In economic news Thursday, the biggest story of the day came prior to the US market open.  The Chinese Central Bank lowered the amount of capital Chinese Banks must hold.  This move will inject between $800 billion and $1 trillion into the Chinese economy, with world markets hoping that stimulus will cause a world-wide rebound.  Thus we got a gap up.

So, Markets gapped higher to start the new year.  This was met with sideways grind until the bulls kicked it into gear again after 2 pm.  There were significant surges about 2:30 pm and again at 3:50 pm.  The net result was that the SPY closed up 0.94%, DIA up 1.23% and QQQ up 1.67%…all closing at new all-time high closes.  This happened on above-average volume.  As you’d expect, the VXX fell dramatically as well, down to 14.51.  There simply is no fear in this market.

Overnight last night, the potentially most significant story of the day came out of Iraq.  President Trump apparently ordered the targeted killing of Iran’s top military General, while he was in Iraq.  (Akin to some other country killing the Chairman of the US Joint Chiefs of Staff.)  This is the second US airstrike in Iraq targeting Iran or Iranian allies in the last couple of days.  Iran is vowing revenge, the US State Department has ordered Americans out of Iraq and Iraqis are, understandably, not pleased with US actions or the prospect of another war. 

This action may betray US administration policy.  Obviously it has the potential to spiral into another middle eastern War for the US. (This is conjecture, but based on forward-positioning of tens of thousands of US Troops into Saudi Arabia in recent months, Administration actions against Iran since Trump took office, and the fact that no sitting US President has lost an election during wartime…it seems plausible.)  In any event, Dow futures dropped 350 points on this news overnight.  Oil prices also spiked four percent.

Friday’s major economic news includes Dev. ISM Mfg. PMI (10 am), Crude Oil Inventories (11 am), and a couple of Fed speakers in the afternoon.  The only earnings report of note is LW.

Overnight, Asian markets were mixed but mostly red on the news out of Iraq.  In Europe, markets are also mixed but mostly red at this point.  As of 7:30 am, U.S. futures are down sharply (greater than 1%) following Thursday’s stellar start to the year.  

The year was off to a great start and the bulls seem to be focusing on optimism over a trade deal with China and potential for some recovery based on Chinese economic stimulus.  However, this military situation with Iran now takes center stage and will bring fear and uncertainty back into markets.  I had intended to say that over-extension and the unknown are the only things to fear early this year.  However, at least one of those unknowns now has a name…Iran.

With that said, we cannot predict geopolitics, US politics or market reactions.  All we can do is add hedges or get flat until things settle.  So, continue to plan your trades, and trade your plans.  Don’t chase the new year rally.  Trade charts you have analyzed and chosen to meet your criteria.  As always, keep taking profits along the way, move your stops to protect yourself and wait for the trade to come to you. 

Ed

Swing Trade Ideas for your consideration and watchlist: AMD, GE, TWLO, IEF, MPLX, INTC, CSCO, NKE, INFO, CGC, VXX. Trade smart, take profits along the way and trade your plan. Also, do not forget to check for upcoming earnings. Stocks we mention and talk about are not recommendations to buy or sell.

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