This was the wildest week we have seen all year on Wall Street. On Monday, stocks tanked after China retaliated to Trump’s latest round of tariffs. Then, the market rebounded sharply after the bulls showed up and defended the longer-term 200 DMA line. For the week, the market ended in the upper half of its weekly range which (normally) is a bullish sign. Stepping back, this week’s low is the new important level of support to watch. Going forward, as long as the market stays above this week’s low, then odds favor sideways to higher prices will follow. 

Monday-Wednesday’s Action:

On Monday, stocks fell hard after China retaliated in a big way after Trump raised tariffs by another 10%. Trump accused China of ‘currency manipulation’ as the yuan slid to the lowest level in more than a decade. A weaker yuan will help offset some of the pain from the tariffs. The price of the yuan is pegged by the government. China’s Central Bank publicly denied manipulating its currency. Additionally, China said it will not rule out import tariffs on newly purchased US agricultural products after August 3, 2019 and Chinese related companies have suspended purchasing US agricultural products. In other news, Trump condemned racism, bigotry, and white supremacy in a speech after the mass shootings over the weekend.

Stocks rallied on Tuesday as buyers showed up after Monday’s heavy decline. Overnight, China’s central bank decided to peg its currency better than analysts expected which came in response to the US Government officially calling China a currency manipulator for the first time since the 1990s. That helped ease tensions between the two nations. In other news, James Bullard came out and said, “Further rate action is desirable” which helped juice the market. On Wednesday, stocks opened sharply lower even after more central banks cut rates. India, Thailand and New Zealand’s central banks all cut rates this week to help stimulate the global economy. The new round of cuts came one week after the Fed cut rates. At one point after the open, the Dow was down nearly 600 points as Bond yields tanked. By the afternoon, buyers showed up and helped the market close mixed to mostly higher for the day. That was a big intra-day rally and a strong goal-line stance for the major indices. In other news, Disney’s stock fell after the company reported earnings. 

Thursday & Friday Action:

Stocks rallied nicely on Thursday and turned positive for the week after investors defended the 200 DMA line earlier in the week. Overnight, China said exports rose 3.3% on a year-over-year basis in July, beating the Street’s estimate for a 2% decline. Once again, the market fell hard in the morning and recovered in the afternoon to close near the highs of the day. The big headline came after Trump said the US is not going to do business with Huawei and it is not ready to make a trade deal with China. Reading between the lines, clearly the talks are not going well.

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.