{"id":44544,"date":"2018-07-22T16:00:15","date_gmt":"2018-07-22T23:00:15","guid":{"rendered":"https:\/\/drduru.com\/onetwentytwo\/?p=44544"},"modified":"2018-07-22T16:06:37","modified_gmt":"2018-07-22T23:06:37","slug":"t2108-update-180720","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2018\/07\/22\/t2108-update-180720\/","title":{"rendered":"Above the 40 (July 20, 2018) – Bored With Economic Wars: The S&P 500 Meanders Through Minefields"},"content":{"rendered":"

AT40<\/strong> = 57.6% of stocks are trading above their respective 40-day moving averages (DMAs)
\nAT200<\/strong> = N\/A% of stocks are trading above their respective 200DMAs
\nVIX<\/strong> = 12.9
\nShort-term Trading Call<\/strong>: neutral<\/p>\n

Commentary<\/strong>
\nI remain fascinated by the S&P 500’s increasing resilience to worsening macro-economic headlines. The apparent boredom with the headlines about trade wars, and now potential currency wars, is faintly reminiscent of the market’s early boredom with worsening headlines about the unraveling of the housing bubble starting in 2007. The market is essentially not just betting on a minimal impact from the worsening macro-economic backdrop, but it is also betting on an imminent good outcome – like some kind of “victory.”<\/p>\n

Jerome Powell had a chance to issue a warning about the potential impact of trade wars. Instead, he chose Fedspeak in his one reference to trade in prepared testimony last week<\/a>:<\/p>\n

“Looking ahead, my colleagues on the FOMC and I expect that, with appropriate monetary policy, the job market will remain strong and inflation will stay near 2 percent over the next several years…the economic outcomes we experience often turn out to be a good deal stronger or weaker than our best forecast. For example, it is difficult to predict the ultimate outcome of current discussions over trade policy as well as the size and timing of the economic effects of the recent changes in fiscal policy. Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate.” – from the Semiannual Monetary Policy Report to the Congress July 17, 2018<\/a><\/p><\/blockquote>\n

This middle-of-the-road pronouncement suggests that potential obstacles lay ahead for economic growth, but nothing is on the radar of the Fed that causes it notable concern.<\/p>\n

Still, the S&P 500 (SPY) gapped down on the day of Powell’s testimony before smartly recovering. The index next floated back to where it ended the previous week.<\/p>\n


\n
\"The<\/a>
The S&P 500 (SPY) ended the week flat after briefly looking ready to bolt toward its all-time high.<\/figcaption><\/figure>
\n<\/center><\/p>\n

AT40 (T2108)<\/a>, the percentage of stocks trading above their respective 40-day moving averages, also closed the week where it closed the previous week. AT40 ranged from 51.8% to 62.1% before settling in at 57.6%. My favorite technical indicator still suggests the underlying market is weaker than it looks. Still, I am maintaining a neutral rating on the short-term trading call until AT40 reaches a new extreme. <\/p>\n

Compared to Tuesday’s gap down, the S&P 500 fell asleep when headlines first dropped about Trump’s displeasure with the Federal Reserve’s monetary policy of rate hikes. The President doubled down on his attack on Friday<\/a>. Trump also complained about trading partners manipulating their currencies lower as a way to gain advantage over the U.S. In addition, Friday opened with Trump announcing he is prepared to slap tariffs on all $500B worth of Chinese exports to the U.S.<\/a> given China’s refusal to back down on its offending trade policies.<\/p>\n

While the stock market yawned, currency markets DID respond. In particular, the U.S. dollar index faded from what was a bullish breakout at first on Friday. The Chinese yuan also faded sharply from the 6.8 level after a week of withering weakness against the U.S. dollar. <\/p>\n


\n
\"The<\/a>
The U.S. dollar index (DXY) briefly broke out to a new 52-week high that confirmed the bullish bounce from 50DMA support. The subsequent fade puts the dollar back in the middle of recent churn.<\/figcaption><\/figure>
\nSource: TradingView.com<\/a><\/strong>
\n
\n
\"The<\/a>
The weakness in the Chinese yuan accelerated over the past month. USD\/CNY is around a 52-week high.<\/figcaption><\/figure>
\nSource: TradingView.com<\/a><\/strong>
\n<\/center><\/p>\n

Once again, I am not surprised by the deepening extremes of the trade war. A month ago, I posted a link<\/a> to a report from the White House titled “How China\u2019s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World<\/a>.” The report is well-done, and it provides crisp clarity to the urgency felt by Trump’s administration to take on China head-to-head. So I continue to believe the dollar will trend higher as the U.S. chips and hacks away at China’s trade advantages. Similarly, it also makes sense that the Chinese yuan has weakened so much in the last month. I treated Friday’s pullback in the U.S. dollar as a small buying opportunity to build (slowly) a fresh dollar bull position.<\/p>\n

<\/p>\n
\n

$DXY<\/a> selling on double-down on anti-Fed talk. Buying weakness esp w\/threats to tax all Chinese imports https:\/\/t.co\/geDl6xBVAn<\/a> #forex<\/a> $EURUSD<\/a> pic.twitter.com\/znCqYirs7k<\/a><\/p>\n

— Dr. Duru (@DrDuru) July 20, 2018<\/a><\/p><\/blockquote>\n