More Uncertainty

We wake this morning to more uncertainty with new threats and a possible escalation in the so-called trade war.  Markets around the world declined in response, and the US Futures are responding in kind indicating a gap down of 300 Dow points or more.  Politics aside all this uncertainty is greatly elevating the level of risk for traders.  I have said it before and will say it again, periods of political uncertainty creates challenging times for traders.

As long as the threatening rhetoric and tariff increases continue, we can expect unreliable action signals, fast overnight reversals, and intraday whipsaws that could challenge even the most experienced trader.  I believe cooler heads will eventually prevail because elected officials always want to be reelected and the destruction of the market would not bode well for them.  Until then we should plan for some nasty turbulence.

On the Calendar

The Tuesday Economic Calendar begins the day the potential market-moving Housing Starts Report at 8:30 AM Eastern.  Forecasters expect a surge in housing starts to 1.320 million annualized-up from 1.287 million in April’s reading.  Permits are also remaining strong with a 1.350 million expectation vs. Aprils 1.352 million.  Year-on-year starts are up 10.5 percent with permits up 7.7 percent.  After that, we have the Redbook at 8:55 AM and two bond auctions at 11:30 which are not expected to move the market.

On the Earnings Calendar, we have only 14 companies reporting today the most notable coming after the bell with reports from FDX and ORCL.

Action Plan

Yesterday saw a nasty gap down in the market in reaction to the trade war threats being launched back and forth between the US and China.  However, the Bulls managed to find the energy to rally closing most of the gap by the close of the day with Dow down only 0.40%.  The IWM reached out to new record highs for the index with both the QQQ and SPY closing only marginally lower.  Seeing the Bulls fighting back with such vigor had me hopefull they have a chance to follow-through higher today, but once again political uncertainty raised it’s ugly head overnight.

New threats from the White House of sent the Asian markets sharply lower and the US futures have followed suit.  Currently, Dow Futures are pointing to a gap down of 300 points as trade war jitters escalate.  The economy is strong, but unfortunately, traders face a very uncertain market with our leaders unable to play nice with each other.  Let’s hope cooler heads will prevail soon.  Until then trade with caution because each day could bring another big overnight reversal.

Trade Wisely,

Doug