Trade Talks Rattle Market, Reversal Is Imminent

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Trade Talks Rattle Market, Reversal Is Imminent

Trade Talks Stall, Tariffs To Rise

The U.S./China Trade Talks have stalled. President Trump, in an effort to spur progress, has announced the current 10% tariffs will be increased to 25% on Friday. In addition, he is targeting another $350 billion in Chinese goods and may levy those duties as early as this week. The move in in response to China’s attempt at renegotiating previously agreed-upon items within the deal-in-progress.

China, for its part, says it is surprise by the new threats. Vice Premier Liu He is scheduled to visit Washington this week in what was thought to be the final round of talks. Now, China is considering whether or not to pull out of the talks or continue under the new paradigm. Markets in Asia fell hardest on the news, the Shanghai Composite and Shenzen Composite shedding 5.0% and 7.0% respectively.

The U.S. market did not respond well either. The Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 all fell nearly 2.0% in early premarket trading. The move put the broad market S&P 500 down to the short-term 30-day moving average where it faces a critical decision; bounce higher or break through and move lower. With trade talks in question and no reason now to think a deal is at hand a move lower seems like the most obvious move.

Aiding this move will be poor outlook for future earnings. Earnings growth is expected to resume a positive trajectory later this year but growth will be small. Possibly non-existent if trade talks do indeed fall apart. For now, support appears to be present at 2,900 although you should expect at least a test of support in the near-term. The indicators are both moving lower after diverging from recent highs, an indication of market weakness and potential for price reversal.

A break below the 30-day EMA will likely go to 2,800 in the near-term, if not lower. Longer-term, it is possible we’ll see the index form a much deeper correction, a correction within an even longer-term secular market consolidation, and one that could take the index down to retest lows set last December. The risk is that trade talks will resume, that this latest development is nothing more than a speed bump, and that scenario may result in a surge to new highs.

US/China Trade Talks. What You Need to Know About It

The US and China have announced another round of trade talk and sent equities shooting higher. The talks are scheduled for late August and have raised hopes the world’s two largest trading nations can make amends.

While the news is a balm for nervous markets there is reason to believe the talks will not amount to much; the talks are not between high ranking officials but a vice minister of Chinese commerce and an under-secretary within the Treasury Department. Previous talks were held between a Vice Premier of China and two cabinet level members of the Trump administration.

The exact date of the meeting is unknown but there is speculation it could come before August 23 rd . The two nations have traded tariffs twice already, the next round of US levies is due to take effect on that date.

US equities futures jumped more than 0.50% as traders hone in on the news. The S&P 500 advanced more than 15 points erasing nearly all the previous day’s losses. The index is confirming support at the short-term 30-day exponential moving average and heading higher. The index is poised to retest its all-time high near 2,880 and may do so over the next week.

The risk for traders is this; the earnings cycle has end leaving the market with little to support it other than geopolitics. The indicators remain weak and are pointing lower which suggests this week’s volatility is not over. Today’s swing in prices is the 4 th such swing in four days and easily reversed.

The US dollar shed some ground versus the Chinese yuan and may be indicating a reversal is imminent. The pair created a bearish engulfing pattern at the top of a strong uptrend and the pattern is confirmed by the indicators.

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Both the MACD and stochastic have rolled over and fired bearish crossovers indicative of weakening price action. Support may be found at the short-term moving average, near 6.80, a break below there would be bearish.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.
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Stock Surge Imminent? Why the Market Suddenly Turned Bullish

By CCN Markets: Following the U.S. stock market’s wildest week of the year, the Dow Jones and other major indices appear poised to start the week off with a bang. But just days removed from the Dow’s worst loss of 2020, why has Wall Street…

The stock market is on the verge of a major recovery. Here’s why Wall Street has suddenly turned bullish despite numerous macro threats. | Source: Shutterstock

By CCN Markets: Following the U.S. stock market’s wildest week of the year, the Dow Jones and other major indices appear poised to start the week off with a bang.

But just days removed from the Dow’s worst loss of 2020, why has Wall Street suddenly turned bullish?

Three words: central bank policy.

Stock Market Eyes Relief Rally

While the sentiment around a potential trade deal between the U.S. and China remains gloomy, investors expect central banks to be on alert after the U.S. 30-year Treasury yield plunged below 2 percent.

In recent weeks, billions of dollars have rushed into government bonds to safeguard investor holdings against more potential downside movement amidst intensifying geopolitical risks.

On Sunday, President Trump said that he’s in no rush to strike a trade deal with China. Americans, he said, are “rich”:

“We’re doing tremendously well, our consumers are rich, I gave a tremendous tax cut, and they’re loaded up with money.”

President Trump stressed that he is “not ready” to make a deal with China, noting that Hong Kong could benefit the trade deal if the tension can be relieved in a humanitarian fashion.

“I would like to see Hong Kong worked out in a very humanitarian fashion. I think it would be very good for the trade deal.”

With a U.S.-China trade deal becoming less likely in the short term and investors pouring into government bonds, equities bulls believe that central bank stimuli are inevitable to prevent the global economy from losing steam.

The European Central Bank (EBC), for instance, is said to be considering another cut to its benchmark interest rate in September to provide fresh stimulus to the eurozone.

Is the recovery sustainable?

Still, analysts are not dismissing the likelihood of a synchronized global recession in the medium term that could affect the Dow Jones and other key stock indices across the globe.

Rana Foroohar, the author of “Makers and Takers: The Rise of Finance and the Fall of American Business” and a columnist at FT, stated that investors are embracing turbulence in the global economy, suggesting that the recent stock market drop is a consequence of a long-lasting “sickness” in the global economy.

Now Watch: CCN TV

Last modified: January 30, 2020 9:45 PM UTC

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2020.

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