WASHINGTON. A one-two punch of seemingly good news on the international trade front warmed up the major stock market averages Wednesday. News that Hong Kong’s current puppet leader decided to withdraw the Beijing-instigated extradition bill warmed things up on Wall Street. Then, last night and this morning, news hit the tape that China had agreed to re-open trade talks with the US next month right here in The Swamp. Traders and investors wondered: has the US government finally come up with a China Syndrome solution?
Whatever the case – we’ve been here before – traders, investors, and the machines that do their algorithmic thing all stepped up to place massive and mostly positive bets at Thursday’s opening bell, kicking the major averages into overdrive.
Mr Market’s rocketship is on the way to the stars in Thursday morning trading action
Before we discuss any possible move toward a China Syndrome solution to the US-China trade imbalance, let’s scope out today’s remarkable market advance. This big move likely reflects optimism on the trade front.
As we approach 11:15 a.m. ET, we find the Dow Jones Industrials soaring, up roughly 450 points for a 1.71 percent gain on the day thus far. The broader-based S&P 500 average is up a nearly-as-impressive 41.55, scoring a 1.41 percent gain to this point.
And the tech-heavy NASDAQ, battered recently by China supply chain and manufacturing worries, is even more impressive at the moment. It’s up a whopping 138 points or thereabouts, gaining 1.73 percent thus far.
By any definition, this looks like an impressive blast upward indeed. And, at least at this moment, it looks like it might have enough power to break through the stock market disaster otherwise known as August 2019.
Tale of the tape. And the charts
Charts of the major averages sometimes teach us something in retrospect. Via Stockcharts.com, to which we subscribe, let’s take a look at three Decisionpoint charts that might be telling us something about what’s going on right now. Let’s check out charts of the three major averages we follow to see the astonishing picture they paint. First, we’ll show you the Dow chart.
(NOTE:Stockcharts material we show here is available free of charge via the site’s front page “Articles” menu pick. We don’t share material behind the paywall.)
Dow Jones Industrials
Note to the far right of the chart a very interesting pattern that illustrates what we complained about throughout the month of August. Up and down, up and down, up and down, ad infinitum. That’s what was driving us crazy when trying to figure out where to buy, hold or sell. It seemed that making any decision at all was bound to get our portfolios clobbered, very often on the next day.
The S&P 500
Next, let’s look at the broader-based S&P 500 chart for the same period. Notice anything at the right side of the main chart?
Yep. Exactly the same pattern as the one we saw on the Dow. Now, for the clincher, let’s look at chart number 3, in this case the NASDAQ 100. Decisionpoint follows this one rather than the full NASDAQ. And if anything, the NAZZ 100 is even more tech-heavy than its parent. But once again, check out the right side action on this chart.
The tech-heavy NASDAQ 100. Even more tech-heavy than the regular NAZZ
Bingo! It’s a match with the other two. It’s fairly rare we see closely matching patterns that are almost identical among the three. That reflects a stock market that’s likely moving as a single, huge average, always in the same direction.
So what does all this mean?
In this case, we have a pattern of indecision that looks almost like an extended “reverse head-and-shoulders” pattern. A regular head-and-shoulders pattern in the majors is usually an indication that Mr. Market is headed for an imminent fall. A reverse head-and-shoulders often indicates an opposite. I.e.,the market is ready to rally.
In the case of the above charts, however, we note the vertical zig-zag pattern, which offers another bullish suggestion. Namely that stocks are hitting a multiple bottom. In other words, stocks may not want to go any lower and are just getting ready for a very big bounce.
And that’s what we’re getting right now, at least as I try to wrap this column up.
What about contrary indicators?
On the other hand, our favorite McClellan Oscillator tells us that stocks are suddenly getting “overbought,” which usually means we’ll get a correction very soon.
So, before we get our bullish hopes up much higher, we’ll need to take the McClellan’s counter-message to heart as well.
On balance, however, a day like today is a hell of a lot more fun than the month of August was. We’ll probably hold our powder today. We have more cash to put back to work. But we almost never buy into a rally as big as this one. We usually buy on negative days when we’re still reasonably bullish. Experienced investors always wait for the markdowns.
