NASDAQ Composite (.IXIC) looming trade tensions still make a bear market a possibility

NASDAQ Composite (.IXIC) looming trade tensions still make a bear market a possibility

NASDAQ Composite (.IXIC) looming trade tensions still make a bear market a possibility

Wall Street investors are enjoying a multiday rally, with the Dow Jones Industrial Average poised for a six-session advance, but strategists at Citigroup say looming trade tensions still make a bear market a possibility if the Trump administration’s tariff disputes aren’t resolved favorably.

“Trade tensions appear to be mounting in a way that gives cause for concern, or at very least for heightened caution,” wrote Citi’s Mark Schofield and Benjamin Nabarro, in a research report reported dated June 10.

The strategists make the case that a summer recess set to get under way for the U.S. Congress makes policy uncertainty a persistent threat to markets considered risky over the near term. Schofield and Nabarro say the most likely outcome in the international trade scuffles, with the U.S. at the center, is mounting tensions rather than a lessening of trade animosities. That includes the possibility that the U.S. will increase import duties, at least temporarily, on all Chinese imports in a ‘shock-and-awe’ strategy.

“Applying a game theory lens to the problem, one could argue that President Trump is likely to continue to take a hard line,” the analysts said. That could help drive stocks into a bear-market, which is usually defined as a drop of at least 20% from a recent peak.

Trade disputes have been the strongest headwind for global economies because such disagreements hold the potential to weaken economic output.

With that thinking in mind, the Citi analysts anticipate a trio of market outcomes as tariff negotiations progress ahead of the G-20 meeting this month:

Trade deal at G-20
  • Stocks soar along with emerging markets as the outlook for the global economy improves, with the S&P 500 index jumping to around 2900
  • The 10-year Treasury note yields about 2.5%
  • Gold heads to around $1,300 an ounce from current levels
  • The U.S. dollar heads slightly lower but capped by lower expectations for Fed rate cuts
No trade deal, nor Fed cut
  • Stocks enter a “full-scale bear market.” S&P 500 falls to 2,350
  • 10-year heads to 1.5% or lower
  • Gold jumps to $1,600
  • The dollar jumps against most currency rivals
No trade deal but Fed cuts rates 3/4 of a percentage point
  • Stocks hit news highs, but not all stocks and sectors will perform well
  • 10-year Treasury note trades at a range of 1.75% to 2% and the yield curve steepens
  • Gold heads to $1,500
  • U.S. dollar weakens

As it stands now, the S&P 500 index SPX, +0.47% was trading sharply higher, up more than 1% midday Monday, just about 44 points from its April 30 record, and trading up 15.8% so far in 2019. Meanwhile, the Dow DJIA, +0.30% also has seen the benchmark on pace for year-to-date gain of 12.3%, while the Nasdaq Composite Index COMP, +1.05% was climbing, with a return of nearly 19% in sight so far this year, according to FactSet data.

Overall, the bias in prices is: Upwards.

By the way, prices are vulnerable to a correction towards 7,732.75.

The projected upper bound is: 8,067.57.

The projected lower bound is: 7,584.93.

The projected closing price is: 7,826.25.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 26 white candles and 24 black candles for a net of 2 white candles.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 6 rising windows in the last 50 candles–this makes the current rising window even more bullish.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 91.2778. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 4 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 55.37. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 4 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 146.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 4 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 1 period(s) ago.

Rex Takasugi – TD Profile

NASDAQ COMPOSITE closed up 81.068 at 7,823.169. Volume was 8% below average (neutral) and Bollinger Bands were 14% wider than normal.

Open High Low Close Volume___
7,798.8707,895.4437,795.7617,823.169 522,195,232

Technical Outlook
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish

Moving Averages: 10-period 50-period 200-period
Close: 7,579.20 7,858.90 7,517.40
Volatility: 25 20 26
Volume: 580,681,216 541,728,128 587,932,416

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

NASDAQ COMPOSITE gapped up today (bullish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
NASDAQ COMPOSITE is currently 4.1% above its 200-period moving average and is in an downward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of .IXIC at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .IXIC and have had this outlook for the last 21 periods.

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