Yesterday was a very impressive session even with the light volume. The market was drifting lower, nearing key support early on; news confirmed the next round of tariffs, as well as an increase in existing tariffs, which seemed to trigger buying. Talk about selling the rumor and buying the news. If this is an upside-down world, this action would be normal - maybe there is a method to the madness.
Perhaps the trade battle has an embedded pain threshold for both sides. The closer we approach them, the more the market senses a resolution. Then again, the notice from the United States Trade Representative (USTR) in the Federal Register didn’t mention hiking existing tariffs (List 1, 2 and 3) on $300 billion in goods to 30% from the current 25%.
New Tariffs
- List 4A: 15% tariffs on $125 billion of Chinese exports, September 1, 2019
- List 4B: 15% tariffs on $125 billion of Chinese exports, December 15, 2019
Brickhouse
Yesterday, retailer stocks rocked. The most oversold brick-and-mortar names were the biggest percentage gainers of the session. After the close, a number of retailers posted financial results.
Five Below (FIVE) had mixed results and said higher tariff rates on List 1 -3 coupled with the threatened October hike to 30% on existing tariffs would hurt results. Management guided revenue of $374 million and earnings of $0.17 against consensus of $379.9 and $0.19. Still, the stock soared after initially slumping.
After the close, Guess (GES) and Dollar General (DG) popped, but Williams-Sonoma (WSM) struggled for direction.
There is a slew of retailers reporting before the open today, so we’ll get even greater guidance:
Abercrombie (ANF), Burlington (BURL), Designer Brands (DBI), Malibu Boats (MBUU), Best Buy (BBY), and Dollar Tree (DLTR)
Broad Market
The message of the market was clear yesterday, as traders zeroed in on deeply oversold indices, sectors, and individual stocks. The Russell 2000 was the best performing large equity index but is still down more than 6% in the past month.
S&P 500 Index | +0.65% | |
Communication Services (XLC) | +0.25% | |
Consumer Discretionary (XLY) | +1.25% | |
Consumer Staples (XLP) | +0.96% | |
Energy (XLE) | +1.43% | |
Financials (XLF) | +0.92% | |
Health Care (XLV) | +0.73% | |
Industrials (XLI) | +1.23% | |
Materials (XLB) | +0.78% | |
Real Estate (XLRE) | +0.28% | |
Technology (XLK) | +0.09% | |
Utilities (XLU) | -0.27% |
Also, Industrials were compelling, lifted by oversold Transportation names. Keep an eye on the Dow Jones Transportation Index (DJT) bouncing off the bottom of the long-term trend line and double bottom.
Approach
All subscribers should have adequate cash levels for new ideas.
Communication Services | Consumer Discretionary | Consumer Staples |
1 | 2 | 1 |
Energy | Financials | Healthcare |
1 | 1 | 2 |
Industrial | Materials | Real Estate |
3 | 2 | 1 |
Technology | Utilities | Cash |
2 | 0 | 4 |
Today’s Session
Market Parameters
The markets are headed for a significantly higher open as China walks back tariffs.
GDP Highlights
The American Consumer continues to power the economy buoyed by higher wages and enormous confidence. Check out the spike in spending, which was driven by expensive durable goods items last quarter.
Key Dow Jones Industrial parameters.
- Key Resistance 26,485
- Key Support 25,479
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