An Ugly Day

Yesterday was clearly an ugly day for the market with many stocks suffering there biggest selloff this year.  At the end of the day, even the strongest of the indexes suffered technical damage that will likely take weeks if not months to repair.  With trade tensions still growing we can’t rule out additional shock waves occurring so trade with caution and discipline.

Although an ugly day there was a silver lining in a few sectors as traders rotate toward safety.  Consumer defensive, consumer staples, utilities and high dividend paying stocks are showing some positive signs, but you will have to choose carefully.  Domestic companies with less exposure to tariffs vs. international companies that could experience more shock waves as trade tensions continue to grow.

On the Calendar

There are two potential market-moving reports on Tuesday’s Economic Calendar.  The first is the Case-Shiller at 9:00 AM Eastern which consensus expects a gain of 0.5 percent with the year-on-year number holding 6.8 percent.  Secondly, the 10:00 AM Consumer Confidence expects a steady strength of 128.1 in May according to consensus.  Events not expected to move the market included Redbook @ 8:55 AM, Richmond Fed Mfg. Index & State Street Investor Confidence @ 10:00 AM, two Bond Auctions & two Fed Speakers.

The Earnings Calendar shows 13 companies reporting results today with FDS and LEN before the bell.  After the bell, we will hear from JMBA and SONC.

Action Plan

After a rough day selling with all four major indexes suffering technical damage, caution an restraint should be considered.  You might be thinking now is the time to jump in and pick up some deals and you might be right.  However, don’t anticipate a wait for good signals of buyers stepping in before rushing into trades.  Yesterday could have been an overreaction by the market, but keep in mind the uncertainty surrounding trade is far from over and the next shock wave may only be a news report away.  Having broken uptrends any rally back up should be watched closely for the possibility of failure at or near price resistance levels.

There seems to be a rotation to the defensive sector, consumer staples sector, and high dividend paying stocks such as utilities as investors look for a little safety.  Also, keep an eye on domestic companies as they may be less impacted by tariffs.  Currently, the Dow futures are pointing to a flat to slightly bearish open.  A resting day with choppy price action would not be out of the question.  Better days will eventually return, but there could be a lot of very challenging days yet to come.  Third quarter earnings are just 2 or 3 weeks away, but until then its likely trade war jitters will continue to be the driving force of the market.

Trade Wisely,

Doug