Week In Review: Here Are The Levels To Watch On Wall Street
The Market Closes Below Resistance…Again
After all the dust settled, the market closed below its 50 DMA line which has served as important resistance all month. On the downside, the first level of support to watch are August’s lows then the 200 DMA line. By definition, 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. I can’t predict the future and there is no need to. The key is to be prepared for any scenario that may unfold and adjust your strategy accordingly. For now, we are long and will remain long until our stops are hit.
Monday-Wednesday’s Action:
Stocks rallied on Monday as the major indices continued bouncing off their respective 50 DMA lines. In other news, The People’s Bank of China unveiled an interest-rate reform over the weekend aimed at stimulating economic growth The PBOC lowered borrowing costs for Chinese companies which is another form of easy money. In other news, Commerce Secretary, Wilbur Ross said the U.S. extended a license for 90 days that will allow Huawei to continue business with the U.S. companies to service existing customers. On Tuesday, the market fell as the major indices rallied into their declining 50 DMA line. Before Tuesday’s open, Home Depot gapped up over 4% after the company reported better-than-expected earnings. The home improvement giant did cut its full-year revenue outlook and warned that tariffs could hit adversely impact consumer spending. Stocks rallied nicely on Wednesday after shares of Target and Lowe’s gapped up on stronger than expected results.
Thursday & Friday Action:
Stocks opened higher on Thursday but sellers showed up after the major indices hit their respective 50 DMA lines and then pulled back. Central Bankers met in Jackson Hole for their annual meeting and the chatter suggested that the Fed may not cut rates at its September meeting. In other news, the yield curve inverted again after investors were concerned that the Fed may not step in to rescue the economy. Before Friday’s open, China announced retaliatory tariffs which sent futures lower before the open. After the open, Jay Powell spoke and reiterated he will continue to watch new developments. The G-7 meeting is this weekend and we will see what happens there.
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.