Last week, stocks were pushed sharply lower on Monday due to an escalation in the US-China trade war, but the postponement of auto tariffs on Wednesday rescued the market from continuing the decline. I returned from my European vacation to an oversold bounce mid-week before sellers stepped in and up Friday. I said in my trading room and on twitter that despite markets closing higher every Friday since 3/22, I suspected a red close. With that, I also positioned short – adding only one long: VXX.
Here are my last five client posts that contain some key concepts and charts with key trade ideas and price levels. I encourage you to have another look:
Moving into the new week, we do have strong GDP data out of Japan and a rally in Australia and India on election news, but none are strong enough to counter the fear from the rhetoric and positioning from the US-China Trade War.
Here are some of the highlights I caught over the weekend!
China backs Iran during U.S. tensions – exactly like it sounds.
Huawei front-running US-China Trade War – This massive US chip inventory build last 6 mos will not go unnoticed on future EPS + GDP. Question is only when will market care? These are all excellent shorts: $QCOM $MU $ADI $SWKS $FNSR $INTC $QRVO $SMH $SPX
Google suspends business with Huawei – An Android phone without Google services? So $GOOGL loses a Yuge distribution system + Huawei must use/build out its own OS + payment platform? Good to remember: Huawei is #1 telecom equipment maker in world + #2 smartphone maker.
Then the pile-on: Top U.S. corporations including Qualcomm, Intel and Google have frozen the supply of critical software and components to Huawei during Trump crackdown
And China Retaliates Some More
CHINA WILL SUSPEND BUSINESS WITH ALL SUPPLIERS WHO AGREED TO HALT SUPPLYING HUAWEI, Money China
And as of this writing, we have a real strategic beach China is going for… Rare Earths
Chinese president #Xi is visiting Ganzhou in Jiangxi province today, per Xinhua news agency. Ganzhou is a major #RareEarth mining base in China. This timing is interesting and it’s Xi’s first domestic tour since escalation of trade conflicts.
Doesn’t help that Huawei has dropped Apple into 3rd place in the global smartphone market.
I want my AAPL puts I closed before vacation!!!
Trump Takes Aim At Japan Too
Timing Matters!
- Friday AM: Trump declares auto imports a threat to national security…
- Friday PM: Toyota strongly rebukes in Press Release
- Saturday: Japanese PM Abe is in China proclaiming a “new era of relations”!
Japanese PM says looking forward to opening new era of relations with China while meeting Chinese senior official https://t.co/OetdmYL6w9 pic.twitter.com/ZeefJSPxhZ
— China Xinhua News (@XHNews) May 18, 2019
Marco Matters
China 7.0
If the CNY7.0 level does not hold and the dollar rises through it, it will be seen as the inability or more likely the unwillingness of China to mount a credible defense. It would likely send ripples through the capital markets. This would risk a vicious cycle of a weakening currency and falling stocks. Because this would distract from China’s economic objectives, we expect officials will defend it in a way
Inventory Overhang
The overhang of unsold inventory will will be a drag on future GDP. And a negative GDP will force companies to look at their balance sheets not buy backs. Companies that have grown substantially in equity valuation from stock buybacks will be at risk of deflating which is the same thing as saying there are air pockets below.
Earnings Recession
I have smelled and written about this since January as I can see the weakening before the data confirms – that US will have an earnings and profit recession. This is the first rational article I’ve seen on this theme for H2 when most analysts are bulled up.
And I will be betting, Buybacks – the main factor behind large EPS beats – won’t save companies from an Earnings Recession.
“Massive liquidity injections are not translating into higher capital expenditure + consumption because of debt saturation + overcapacity.” @dlacalle_IA
Earnings Calendar
Some implied moves for #earnings next week:
- $HD 3.3%
- $AZO 5.8%
- $KSS 8.0%
- $TJX 6.4%
- $TOL 6.1%
- $JWN 8.8%
- $TGT 5.6%
- $LOW 5.3%
- $AAP 9.9%
- $SCVL 15.3%
- $BBY 7.9%
- $WB 8.6%
- $MDT 4.1%
- $BJ 11.7%
- $SINA 11.2%
- $SPLK 8.2%
- $ADSK 8.1%
- $INTU 5.1%
- $DECK 10.1%
- $ROST 7.3%
- $FL 10.7%
#earnings for the week $HD $AZZ $TGT $JCP $KSS $LOW $AZO $BBY $SPLK $WB $IGT $TJX $FL $MDT $QD $TRNX $PDD $AAP $ONVO $CAAP $ADSK $INTU $NTAP $SPTN $ADI $VFC $TD $TTM $VIPS $ITRN $CGEN $HPE $URBN $SE $CTRP $SNPS $RY $QTT $SINA $HRL $JWN $BJ $NDSN $HPQhttps://t.co/lObOE0dgsr pic.twitter.com/b1vvLTZPvL
— Earnings Whispers (@eWhispers) May 18, 2019
Economic Releases
Shortened trading week but not without important market making news… highlights will be Powell and Clarida speaking today, Federal Reserve minutes Wednesday, U.S. retail earnings and economic data as well as European Union elections as European Union citizens go to the polls starting on May 23 to elect lawmakers to the EU parliament.
The UK will report CPI (and PPI) and retail sales this week with expectations for firmer price pressures and weaker retail sales, but the focus is on Brexit and May’s likely successor and possible play for EU President?! The Eurozone is to publish preliminary data on private sector activity and the German Ifo survey. The U.S. is to publish reports on durable goods orders and data on both existing and new home sales.
Trade War News will draw the most market action as it’s getting more and more acrimonious. From Trump raising tariffs, threatening auto tariffs that are pushing “new area” of Japan into China relations, and Google dropping Huawei and China showing anti-American war movies and taking back their Giant Panda from the San Diego zoo… all eyes continue to be on Trump Tweets and news of China’s retaliation. At risk – earnings, profits and economic growth!
The minutes of the Federal Reserve’s April 30-May 1 meeting, due on Wednesday, will give an insight into the debate by officials before they voted to keep interest rates on hold. Given Powell’s Pivot in early January from pure Hawk to frightened Dove, I’m not expecting him to move one way or the other. To me he has transformed into Deer in headlights! The market and Trump, each in their own way, will make him road-kill. He has no supporters or protection and is smart enough to try and jump over the car but all that will result is a direct hit into the windshield causing the deer to die and the driver to swerve instinctively to try and get out of the way – hopefully not hitting other drivers and causing a major accident in the process!!
Stocks of Interest
With that, I’m worried markets are wrongly ignoring how serious the situation has gotten and Japan is done pandering to Trump so don’t forget to hedge!
Samantha