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Major U.S. indices traded lower at the onset of today’s trading session, and markets are particularly sensitive to headlines today, including a long-awaited official statement from special counsel Robert Mueller about the Russia investigation, an uptick in diplomatic intensitiy between the U.S. and Iran and maintainted tension in the U.S./China trade dispute.
Capital inflows to government bonds- as a safe haven move for investors- has put up some alarms as the spread between the 10-year and 30-year bonds becomes inverted, reaching negative levels not seen since 2007. Markets tend to look at this as a potential recession indicator, but it is worthwhile to note that much of the safe-haven buying is based in the ongoing U.S./China trade deal event. Following up from the Huawei ban imposed recently by the U.S.-China as responded with statements indicating their consideration to restrict exports of rare-earth minerals to the U.S. The manufacturing of many electonic devices such as smartphones and computer chips depend on these rare-earth minerals, so this move is intended to hamper the procurement and production process for U.S. entities.
The U.S. has also drawn the chagrin of China’s Defence Ministry by making traditionally unusual steps to strengthen ties with Taiwan, a move which China sees as an impediment to their “One China” policy- one of the core terms in U.S./China relations. Both economic and geopolitical fronts are now included in the broader exchange of challenges and markets may need to adjust to seeing a more probing and antagonistic approach to relations from the U.S. administration.
The Mueller statement is another political Rorschach card for congress members to parse and debate. Democrats in congress will likely use Mueller’s explicitness in referring to DOJ policy- rather than a lack of evidence- for not pursuing obstruction charges against the President as an impeachment referral while the GOP will counter that with opposing interpretations. The lower ranks of the Democratic party continue to urge a move to impeach but that is otherwise unlikely at this time.
Another fresh geopolitical development is underway today with John Bolton- national security advisor to U.S. President Donald Trump- making a claim to reporters in Abu Dhabi that 4 sabatoged U.A.E. oil tankers were damaged by naval mines placed “almost certainly by Iran”. Uncertainty in the region is weighing on oil and energy sectors as it raises concern for shipping and production disruption. Additionally, questions rise about future oil demand against a backdrop of a slowing global growth concern and trade disruptions.
There are some creeping anxieties around a slow in global growth rates also influencing risk-off sentiments. Some analysts point to the broader smartphone industry as a suffering cycle, even without the componding effect of the U.S./China trade dispute, pointing to lags in the correlation between stock pricing in the semiconductor sector typical tending to lead global manufacturing PMI levels by one to two months. Others are taking another look at the state of the European Union, with the Brexit situation remaining inconclusive and a political pivot in Italy to a more euroskeptic stance.
In corprate news- the Huawei tech-ban continues to impact major tech symbols with Apple (AAPL), Microsoft Corp. (MSFT) Alphabet Inc. (GOOG) and Facebook Inc. (FB) all trading lower today. Following the 2017 merger of Dow Chemical Company and E.I. du Pont de Nemours, newly-formed DowDuPont Inc. (DWDP) has said it will book noncash goodwill imparment charges between $800 million and $1.3 billion.
We expect the market to continue trading between $280-$294 for the SPY, with the ETF currently trading below its 50-days moving average. We encourage our readers to avoid chasing the market near $290 but consider buying near $280. However, if the market breaks its $290 resistance, we expect the market to rally to $300 in the next 30-60 days. For reference, the SPY Seasonal Chart is shown below:
Using the “^GSPC” symbol to analyze the S&P 500, our 10-day prediction window shows near-term negative signals. Today’s vector figure of -0.26% and near-term vector weighting is to the downside. The index dropped through today’s predicted low of 2,797.12, which is an influence indicator of ongoing events today. Prediction data is uploaded after the market close at 6pm, CST. Today’s data is based on market signals from the previous trading session.
On May 20th, our WeeklyTrader service produced a bullish recommendation for Pfizer Inc. (PFE). WeeklyTrader is availalble as a standalone subscriotion service or included in Tradespoon’s Elite Trading Circle membership plan. WeeklyTrader is designed for 2-5 day positions for stocks and single options.
Trade Breakdown
PFE entered its forecasted Strategy B Entry 1 price range of $41.47 (± 0.14)in its first hour of trading on Monday, 5/20 and hit its Target price of $42.30in the first hour of the trading session on Friday, 5/24. The Stop Loss price was set at $40.64.
