Hello readers – before we begin our weekly recap I’d like to mention our sister site ForexBrokers.com has just published it’s annual review of forex brokers. This is the 2nd year of review, with the number of brokers reviewed jumping from 20 to 43. With the craze over cryptocurrencies over the past year, this is a timely segment of the brokerage community to analyze – that analysis includes 83,000+ words of research! 140 variables across seven key categories are compared and contrasted: Commissions & Fees, Platforms & Tools, Mobile Trading, Research, Customer Service, Education, and Offerings of Investments.
Volatility continued this week as #TRADEWARS(tm) rhetoric continued – more rhetoric than action, but traders got antsy again. Monday and Friday saw significant drawdowns, while the middle of the week saw positive returns. That said Wednesday was quite the day with a big swing from losses to gains – doubt we had a single day like that in all of 2017! Also of note: the S&P 500 fell below it’s 200 day moving average on Monday for the first time since June 2016 — #BREXIT!! The S&P 500 fell 1.4% on the week, while the NASDAQ dropped 2.1%.
So far this year, the S&P 500 has had three times as many sessions with a 1% move than in all of 2017.
So keeping track – Trump did tariffs on steel and aluminum; then mostly exempted almost every major country who imports those items into the U.S. except for the Asian ones. So a lot of bluster, but in the end it was focused on China. Then to start this week China retaliated with tariffs on pork and fruit, among other things. If you are a cynic you’d say China was specifically targeting “Trump country” with most of these goods.
“Today’s (Monday’s) weakness has everything to do with China’s announced tariffs. Even though they were quite small, there’s a fear that this could escalate. We don’t know if this could be the end as far as retaliation goes, but it seems like the trade issue is escalating into bite and not just bark,” said Hank Smith, chief investment officer at Haverford Trust Co.
Then mid week Trump came back with “$50B of goods that it PLANS to hit with a 25%” tariff.
The imports targeted for levies reached across the U.S. economy, from high-tech industries like medicine, aviation and semiconductor machinery to intermediate goods like machinery and chemicals, according to the U.S. Trade Representative. Consumer standards such as dishwashers, snow plows and motorcycles were also targeted. None of the tariffs go into effect immediately.
Then China immediately responded with PLANS for tariffs of up to 25% on American imports such as soybeans and cars.
Then Thursday evening a statement was released from the White House where Trump asked the U.S. Trade Representative to consider an extra $100 billion in Chinese goods to face tariffs and to identify the products that could be targeted.
So we are in a big game of chicken here and will be for quite a while – good article on this here.
“Trump’s aim may very well be to put maximum pressure going into a negotiation to get as many concessions from China as possible. We have seen this many times before in his tactics on making deals,” von Mehren said.
On the economic front, ISM Manufacturing came in Monday at 59.3, compared with a previous monthly reading of 60.8. Still very strong; readings over 50 indicate expansion. ISM Services came in at 58.8 vs expectations of 59.0; again quite strong. The employment data was lighter than expected but sort of a reversion to mean considering February’s data was off the charts.
The U.S. gained just 103,000 new jobs in March to mark the smallest increase since last fall; economists had expected 170,000 in gains. The unemployment rate held steady at 4.1%. The government raised its estimate of new jobs created in February to 326,000 from 313,000, but cut its estimate for January to 176,000 from 239,000. The upshot: Hiring was very good in the first quarter, but not quite as good as it first looked.
Here is the 5 day weekly “intraday” chart of the S&P 500 …via Jill Mislinski.
The week ahead…
#TRADEWARS(tm) “threat” continues (with negotiations behind the scenes surely happening). Dog & pony show on Capital Hill where Congress folk will “attack” Facebook CEO Zuckerberg on camera….. while they chum it up and ask for political contributions behind the scenes. Earnings season kicks off.
Short term: The more tests of a support, the more apt it is to fail. The S&P 500 sure is testing the 200 day moving average a lot. For the NASDAQ chart we are showing that “gap” in the chart below 6000 – just in case! We had a trendline connecting 2 recent lows (dotted line) on the NASDAQ chart – which it broke this past week. So now a new lower support line utilizing last week’s lows – if these continue to break it’s obviously not a positive.
The Russell 2000 is battling between the 50 and 200 day moving averages.
The NYSE McClellan Oscillator had turned positive by Thursday – Friday’s selling took it back to near break even.
Long term: It’s been unicorns and sunshine for ages. Even now a massive uptrend is holding. What would be interesting down the road – if it happens – is a breakdown of the NASDAQ out of the lower channel, which is somewhere near 6500.
Charts of interest / Big Movers:
Monday, Alkermes (ALKS) sank 22% after the company received a “refusal to file” letter from the Food and Drug Administration regarding its new drug application for ALKS 5461, a treatment for major depressive disorder. Alkermes management said the FDA hadn’t raised concerns before, and that they weren’t clear on what those objections even were.
Tuesday, Spotify (SPOT) fell 10% in its trading debut, following its direct listing. Kudos to Spotify for offering direct, versus going through the Wall Street machine which curries out IPO shares like party favors to their favorites, often generating tremendous gains for a select few.
The company is using a so-called direct-listing process. That means it will let existing shares float publicly without offering any new shares on an exchange and without an underwriting bank to help buoy its stock price in the open market. Why? Spotify wanted to democratize the process and they didn’t need to raise fresh money through the offering as is often the case with an IPO. 5 Things to Know about Spotify.
Spotify generated revenue of €4.09 billion ($4.99 billion) last year, up from €2.95 billion the year prior, for growth of 39%. The company’s losses, however, more than doubled, reaching €1.24 billion in 2017 versus €539 million in 2016. Spotify had 71 million paying users at the end of 2017, up from 48 million in 2016.
Wednesday, Tesla (TSLA) gained 7.3% in its biggest one day gain in about a year. Late Tuesday, the maker of electric cars reported first-quarter production and delivery numbers that missed expectations, but said it would not need to raise more money this year.
Home builder Lennar (LEN) rose 10% Wednesday following better-than-expected earnings. It was the best day for the stock since May 2010.
Thursday, Conatus Pharma (CNAT) sank 31% on a failed drug study.
Dropbox (DBX) continues to hold up VERY well in this volatility.
Have a great week and we’ll see you back here Sunday!