Trump's Tweets Trump Technical Analysis-For Now
A funny meme circulated among the technical cognoscenti last week: President Donald Trump holding a sign that says “Your technical analysis is no match against my tweets.”
That’s been the case at the market highs in August, and frankly it won’t be easy technically navigating future presidential tweets given so many concerning macro headlines and headwinds. Investors are worried about a slowing global economy, negative bond yields, growing concerns about the greenback, and regional crises such as Brexit, the Argentina market meltdown, and Hong Kong protests, to name just a few. And the newest threat is concern around systematic risk in the investment grade bond market, notably headed by General Electric (GE), the subject of a recent analyst report alleging accounting fraud.
With so many major macro wildcards looming, it isn’t surprising why investors remain risk averse. Therein lies an opportunity and why technical levels are likely to remain important cues for traders and investors. The S&P 500 index chart below illustrates the key levels I expect investors will react to in the coming weeks.
Important trading support exists at the August low at 2822 followed by the 200-day moving average at 2800, but the more important level is the June low near 2730. A break of the June low would be a significant negative development given lower lows would be in place, and by definition, confirm a new downtrend is developing.
I continue to believe the S&P 500 is establishing a bottom at 2822 with the August highs at 2943, near the 50-dma, now key trading resistance
Opportunities in 5G – KEYS, CIEN and COHR
Looking at the intermediate term, weekly indicators that track multi-months swings continue to follow the 3Q16 roadmap, suggesting another three to five weeks of sideway consolidation before another meaningful acceleration into yearend.
Bottom line: Expect a volatile trading range to continue through much of September, setting the stage for a 4Q rebound.
Noteworthy: The technology sector continues to rebuild its leadership trend following a shallow pullback in July and August, while the consumer discretionary sector’s relative performance U-turned exactly where it needed to at its rising 200-dma.
Following up on last week’s commentary, defensive sectors such as staples and utilities continue to pull back from the upper end of their late 2018-2019 sideways relative performance trading ranges. We expect further weakness in the coming weeks.
Lastly, energy remains oversold but in an established downtrend, while financials have yet to show any evidence of reversing their August decline. Industrials and materials have yet to show evidence of improving.
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