Posted by Pete Stolcers on June 15
Posted 9:30 AM ET – Yesterday the NASDAQ 100 made a new all-time high and tech stocks are led the market rally. Buyers have ignored a number of negative news events this week and stocks have been extremely resilient. This morning we learned that Trump will impose $50 billion worth of tariffs on Chinese goods and that another $100 billion is likely. The S&P 500 is down 10 points on the open and this news will provide a stiff headwind.
Two months ago the market was fearful that a trade war could erupt. Negotiations progressed and investors got used to the idea. Last week steel and aluminum tariffs were imposed on our G6 allies and they retaliated. Investors did not flinch. Today we will see if investors feel the same way about our largest trading partner. China has promised to take immediate action against our tariffs and the rhetoric is likely to escalate.
The Federal Reserve hiked interest rates a quarter of a point on Wednesday and their statement was hawkish. The probability of a September rate hike is at 58% and four rate hikes are likely in 2019. Inflation is not a concern and this stance seems overly aggressive given their projected 2.4% growth rate next year.
The ECB announced that they are going to end of quantitative easing, but no rate hikes are expected for a year. Conditions in Europe are fragile.
Swing traders are in cash. I have not wanted to pull the trigger with so many dark clouds looming. I feel that the underlying market bid is very strong and that any decent dip will represent a buying opportunity. We will patiently wait on the sidelines for support and we will buy tech stocks.
Day traders have an excellent shorting opportunity today. If the market is able to make a new low for the day after an hour of trading I will buy puts. If the market continues to drift lower and the bounces last less than 30 minutes I will add to positions. This would be a sign that the selling pressure is constant (sellers are hitting every bid). After a nice rally the last few weeks we should see a nice drop initially as bullish speculators get flushed out. If the market is able to tread water and the damage is relatively contained it will be a bullish sign and I will keep my shorts to a minimum.
Rumors have been circulating that Chinese tariffs would be imposed and that the details would be available Friday. The market has discounted this event so this news is not a complete surprise.
I will day trade from the short side if the momentum is strong today. However, my longer-term focus is on the long side. I want to buy this dip once support is established.
Support levels are SPY $276, $274 and $270.50.
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