And about that possible China Syndrome solution…
Returning to today’s news hinting at potential China Syndrome solution or solutions or at least some positive thoughts, let’s finish today’s column with a bit more on the market’s major driving stories on the trade front.
First, details from yesterday’s apparent cave on the issue that ignited the current, massive Hong Kong protests. this clip via CNBC.
Carrie Lam caves
“Hong Kong leader Carrie Lam said that she will withdraw a contentious extradition bill that has sparked months of mass protests. The Hang Seng index in Hong Kong soared around 4% on reports overnight that the withdrawal of the bill was imminent. The iShares MSCI Hong Kong ETF (EWH) gained 4.4% and was on pace for its biggest one-day rise since Sept. 8, 2015 when it rose 5.4%.
“The bill’s withdrawal is seen as a positive because protest escalation was seen as a potential disruptor to the global economy. Some investors feared the protests could hinder U.S.-China trade talks.”
More Chi-com tricks? Be on the lookout
Beijing’s Communist government still has some totalitarian tricks up its sleeve as our Communist friends around the world always do. But for a variety of reasons – perhaps mainly due to the simple fact that Hong Kong has long been a major world business center and moneymaker – Beijing felt it best not to wage this particular total-control battle right now. Not the least reason of which is the hit the country’s economy is taking as a result of the Trump tariff regime. A back-off move like this, if it’s even moderately effective, could go a long way toward some kind of China Syndrome solution on the trade front.
Almost in tandem with Wednesday’s news, we got a provisionally more positive story directly on the trade front via this mornings newspapers and website coverage. Again, we go to CNBC, which is usually pretty good on financial matters when it’s not obsessed – like its parents at NBC – with trying to smear and defeat President Trump 24/7 in its coverage.
Are serious trade negotiations with China really set to resume in October?
“China’s Commerce Ministry issued a statement Thursday morning saying that Liu He, Beijing’s top negotiator on trade, had spoken with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
“The two sides agreed to hold another round of trade negotiations in Washington, D.C., towards the beginning of next month, and consultations will be made in mid-September in preparation for the meeting, the statement said.
“‘Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations,’ according to a CNBC translation of the statement….
“‘Even though expectations for a robust trade deal are low, with global growth continuing to deteriorate as trade tensions mount, investors are relieved just to see talks are back on,’ said Alec Young, managing director of global markets research at FTSE Russell, in a note. ‘There’s so much at stake that even incremental steps in the right direction are welcomed.’”
The US economy still appears to have more juice than pro-recession pundits think
In addition, CNBC noted the following positive tidbit on the US economy.
“On the data front, private payrolls in the U.S. increased by 195,000, according to ADP and Moody’s Analytics. Economists polled by Dow Jones expected payrolls to grow by 140,000. The report from ADP and Moody’s Analytics is seen by investors as a preview to the U.S. government’s monthly nonfarm payrolls report, which is scheduled for release Friday morning.
“The payrolls data comes as the Federal Reserve is reportedly gearing up to lower interest rates by 25 basis points later this month. The move would follow another quarter-point rate cut back in July.
“Meanwhile, the Institute for Supply Management said the U.S. services sector expanded at a faster-than-expected rate last month.”
About those ADP numbers
ADP’s numbers have historically proved to over- or under-estimate employment numbers. That’s in contrast to official government figures, which usually come out on Friday. But at least ADP tends to track in the correct direction.
What if the Federal numbers Friday are even better? we have to wonder what that will do when it comes to the skittish Federal Reserve’s next move on interest rates. We could get that answer later this month. But beware: these wrong-way Corrigans have been horribly wrong since Trump began his presidential term in 2017.
And we still can’t get it out of our heads that these clowns may be part of the Deep State’s next opportunity to screw Trump out of Election 2020, by helping to cause a recession meant to coincide with next year’s election campaign. What if the Fed doesn’t live up to Mr Market’s expectations? We might have to kiss today’s big rally and any follow-ons a long and sad goodbye.
— Headline image: Falcon Heavy, successful booster rocket landing. (Image via SpaceX website)