*Please note: Our featured stock is part of your free subscription service. It is not included in any paid Tradespoon subscription service. Vlad Karpel only trades his own personal money in paid subscription services. If you are a paid subscriber, please review your Premium Member Picks, ActiveTrader or MonthlyTrader recommendations. If you are interested in receiving Vlad’s personal picks, please click here.
Our featured symbol for Thursday is Barclays iPath S&P 500 VIX Short Term Futures ETF (VXX).VXX is showing neutral otulook in our Stock Forecast Toolbox’s 10-day forecast. This stock is assigned a Model Grade of (C)indicating it ranks in the 50th percentile for accuracyfor current-day predicted support and resistance, relative to our entire data universe. The outlook is neutral and is poised to move with the news of the day. Stay tuned for more direction in our next Market Commentary issue.
The stock is trading at $30.10 at the time of publication, up 3.00% from the open with a +0.41% vector figure.
Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.
Note: The Vector column calculates the change of the Forecasted Average Price for the next trading session relative to the average of actual prices for the last trading session. The column shows expected average price movement “Up or Down”, in percent. Trend traders should trade along the predicted direction of the Vector. The higher the value of the Vector the higher its momentum.
Oil
Oil futures are trading down today alongside equities as investors rotate from risk-on to risk-off market sectors. The proxy effect of equity drawdowns is one factor in the crude trading activity, but it is being compounded by gepolitical headlines and global growth concerns. OPEC has moved its upcoming meeting day to the first week of July this year, which is technically beyond the point in which the supply-cut accord expires. Investors are in wait-and-see mode for more OPEC developments and can only sponge up rumours at this point. West Texas Intermediate for April delivery (CLN19) is priced at $57.22 per barrel, down 3.25% from the open, at the time of publication.
Looking at USO, a crude oil tracker, our 10-day prediction model shows an overall bearish outlook. The fund is trading at $11.95 at the time of publication, down 2.00% from the open. Vector figures show -0.38% today and get heavier negative weighting in the near-term. The symbol has broken through its predicted support for today, which is an influence indicator of ongoing events today. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.
Gold
Gold prices are maintaining gains as the rotation from risk-on to risk-off assets continues during a bevy of headlines. Geopolitcal uncertainty, global economic data indicating slowing growth and the threat of a rare-earth minerals export restriction from China to the U.S. are providing firm support for the yellow metal.
The price for June gold (GCM19) is up 0.22% at $1,282.20 at the time of publication.
Using SPDR GOLD TRUST (GLD) as a tracker in our Stock Forecast Tool, the 10-day prediction window shows mostly negative/neutral vector signals. The gold proxy is trading at $120.97, up 0.14% at the time of publication. Vector signals show +0.08% for today. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.
Treasuries
The yield on the 10-year Treasury note is down 1.12% at 2.22% at the time of publication. The yield on the 30-year Treasury note is up 0.32% at 2.36% at the time of publication. In the context of global economic growth data, the rally in government bonds and the inverted yield spread between the popular short and long dated contracts is currently working to give life to global recession fears amongst some market participants.
Using the iShares 20+ Year Treasury Bond ETF (TLT) as a proxy for long-dated bond prices in our Stock Forecast Tool, we see positive near-term signals. Today’s vector of -0.41% grows to -0.64% in three sessions. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.
Volatility
Volatility has spiked today with an injection of uncertainty in several market sectors due to trade and global economic hand-wringing, as well as the broader domestic U.S. political landscape seeing a shake up from a carefully worded testimony from Rober Mueller doubling down on assertions made that the decision not to charge President Trump with obstruction of justice was due to DOJ policy and consitutional framework around indicting a sitting president, rather than a clear lack of evidence as repeatedly suggested by Donald Trump.
The CBOE Volatility Index (^VIX) is up 3.89% at $18.18 at the time of publication, and our 10-day prediction window shows a mixed near-term outlook. The predicted close for tomorrow is $17.11 with a vector of -1.86%. Today’s predicted resistance was broken through so it is advised to wait for 10-day data to refresh due to current market conditions. Prediction data is uploaded after market close at 6 p.m., CST. Today’s data is based on market signals from the previous trading session.
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