Last Monday in the Capital Wave Forecast I said, “This week could be a make or break week for the markets. It could also be a lot of nothing.”
It was both. First there was a lot of nothing, then an ugly breakdown on the last trading day of the week.
Being the second to last week of summer vacation, the likelihood of traders working hard to make anything happen last week was unlikely.
And for the most part, despite a lot of econometric news flow, it was a gentle week as stocks edged higher heading into Friday, precisely because Jerome Powell was speaking then and expected to say something positive about interest rates.
What the Fed Chairman said Friday morning wasn’t that the Fed was going to lower rates, only that they would “act as appropriate.”
Market’s Maintain Heat Burning the Nervous Investors
On the other hand, Powell’s tepid hold on traders’ attention was wiped clean by the slamming of President Trump’s fist in China’s face Friday.
Mad that China was pushing back against the President’s tariffs by announcing they would retaliate by imposing new tariffs on $75 billion of U.S. goods, Mr. Trump one-two punched back by announcing he was raising the tariff levies already announced for September and December, and ordered higher than originally threatened tariffs, and, worst of all, demanded U.S. businesses to look to do business away from China.
Equity markets nosedived.
The Dow ended off more than 600 points, coming down again to test recent lows, but not breaking them.
However, with the President adding heat to the flames he threw earlier in the day Friday, his post market close comments slamming China on their retaliatory trash talk, freaked out nervous investors.
In today’s early morning, Dow futures were down more than 300 points.
They pared those losses when President Trump, from the G7 meeting this morning, said that “China called, and they want to get back to talking.” Futures rallied more than 500 points.
The damage they did earlier, breaking through that near-term support the market hadn’t breeched on Friday, isn’t going to sit well with traders this week.
Unless there are “real” positive talks, I say “real” because China came out quickly and said there was no call by them to get back to the table, the market is going to head back to the lows the futures made this morning and scare a lot of technical traders and trigger more selling.
That’s what this week holds, the prospect of nervous selling turning into something worse.
It’s not the first time I’ve warned about major catastrophes…
In 2000, I told everyone who’d listen that tech stocks were about to crash and take the entire economy down with them when they did.
And in 2007, I warned my readers that a handful of subprime mortgage companies were about to fail and bring the economy to its knees and in doing so, crush stocks.
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Be careful out there.