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The S&P closed at 2691.25 – So today’s circuit breakers are:
Level 1. 188.39 pts (7%) or 2502.86
Level 2. 349.86 pts (13% total) or 2341.39
Level 3. 538.25 pts (20% total) or 2153.00
The idea of a trade war continues to threaten the mkts…. Trump tweets –
“Trade wars are good!”
The mkts suffered in early trade on Friday morning as the talk of trade wars rose and concerns over Italian elections on Sunday and German coalition gov’t discussions weighed in….…….in the end they did recover a bit as we moved into the weekend. The Dow lost 70 pts while the S&P and Nasdaq ended the day higher at +13 pts and +77 pts respectively.
Investors around the world are trying to understand what it all really means. What about political upheaval in German and Italy? Will that cause global mkts to go into a tailspin? Will US tariffs help the US steel industry? Will manufacturers boycott US steel and aluminum products? Michael Farr of Farr Miller &Washington told CNBC that:
“Protectionism is not a good thing and the ramifications could be significant. Starting a trade war would be reckless.”
While Wilbur Ross tells us that steel tariffs are about US jobs and security….
” China does not play by the rules” ….’Ever since WWII the US has been making unilateral concessions…most recently the big one was admitting China to the WTO (World Trade Org) – China subsidizes product, they dump product they violate intellectual property rights – and they are not the only ones……. – So, what the president is trying to do is level the playing field – this is about jobs…
And so, the arguments continue… Many of Wall St’s biggest bulls go so far to suggest that if this turns out to be a real trade war – then the bottom can fall out of the mkt – so the side you are on will determine how you play the mkt…are the tariffs a signal to sell stocks and move the safety trade (Gold) or are they a signal to double down and go all in (stocks)……?
Remember – there are always two sides to a trade – both a buyer and a seller – so while the mkts are under pressure now – the fact is – there are plenty of investors/traders that see the turmoil as an opportunity…while there are plenty that see the turmoil as a danger.
Thursday evening – William O’Neil cut our mkt view to an uptrend ‘under pressure’ – which means we remain ‘cautiously bullish’ – that the index has had 3 or 4 distribution days in the last 4 – 6 weeks and is showing signs of price deterioration. The Index may be close to it 10 and/or 40 week moving average, but remains above at least one of them.
This is cautiously optimistic still – because the way we define a downtrend is more specific…. The index has had at least 4 – 6 distribution days in the last 4-6 weeks and has moved 5% – 7% or more from the highs. In addition, a price break below its respective 10 and/or 40 week moving averages is typical. Leading stocks are behaving out of character.
A look at our rotation graph shows that materials, energy, transports are all moving into the ‘outperforming &weakening quadrant’ while Financials, Healthcare are moving into the ‘underperforming &improving quadrant’. Consumer staples and utilities remain in the ‘underperforming & weakening’ quadrant and software and retail is solidly in the ‘outperforming and improving’ quadrant. These last two sectors continue to show impressive strength in both up and down mkts….
The safety trade – Gold
Gold and gold miners were the winners last week – on the back of trade war fears – in what is known as the safety trade…gold moved up 2% during the week while the gold miner’s ETF – GDX $21.49 – rallied some 4% during the week. This stock remains well below any resistance level…at $23/share representing a possible further 6% move up before it hits resistance.
Now treasuries are also considered a safety trade as well – BUT Trumps trade proposal and the most recent comments from Fed Chair Powell – remind us that inflation and monetary policy issues remain at the front of investors’ minds…. leaving the mkts vulnerable to swift and painful swings as we navigate our way thru the minefields. Listen folks – the days of ‘wine and roses’ and unlimited global stimulus are over…We’ve been talking about this for years now – You can’t be surprised….
US futures have gone from flat to down 7 pts in early morning trade…more trade war talk remains the topic of the day…and CNBC now reports that Trump says, ‘tariffs will come off if a new and fair NAFTA agreement is signed’ – that headline did little to turn the mkts around – but expect to hear much more about this as the day wears on.
European mkts are all in positive territory but remain quite cautious…. Italy is the only mkt in negative territory as investors there consider the political gridlock that appears to be the answer to Sunday’s elections. FTSE +0.18%, CAC 40 +0.31%., DAX +0.61%, EUROSTOXX +0.37%, SPAIN +0.44% and ITALY -0.54%.
Mkts are waiting to see if talk of ‘Ita-LEAVE’ heats up again. Ita-Leave is the acronym for the Italians to also leave the EU – something that is not anywhere near happeing….so do not get caught up in that speculation.
“Voters opted for anti-establishment and far right parties in higher numbers than before – meaning that none of the 3 main parties will be able to govern Europe’s 3rd largest economy alone”
The VIX index (fear index) which has been up in recent days is up again today…. currently up 3% at 20.23……any talk of Trump backing down will certainly cause this index to retreat sending stocks higher – but right now – the mkts are not sure they believe it.
The dollar index – DXY – is steady and oil is up 9 cts… Gold is up $1.5 at $1,324/oz…. just teasing with resistance at $1,327/oz…. a break up and thru will take gold back to $1,350 in a swift move.
Take good care –
Cauliflower Risotto w/Truffle Butter
This is another great risotto dish that is easy to make and easy to present. For this you need:
Diced Spanish onion, olive oil, butter, 2 Cups Arborio rice, 1/2 Cup dry white wine, Cauliflower Florets Cut Into bite size pieces, warm chicken broth, s & p, truffle oil or truffle butter and shaved Parmegiana cheese.
Heat the olive oil and butter in a heavy saucepan over medium heat.
Add the onions and cook until tender – maybe 10 mins…then add the risotto and stir until well coated with the oil mixture. Add the wine and continue to cook until it is almost completely absorbed.
Next – begin by adding one ladle of the hot chicken broth, stirring frequently until it has been almost completely absorbed before adding more. Continue to cook the risotto in this manner adding the broth one ladle at a time until the rice cooks.
While the risotto is cooking, heat some more olive oil in a frying pan and add the cauliflower. Cook over medium low heat adding a tablespoon or two of broth until the cauliflower is tender and just beginning to turn a golden brown. Remove from the heat.
After cooking the risotto for about 25 mins, should be tender to the bite, stir in the cauliflower and butter. Season with s &p to taste.
Once it is well mixed – serve the risotto into individual bowls, adding a spoonful of truffle butter. Garnish with shaved cheese and serve immediately.
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor being it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates”