After all the dust settled, the market ended the month slightly lower but it was a volatile month. Stepping back, the market is still range-bound as it is trading between support and resistance. One of my trading rules is The Next Move Wins. Meaning, whenever a market is range-bound, we have to expect the sloppy action to continue until either support or resistance is breached. If support is broken, then odds favor lower prices will follow. Conversely, if resistance is taken out, then higher prices will likely follow. From where I sit, I believe the market will breakout above resistance and shoot higher. Right now, resistance is the 50 DMA line and support is the August’s low and then the 200 DMA line. Stepping back to look at the forest, we closed about 6% below a record high in the S&P 500 and other popular indices, so, as long as the market stays above support, I have to expect sideways or higher prices to follow. On the other hand, if we break below support, then we will likely head lower. For now, we are long and will remain long until our stops are hit.  

Monday-Wednesday’s Action:

Stocks opened lower but closed nicely higher on Monday after President Donald Trump said China is ready to come back to the negotiating table following a phone call on Sunday. Trump spoke to reporters at the Group of Seven (G-7) meeting in Biarritz in France and said the two countries would start talking very seriously. On Tuesday, the market opened higher but closed lower after the bond market inverted again and the yield on the 30-year note hit a record low. The inverted bond market tends to be an early recession warning and that spooked some investors. Stocks rallied nicely on Wednesday after hope spread that the US and China will get back to the table and keep negotiating. Consumer stocks rallied after Tiffany and Kohl’s rose 3% and 3.4%, respectively. Tiffany posted quarterly earnings that beat analyst expectations.

Thursday & Friday Action:

Stocks rallied sharply on Thursday after China said it will respond in a “calm” manner and that reassured investors. Stocks erased a 152 point gain on Friday and then traded between positive and negative territory on the last trading day of the month. In other news, Reuters reported that China’s Foreign Ministry said on Friday that U.S. and Chinese negotiators are maintaining “effective communication ” as the two countries try to strike a trade deal. The report follows comments from the Chinese Ministry of Commerce on Thursday that hinted China will not escalate for now the trade war with the U.S. President Donald Trump also said that some trade discussions had taken place on Thursday, with more scheduled over the coming weeks.

Market Outlook: Easy Money Is Back

Once again, global central banks showed up and juiced markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks hit a hiccup and that is the primary reason for the recent pressure. As always, keep your losses small and never argue with the tape.