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Tuesday was one of those sessions where selling triggered additional selling, and everyone blinked or found the nearest foxhole – until the last half hour of trading. Buyers emerged and began to selectively nibble. With so many stocks in the red, it was a smorgasbord of options. 

We didn’t force the issue, but I’m champing at the bit, anxious to own great stocks on sale. However, the risk-reward dynamic has certainly changed, and bias is obviously to the downside. This market shakeup is becoming emotional, but even with the spike in the CBOE Volatility Index (VIX) and midday free-fall, I didn’t sense panic.

There is no doubt that selling begets selling, and sell programs trigger additional sell programs.

As for the buyers that materialized into the close, those were not individual investors, but pros that probably missed most of the 2019 rally, looking for a chance to leapfrog back into the game. Tomorrow, China’s Vice Premier arrives for two days of talks. I hope he’s serious and China stops playing games.

Red Flag

Many long-time readers and subscribers know that I’m big on the Dow Jones Transportation (DJT)’s need to participate in rallies, which harkens back to a component of the Dow Theory. The index is breaking down fast and is now 8.2% below its recent high point. Late last year, the index moved lower before the broad market swoon.

There are names in the index that are not great economic proxies anymore, especially Avis (CAR).  Moreover, the threat from Amazon (AMZN) has derailed shares of United Parcel (UPS) and FedEx (FDX) significantly enough they shouldn’t be viewed as overall economic proxies either.

Technical View

Yesterday, I used the Dow Jones Industrial Average mostly because it’s an index most individuals are familiar with. However, the better index to measure the market and its resolve is the S&P 500. It’s even more important than the Dow, considering that the drubbing in Boeing (BA) is 25% of the total loss in the index over the past two sessions. 

On that note, the S&P 500 held above its 50-day moving average of 2,856, finishing the session at 2,884 -1.65%.

The S&P chart is very attractive, having maintained its pattern of higher highs and lows this week.

Broad Market Perspective

Despite the carnage of the last couple of sessions, this remains a remarkable year for the stock market, which has seen the index climb higher with more than 400 names in the plus column for 2019.   When the market rebounds, I think the dumbbell approach will see the momentum outperform and selective value names in Health Care (XLV) will also find buyers.

Sector Performance	May 7, 2019	YTD 2019
Communication Services (XLC)	-1.62%	+21.15%
Consumer Discretionary (XLY)	-1.52%	+20.56%
Consumer Staples (XLP)	-0.99%	+12.88%
Energy (XLE)	-0.87%	+12.14%
Financials (XLF)	-1.65%	+17.04%
Health Care (XLV)	-1.92%	+4.75%
Industrials (XLI)	-2.02%	+20.56%
Materials (XLB)	-1.75%	+10.57%
Real Estate (XLRE)	-1.71%	+16.77%
Technology (XLK)	-2.15%	+26.22%
Utilities (XLU)	-0.31%	+9.56%
S&P 500	-1.65	+16.98

 

Meanwhile, the Economy

The Jobs Opening and Labor Turnover report was another barn burner with 7,488,000 openings.  Interestingly, quits have experienced a commensurate surge, which is what Janet Yellen feared most when this data point was a key feature on her economic dashboard.

 

Job Openings	Total Change	Hourly Wages
Transportation & Warehouse	+87,000	$20.54
Construction	+73,000	$28.41
Real Estate Rental Agents	+57,000	$29.67
Retail	-1,000	$16.51

Portfolio Approach

I’m eager to put money to work, and perhaps we’ll get a green light today. Meanwhile, the initial reaction to Electronic Arts (EA) and most of the names that reported last night is very encouraging. Lyft (LYFT) was a disappointment, but I have a feeling that will be the case for some time.

Communication Services	Consumer Discretionary	Consumer Staples
1	4	1
Energy	Financials	Healthcare
1	1	1
Industrial	Materials	Real Estate
2	3	0
Technology	Utilities	Cash
2	0	4

Big Business Must Step Up

As the United States and China rapidly approach a Friday showdown, big business is rushing in to tip the scales…toward China.

Everyone from the Wall Street Journal to the Chamber of Commerce is working hard to warn American consumers they are going to pay the tariffs, and American farmers are not the only losers in Trump’s trade war.

Not only is this disingenuous, but it also masks the fact that big businesses don’t want to take any hits in this long overdue battle.

Ironically, existing tariffs haven’t crushed our economy, and at the start of this earnings season, there were many issues cited more often as negatively impacting results.

Speaking of corporate financial results, it’s clear no company has the ability to pass on a 25% hike in prices for any product. That means ‘Big Business’ has to take a near-term hit. Perhaps, they can pass on the buyback program, or just live with slightly lower margins for a quarter or two.

Meanwhile, headlines from the past year underscore the stakes, and this is why we must fight:

How Chinese Spies Got the N.S.A.’s Hacking Tools, and Used Them for Attacks

1 in 5 corporations say China has stolen their IP within the last year: CNBC CFO Survey

China ‘twice hacked US navy contractor and stole data on submarine warfare, including secret plans to develop supersonic missile’

Ex-Coca-Cola engineer charged with stealing secrets for Chinese firm Chasing China Theft, U.S. Uncovers Bonuses for Stolen Data

Yes, we must fight back, including ‘Big Business’, and while we’re at it, we must protect our farmers, too.

Today’s Session

Equity futures are still lower but came back a little on two Trump tweets suggesting China may be trying to wait for a potential Joe Biden presidency.  I said as much on Monday (see my tweet), but ultimately, it should be a moot point as more weak economic data came out of China today.   Corporate defaults surged and exports declined.

The basis is still to the downside, so let’s sit back and watch.

Donald J. Trump

‏@realDonaldTrump

....Guess what, that’s not going to happen! China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers...great for U.S., not good for China!

Donald J. Trump

‏The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats, and thereby continue to ripoff the United States (($500 Billion a year)) for years to come....

Charles V Payne

‏@cvpayne May 6

President Trump Warns China

US - China trade talks were beginning to drone on inviting China to back off certain terms.  Now there is a hard deadline. That said China must be enticed about dragging feet since leading democrat presidential candidate Joe Biden doesn't see a problem

 

Comments

Charles, thank you sir again, for being here & on FBN to keep the FACTS based news media &FBN #1. Isn't Biden going to be disqualified from running, as his bribes to him thru his son $1.3 billion from China's government directly, just because they didnt want a thing from Joe Biden VP od b.o. & HRC corruption COLLUSION INCORPORATED. President Trump has a extra ace, if tarriff aren't enough, the DEMS SOCIALIST PARTY will scream look the ECONOMY is failing, BUT, what HAPPENS if the FED lowers the rates? Oh yeah mrkt will bounce back higher. China is feeling president Trump's actions. Corporations are finding sources in India, Vietnam, Malaysia, almost ALL are willing to cut China outright of theft by counterfeit goods and IP THEFT. As always Charles PAYNE we thank you sir, & FBN. We thank president Trump and support him 100% , We will win, and 3.2% USA GDP during the longest SCHUMER SHUTDOWN in USA HISTORY. AMERICANS are back, and the world is THANKFULLY aware of OUR PRIDE, CONFIDENCE and beacon of second starts, where any & ALL can SUCCEED. Life is GREAT, INVEST long. J on 5/8/2019 9:56:19 AM

Charles, The Chinese are relentless in their attempts to acquire US cyber warfare technology and trade secrets. For more information see the April issue of Newsmax on page 24 then read the article beginning on page 58. Also read the novel mentioned in that last article "Ghost Fleet". Then try sleeping at night. Matthew Marsiglia on 5/8/2019 1:32:46 PM

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