Stock News: Trade Tariffs Cited As Cause for ‘Modest Selling?’

Posted On September 24, 2018 1:14 pm

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Stocks opened a bit lower with trade tariffs once again cited as the proximate cause for the modest selling.  But, as they quickly rallied off the lows and are now near unchanged.  Let’s face it, aside from some minor headline hiccups, the U.S. stock market has mostly ignored or discounted the prospect of a trade war  — as the major indices have all hit, and sit near all-time highs over the past few weeks.

While overall market breadth remains extremely positive — thanks to a healthy rotation and interestingly it’s the tech sector that has been the laggard of late — it should be noted that it’s losing some momentum. The number of stocks above their 50 and 200 DMA remain below levels seen at previous market highs.

The S&P 500 has now extended its streak of days without a 1% move, up or down, to 52 days.  Volatility has also contracted with the 20-day realized volatility of the S&P 500, down to 6.7%.  The VIX is back near 52-week lows at 11%. But perhaps some of the trade tensions — and broader global weakness — is weighing in on some companies profitability.  Heading into earnings season, we are getting the largest number of companies issuing negative EPS guidance in over 2 years.

Can this volatility grind continue, or does it show a sign of complacency that will give way to a significant market sell-off?  The former has been the dominate trend for sometime now. But with tariffs starting to bite just as Q3 earnings get released, companies may ramp up warnings and lower guidance, causing investors to re-think current valuations. With the price of options back near 52-week lows, this may be a good time to buy some put portfolio protection.

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Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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