What were traders thinking? That Trump’s tariffs were possibly going to be a good thing for markets? Why did markets close higher over the three days leading into yesterday? Trump is all fault, but the introduction of tariffs was no surprise; he did it in his first term, he ran on it for his second term, and he didn’t shy away from his "Liberation Day", and yet markets shed $2 trillion in value on its release!
And, as I said during the credit crisis, where were all the Ivy League business school boffins and corporate leaders to stop any of this from happening? Corporate America was silent (scared? lazy? too rich to care?) and could have done so much more to have stopped this.
When Trump is relying on ChatGPT to draw up his tariffs - and imposing tariffs on uninhabited islands - it’s clear America’s problems run deep.
Either way, the damage is done, and March support is no more. The good news? There is value in the market - and if like many - you are under invested in a pension, then you should be upping your contributions and backing up the truck. We are likely looking at 18 months - 2 years of market consolidation (to the mid terms?) when markets digest all that has gone before and investors can accumulate with confidence.
Traders have a harder task. We are likely close to a trade worthy swing low, but we are also in a situation where markets are vulnerable to a crash (net bearish technicals and oversold momentum). There is no certainty markets will crash - and I still favor an orderly test of Spring 2024 lows - but you need to be prepared. One thing markets do need, and not all are there yet, is a period of trading below 200-week MAs.
The Russell 2000 (IWM) lost almost 6% with a gap down. A new MACD trigger ’sell’ from an oversold place opens up crash possibilities.
However, if we see a gap higher - then an island reversal presents itself - and this could lead to a nice rally. We will know premarket which version of response we can expect.
The S&P 500 also gapped down on a fresh MACD trigger ’buy’, although On-Balance-Volume is still bullish despite today’s distribution. The index is strongly outperforming peer indices, and this might be its best chance over the coming months.
The Nasdaq was interesting in that it did not register a distribution day despite the near 6% loss. Technicals are similar to peer indices, with a ’sell’ trigger in the MACD and net bearish technicals, but most of its losses were experienced pre-market. Today could go either way, but a gap higher would be very bullish.
As a final chart, I will leave the Semiconductor Index. It gapped down from its measured move target, losing nearly 10% on the day.
This was a tough day for the index, but it’s fast approaching its 200-week MA (at 3,782) with the next lows at 3,151 from 2023 the follow on target. The 200-week MA could be a nice buying opportunity.
As J.C. Parets says, whoever is in power is irrelevant; you can’t trade or invest on your political leanings. The only action that matters is price. If you are investor with a horizon beyond 5 years, then you should be buying. If you have a pension, you should be definitely be buying. If you are trader, it’s a little trickier, but you need to be looking long rather than short.