Terry Kinder

Is China Fentanyl for the U.S. Stock Market?

DJIA Evening Update 12-5-2018

From ZeroHedge Trade Truce Over? Canada Arrests Huawei CFO At US Request:

Mere hours after Chinese officials finally affirmed President Trump's description of Saturday's trade 'truce' - this after fears that the true nature of the agreement might have been "lost in translation" helped trigger the worst one-day market selloff since October - the DOJ has gone ahead and kicked the hornet's nest, seriously jeopardizing the prospects for a prolonged trade detente between the world's two biggest economies.

And later in the post:

Canada's Globe and Mail reported late on Wednesday that on December 1 - on the same day as the Trump-Xi dinner - Canadian authorities arrested Wanzhou Meng, the CFO of Huawei Technologies and daughter of the telecom giant's founder, Ren Zhengfei. An ex-officer with the People's Liberation Army, Ren is one of the country's most revered business figures.

Meng is being accused of breaking US sanctions against Iran:

Meng is said to be a "rising star" at Shenzhen-based Huawei, the world’s second-largest maker of telecommunications equipment.  Reuters reported in 2013 that Ms. Meng served on the board of a Hong Kong-based Skycom Tech that later attempted to sell embargoed Hewitt Packard computer equipment to Iran’s largest mobile-phone operator. At least 13 pages of the Skycom proposal were marked “Huawei confidential” and carried Huawei’s logo. Huawei has said neither it nor Skycom ultimately provided the HP equipment. HP said it prohibits the sale of its products to Iran.

The CFO is now facing extradition to the US on suspicions that she violated US sanctions against Iran (allegations that nearly resulted in a devastating Treasury "death sentence" earlier this year for Huawei rival ZTE).

And the reaction to the news has been like Fentanyl for the US stock market:

Dow futures were down over 500 points as they opened... (NOTE that Dow futures pushed up during the day to test the 200DMA)

It appears that continuing trade and other tensions between are proving rather deadly to any attempts by the US stock market to rally. As this is being written the Dow Futures are now down over 300 points. Futures Fair Value is indicating that the market will open a little less than 200 points down.

Even if the DJIA opens down 300 points tomorrow (which we don't yet know if that will happen) it would still remain at the lower end of the 8th (out of 9) levels. The 8th level runs from 24,576 to 26,624. A close below 24,576 would drop the Dow down into the 7th level which runs from 22,528 to 24,576.

The 24,000 level for the DJIA has provided psychological support, so the market still has some ground to cover before truly testing whether or not the current decline is short-lived or longer lasting.

With the markets closed for the Funeral of George H.W.Bush today there will be no commentary on the DJIA this morning. Will comment later today on market for tomorrow’s open.

Dow Jones Evening of 12-4-2018

Today the DJIA fell nearly 800 points closing at 25,027.07.

This morning I wrote:

Given the past few days movement higher, and considering the part of the cycle the market is in, it would not be too surprising if the DJIA backed down a little today.

The market obviously backed down more than just a little. Today market the completion of one cycle and the beginning of another. With the markets closed tomorrow for President George H.W. Bush's funeral there won't be any trading. However, neither Thursday December 6th nor Friday December 7th would necessarily be expected to experience any dramatic price movement. This would become more likely on December 9th or 10th.

Despite the fact that the exchanges will be closed tomorrow, it's worth noting that fair value is implying a higher DJIA by about 80 points as this is being written. Compared to the almost 800 point drop this is pretty small potatoes.

That implied opening would be enough to move the Dow back above the 25,088 level. The DJIA has been flirting with this level for a while now. Back in October it closed narrowly above that level - 25,115.76. In November the DJIA closed at 25,538.46. A monthly Dow close below 25,088 would put the market in a bearish stance.

In the meantime, once the markets open again on Thursday, it would be worth keeping an eye on the 25,344 level. If the DJIA rejects a cross above 25,344, that could imply further weakness. 25,344 shouldn't be considered an overly strong resistance level, but is useful to gauge the relative strength or weakness of price.

Below 25,0888 watch 24,832 and 24,576. 24,576 marks the boundary between the 7th and 8th levels of the DJIA price. The 7th level ranges from 22,528 to 24,576 and the 8th level ranges from 24,576 to 26,624.

To the upside watch 25,344, 25,600 and 25,856. Above those is 26,624 which is the dividing line between the 8th and 9th (and final of this leg) levels of 24,576 to 26,624 and 26,624 to 28,672.

The DJIA has been perched near the high end of a range beginning at 10,240 and ending at 28,672 for some time now. The market still does not have a clear direction yet, but did reject the higher 9th level of the range after closing at its all time high of 26,951.81.

DJIA Afternoon Update 12-4-2018

DJIA at the time this is being written is down more than 460 points at 25,357.46. As stated in our morning update:

Given the past few days movement higher, and considering the part of the cycle the market is in, it would not be too surprising if the DJIA backed down a little today.

It looks as if the temporary halt of the trade war between the U.S. and China was good for part of a trading day's worth of  momentum. In reality, the idea of a single root cause behind any daily gain or loss in the markets is simply a way for the talking heads on Television to get you to tune in.

Stay tuned for the evening DJIA update after the markets close.

DJIA Morning of 12-4-2018

Implied open for today looks to be a little more than 70 points lower than yesterday's close of 25,826.43.

Little has changed in the overall outlook for Dow. It is currently not tipping its hand whether it is turning higher or going lower.

Monthly numbers to watch for are a close below 25,088 which would indicate market turning to downside and a monthly close above 27,648 which would point to the market going higher.

A weekly close below 25,344 might indicate potential weakness in the Dow and warn that their could be continued movement to the downside.

A weekly close above 26,624 could indicate potential strength in the Dow and hint at strength to the upside.

The long-term view of the DJIA is that it is currently in a range which started at 10,240 and ends at 28,672. The all-time Dow high of 26,951.81 fell into the lower portion of the top end of that range. A new leg in the bull market would begin above 28,672 and would be confirmed by a monthly close above 30,208.

Given the past few days movement higher, and considering the part of the cycle the market is in, it would not be too surprising if the DJIA backed down a little today.