NASDAQ Composite (.IXIC) trade tensions are likely to get a lot worse
Enjoy Thursday’s muted stock-market bounce, because Scott Minerd of Guggenheim Partners says it won’t last for very long.
The chief investment officer and one of the world’s premier bond-fund managers, in a late-Wednesday interview, told MarketWatch that the equity market is likely to stage a mini-rebound in the coming sessions — but then, watch out.
The investor said that by the end of the summer U.S. benchmarks could fall to lower lows than those produced during a withering fourth-quarter selloff that culminated in the ugliest Christmas Eve trading session in history.
“The trade tensions are likely to get a lot worse because we have never in modern times had a trade war like this,” Minerd said.
A fall to at least its December low for the S&P 500 SPX, +0.21% would represent a decline of roughly 16% from its current level, for the Dow Jones Industrial Average DJIA, +0.17% a drop to last year’s nadir would mark a more than 13% skid, and for the Nasdaq Composite Index COMP, +0.27% a more than 18% tumble based on Thursday’s trading levels.
Relations between Beijing and Washington turned south after Trump charged that China was reneging on its promises during negotiations and announced that he would let tariffs on some $200 billion in China goods rise to 25% from 10%, reigniting a tit-for-tat squabble that market participants had bet was on the brink of being resolved.
The Guggenheim CIO says his decidedly bearish tilt is warranted because he sees signs that the trade war could last longer than previously anticipated — a point that investors are slowly coming to grips with — and that the implications are wide-ranging as the world’s two largest economies upgrade their tariff tussle to a full-blown war.
Recent comments by JPMorgan Chase & Co. Chief Executive Jamie Dimon may best exemplify Wall Street’s changing view on trade tensions.
Three weeks ago, Dimon placed the chances of a China-U.S. trade resolution at 80%, in an interview with Bloomberg News (paywall). Earlier this week, speaking at a conference in New York, the bank boss described trade as “a real issue” that had gone from “being a skirmish to being far more important than that.” Dimon said that a protracted can do direct harm to American corporations because an unresolved and intensify trade battle makes it difficult for CEOs to form investment strategies.
“You’re already starting to see businesses starting to think about moving their supply lines,” Dimon said. “That can obviously slow down business investment and cause uncertainty of all different types.”
There are some signs of that already. The latest reading of first-quarter gross domestic product, showed that adjusted corporate profits before taxes fell at an annual 2.8% pace, marking the sharpest decline since 2015.
Of course, Minerd’s forecasts haven’t all panned out precisely. In October, Minerd predicted stocks would fall 40% or 50% after a 20% surge, as he predicted that the Federal Reserve continued to lift interest rates until the end of 2019.
To be fair, the Fed’s December rate hike is widely viewed as a policy mistake that helped to briefly derail the bullish trend in markets in late 2018. However, stocks didn’t fall by the degree Minerd had anticipated, as monetary policy makers pivoted, adopting a wait-and-see stance.
Minerd still believes that because of that 180-degree turnaround by the Fed, it isn’t likely that they will cut rates (and that they may even consider raising rates) as markets are hoping.
Overall, the bias in prices is: Downwards.
Note: this chart shows extraordinary price action to the downside.
The projected upper bound is: 7,792.41.
The projected lower bound is: 7,336.78.
The projected closing price is: 7,564.59.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 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 spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
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.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 18.6743. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 21 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 35.90. 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 sell 21 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 -116.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 6 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 20 period(s) ago.
Rex Takasugi – TD Profile
NASDAQ COMPOSITE closed up 20.407 at 7,567.716. Volume was 20% below average (neutral) and Bollinger Bands were 43% wider than normal.
Open High Low Close Volume___
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 7,694.09 7,874.56 7,525.90
Volatility: 17 19 26
Volume: 546,952,000 540,173,632 584,044,288
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.
NASDAQ COMPOSITE is currently 0.6% above its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect moderate flows of volume out of .IXIC (mildly bearish). Our trend forecasting oscillators are currently bearish on .IXIC and have had this outlook for the last 14 periods.