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Big News After the Open - It Will Drive the Market Today

Posted by Pete Stolcers on June 4

Posted 9:30 AM ET – The market closed below the 200 day moving average for the second day in a row. A late bounce sparked by dovish comments from a Federal Reserve official (Bullard) pared some of the losses. Fed chairman Powell will weigh in shortly after the open this morning and we will see if he believes a rate cut in 2019 is warranted.

Stocks have typically rallied after dovish remarks, but they were slow to react yesterday. Slowing global economic conditions, low inflation and uncertainty due to tariff wars were cited as potential risks. Interest rates around the globe are falling as investors reduced risk. As money rotates into bonds the yields decline. This causes yield curve inversions and it is a warning sign.

Official manufacturing PMI’s were weak and Japan, Germany, England, France, Italy South Korea and Taiwan are in contraction territory. China narrowly escaped that distinction with a 50.2 reading.

Domestic economic conditions could be waning. ISM manufacturing dropped to 52.1 (52.6 expected). The reading is still above 50 so it is in expansion territory, but the trend is lower. As long as domestic economic conditions are strong investors will hold equities. If that changes we will see additional selling pressure. ISM services and ADP will be released tomorrow.

The FTC and Department of Justice have launched probes into mega-cap tech monopolies. Facebook, Amazon, Microsoft, Apple and Google will come under scrutiny. Tech stocks plunged on the news.

US/China trade negotiations have soured. The June 28th G20 meeting between Xi and Trump is keeping hope alive. Both sides are far apart and I doubt a trade deal will happen before the 2020 election.

The delegation from Mexico will arrive in Washington DC to discuss border security. New tariffs will be imposed on June 10th if Mexico does not address record levels of illegal immigrants flowing into the US. Mexico said that it does not want a trade war with the US. Trump said that he wants action, not words. The problem has gone on for 25 years and Trump plans to stop it. The tariffs would help to offset the cost of “the wall” and effectively Mexico will pay for it. He is likely to run on this in 2020.

No matter how you slice it, the negative news is building. Swing traders are short the SPY at $279. If the market bounces we will add to the position around the 200-day moving average, I want to short bounces . We are going to hold our position without a stop. A dovish Fed should spark a small rally and that will give us an opportunity to add. Short a half position of SPY at $279. I doubt we get there today, but Powell could surprise us.

Day traders should expect a bounce today from oversold conditions. “Fed speak” will attract buyers. Resistance is at the 200 day moving average (SPY $277.20).
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