The Market Takes Three Gut Shots and Comes Back Swingin’

On Monday morning, March 4, the S&P 500 Index traded at the highest level it’s seen since October of last year. This 4 ½ month high was short-lived as the marker proceeded to trade down for the rest of the week.

10-Minute Millionaires were ready for this turning point after I’ve drawn this resistance level for you almost a dozen times over the past couple of months in articles and videos. Here’s one I shared back more than two months ago, on January 11 showing this resistance level with the red circle “4” on this chart:

My note for red circle #3 said: “A definitive break above the 2,600 level will propel the market to the next important resistance level at the 2,800 – 2,815 zone.”

And another chart three weeks later after the 2,600 resistance level had been breached showed the same key resistance level (this time as red circle “3”):

So, it’s little wonder that we traded right up to this level and found millions of trading and investing eyeballs staring the resistance point. And here’s what happened:

And after the market turned on Monday March 4, it started a five-day slide. The last two days were punctuated by three decidedly bad pieces of news, from an economic growth perspective.

This past Friday morning, before U.S. markets opened, China’s stock market got slammed and was down -4.4%. The reason was the surprising magnitude of the slowdown in the country’s exports:

  • The value of Chinese exports plunged 20.7% year-over-year in February, according to data released Friday by China’s General Administration of Customs, affected by the timing of the Lunar New Year and President Donald Trump’s trade war.

That disappointing growth story joined that same morning with the much slower than expected job growth announced in the U.S. – only 20,000 new jobs were created vs. an expectation of 180,000. However, we need take this number with a proverbial grain of salt because of adjustments that were made to the labor participation rate and most likely skewed the number. Still, it was a much weaker report than expected.

Combining these two issues coming from the top two economies in the world with the news from Thursday that the European Union would be significantly lowering its 2019 growth estimates, and we had three big negative data pieces that landed like gut shot to the market’s belly.

Ah, but then news that traders and investors just love to hear came over the weekend. First, in an interview on the TV show 60 Minutes, Fed Chair Jerome Powell continued his market-friendly dovish monetary policy that have typified Fed rhetoric this year.

Then the big positive push came when the China central bank issued a statement that they had more accommodative knobs to turn to make loans easier for banks to make. This allowed the markets to not only process the tragic news of the second Boeing airliner crash in five months, but to also to continue higher to one of the five biggest intraday moves of the year.

Tuesday’s follow through to the upside, despite more negative ramifications coming from the Boeing incident, confirms the market’s current upward bias. The bottom line: dips in strong stocks are still to be bought.

Great trading and God bless you,

D.R. Barton, Jr.

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