AT40 = 27.1% of stocks are trading above their respective 40-day moving averages (DMAs)
AT200 = 44.4% of stocks are trading above their respective 200DMAs
VIX = 19.6%
Short-term Trading Call: neutral (caveats below!)

Commentary

President Trump has been talking about taking unilateral trade actions since he was campaigning in 2016. The rhetoric heated up in the past year and took on even more solid form in recent weeks. For example, I benefited from recent trade war talk with a position in U.S. Steel (X). So I was a bit surprised when the market reacted so negatively after Trump recently made the trade war even more real in recent tweets. Then again, with European partners threatening retaliatory steps and Trump now responding in kind, I suppose the trade war tripwire has truly sprung into the market’s increasingly fragile conscious. Moreover, Trump tweeted that a trade war is both “good” and “easy to win” for America, so the threshold for the U.S. to enter into trade wars must be very low indeed!

The market’s reaction to the trade war fury demonstrates a lack of consensus on the implications. The selling on Thursday was swift and was strong enough to force a gap down on Friday. Yet, buyers stepped into the breach and forced a relatively strong rally to close an otherwise dismal week.

The S&P 500 gapped down and opened right at the previous day’s intraday low. The subsequent buying was critical because the opening gap down forced the Nasdaq and the PowerShares QQQ ETF (QQQ) below their respective 50-day moving averages (DMAs). At the close, the tech-laden indices were once again above their 50DMAs with solid gains of 1.1% and 0.9% respectively. The S&P 500 closed with a gain of just 0.5% and failed to break its downtrending 20DMA.

The S&P 500 gapped down but managed to gain 0.5% before stopping short at its downtrending 20DMA.

The Nasdaq managed a bullish comeback by surging from its 50DMA breakdown to finish the day with a 1.1% gain that almost reversed all the previous day’s loss.