Timing Trump, Tweets, and Tariffs

www.keystonecharts.net
Apr 7, 2018
2 min read

2017 was the year of Buy The Dip in equities and the indices. 2018 has become Buy the Dip and Get out Quick as uncertainty of trade wars and Trump tweets weigh on investors minds. Uncertainty is the new key word as the market tries to figure out which sector(s) can become a leader without buybacks. Corporations buying back their own shares has been a major buy the dip contributor. But companies are not able to implement buybacks during this current window ahead of earnings, and then they have to wait four days to purchase their own shares. There is still another two weeks before the meat of earnings season hits. By then they may get to buy them even cheaper...

Everyone's attention has been on the 200 day moving average in the S&P 500 Index. Fair enough, it's the leading barometer for the US equity market and it held so nicely during the vol-crisis in early February. E-Mini SP futures actually held it twice then. But, there are other 200 day averages to consider although this one is still being defended.

Tech heavy Nasdaq futures nearly touched its 200 day moving average for the first time since July 2016 early Wednesday morning ahead of the US market open. The rally on Wednesday was sharp and followed with a positive session on Thursday as market participants awaited the US Employment data. Trade war fears were too much for traders to hold onto recent longs going into the weekend, so profit taking and new shorts emerged after NQM8 held its initial key Fibonacci retracement resistance.

Financials and bank sector stocks were thought to be the obvious leader with the Fed raising rates, but bank sector ETFs have been under-performing the S&P 500 since early March. The Regional Banking ETF, KRE relative to SPY shows that KRE/SPY broke a supportive trend line on Friday. this will be an initial key to watch to start the new week. Another is XLF, which has been flirting with its 200dma for two weeks.

A steepening yield curve would help the bank sector, but as you can see the 2/10 curve has flattened sharply since touching its 200dma on February. These 200 day moving averages have become pivotal all over the place.

Dow Transports were able to settle above the February low. A settle below this closing low would be a negative signal for the overall market for those who subscribe to Dow Theory. The 200dma has been good support here as well, so we will need to keep an eye on that as well.

The energy sector has been outperforming SP since mid-March, but only because it's been flat. Hardly a lift even when crude oil was firm was not a good sign of investor appetite for energy, but who can blame them after the space was crowded in January before a vicious unwind in February. If WTI rolls over, don't look for this sector to be the bright spot.