Well, Friday was a disaster, wasn't it?
Turns out it wasn't about Trump, he is still at large after Mueller did not find enough evidence to convict (still plenty of evidence to suspect but Trump's AG Barr has squashed further investigation) so it looks like Trump's policies will be with us for another two years. As you can see from the chart, that will give us two more years to work on really pissing off the rest of the World, whose approval of the US is already at or near the record lows set by Bush II.
Israel still likes us and you can see the GOP working double-overtime recently pandering to them and Nigeria likes us for some reason along with Poland and India. Of course, Trump and his followers probably don't care if foreigners don't like us because these 320M people don't need the other 7,800M people on this planet and we don't need to trade with them or get along with them or even enter into defense agreements with them because – WE'RE NUMBER 1! USA! USA! USA!!!
See, if you say it loud enough and often enough, you may actually start to believe that. Who needs reasons when we have chants? Well, I guess the answer is people with globes, people who understand that it's a global economy and not a local one any more but those people are called "Globalists" and they are vilified by the right as if reality is some anti-American agenda.
We have the same problem in the stock market as US traders think that things that affect the rest of the World don't matter to US markets, despite the FACT that the S&P 500 gets half it's revenues from overseas. Fortunately, at PSW, we do watch the overseas markets and there was nothing surprising about last week's correction and this morning, we can play long off the support lines as we expect to bounce off Dow (/YM) 25,300, S&P (/ES) 2,800, Nasdaq (/NQ) 7,300 and Russell (/RTY) 1,500 and, of course, we go long the laggards with very tight stops if any of them fail to hold – because that can get really ugly!
On the whole, we're back to where we were on October 24th, when I wrote: "Will We Hold it Wednesday – Indexes Struggle to Regain their 200 DMAs." In that report, we were in the middle of failing our 200 dmas, coming down from the year's highs to what ended up being a 10% correction but it was only a preview to the 20% correction we got 3 months later in December. Now it's March so it's taken us 3 months to get back to where we were halfway to our correction – that's not actually very impressive, as you can see on the Russell's monthly chart.
Back in October, I said:
We still have the same problems we have last week: Crazy President, Brexit, Italy, Trade Wars, Debt, Iran, Saudi Arabia, Venezuela, Inflation, Economic Slowdown… combine the last two and we get the dreaded Stagflation! NONE of these things have gotten better so the question is whether or not a 10% correction of a record-breaking rally is enough to put us into a rational zone or if we still have another 10-20% correction ahead of us?
That turned out to be true and we made a fortune in the Short-Term Portfolio with our hedges and now we have to ask ourselves is, are things better or worse than they were in October? Well, it turns out they are BETTER because inflation never caught on, the Central Banks flipped doveish, the Mueller Investigation is over (more investigations to follow), Brexit has become a joke but the same Government survives, commodity prices have remained fairly calm and housing continues to bubble. I wouldn't say you could strike them all off the list but certainly that list of worries is nowhere near as worrying now.
While I find it ironic that Deutsche Bank puts our the "30 Risks to the Market" list, since they themselves are the riskiest bank in the World – I still think it's a generally good list so, before we get all bullish – we should consider their new list of concerns for 2019:
The Global Slowdown (2&3) and Yield Curve (10) got us last week and this week we have a record number of Treasury Auctions (4, 5, 6 & 7) to get through. Goldman's puppet, Draghi has taken the ECB (8) off the table and the BOJ (9) may talk about it but they have done nothing to slow their QE. I'm more worried about tough comps in Q1 than too many buybacks (11) and the Shutdown (12) did not kill us. Brexit (13, 14) has been punted and the Trade Wars (15, 16) drag on. The Fed HAS decided to ignore Acceleorating Wage Growth (17, 18) and the Yellow Vest protests are continuing but may have peaked (19).
The last 10 items are still up in the air but the bottom line is, after looking at the two lists, is that things now are not as bad as they were in October and I'm less inclined to think we're going to have a major (20%+) correciton though we could still fall 10% (2,580 on /ES, 23,000 on /YM, 6,600 on /NQ, 1,350 on /RTY) and still be in a fairly bullish long-term trend so we are maintianing our hedges but there's no need to be more aggressive unless the 200 dmas fail to hold.
Meanwhile, we have a good amount of data and TEN (10) Fed speakers this week and, this morning, Evans already mentioned the possibility of LOWERING rates while Harker said one possible (at most) hike in 2019. Will it be enough to give us more than a weak bounce this morning. We get revised GDP on Thursday and the month and quarter ends on Friday and then it's Earnings Season yet again – spring is in the air!