injections also matters; if one wants the recent 'slight' rotation into Financials to have any sort of staying power;

• Most FANG and similar stocks are showing nothing more than bounces within eroding or even down-trending pattern extensions;

• Chinese stocks listed in New York / Nasdaq were hit more than usual, but part of that does link to the Bloomberg story suggesting plans (later denied) of delisting every one that's here in the U.S. (I realize this relates to the daily chaos; but in this case it blossomed due to the news service, as it otherwise was not really out there);

• Tech stocks lost their leadership role weeks ago; and are unlikely to (alone) bolster the Averages significantly for now;

• Overall the defensive technical structure persists going into a weak seasonal time (it really is a continuation of September / October in that mostly one or the other of those months tends to be 'heavy';

• Variables are skewed considerably to news sensitivity (trade more so than politics but it all matters), and this condition will obviously persist;

• The U.S. 'compelling' investment withdrawal from China would be an unmitigated disaster, and would not help U.S. business or stock market action for some time; to the contrary it could crash things if it happened; but again that's not really what's being considered and that's despite certain analysts or news services hyping such ideas;

• Yes there has been discussion ongoing about restricting investing in China; but mostly as relates to lack of proper accounting and/or regulatory supervision; and this is actually not a new consideration when investing in China directly, or in their stocks listed here;

• China itself is taking steps to open foreign access to its markets; so if they continue that pattern it would ameliorate some concerns;

• As I noted likely before; as the S&P broke 2960, it triggered in my view algorithmic sell signals; which would accelerate downside just temporarily; then the S&P would rebound as those shorting stocks into weakness got run-in;

• The foregoing doesn't mean (aside a trade deal) that risk declines; but it does mean if stocks work lower, they're doing so in stair-step pattern rather than in one fell-swoop;

• This overall pullback followed by (as some believe) all-times highs, at least for the S&P, is only feasible if we get substantive progress and/or an actual 'trade deal' with China;

• Absent that, risk increases as we migrate well into October (and is sensitive to 'liquidity injections', that need to taper-off if there's any real prospect to rebound too).

  

 

Conclusion: lower or sideways (with intervening rallies) remains the prospect for the week ahead; mostly on tenterhooks ahead of China trade negotiations; and starting out a little light on volume (thus more sensitive to swings) due to reduced participation during the first of the Jewish Holidays.  

The old adage of 'sell on Rosh Hashanah and buy on Yom Kippur' is a possibility; but only depending on timing of a deal with China. So it is just an old adage for the moment. Impeachment for now is probably less of an issue for markets than it is controversial and divisive.