The stock market took a sharp downturn to begin the new month of March. Usually, we see the stock market bid up on the last day of the month and the first few days of the new month, as institutions place optimistic bets.
That is not the case now due to a far different, almost ominous, tone gripping the market place.
On Thursday, President Trump announced the U.S. would impose a 25% tariff on steel and a 10% tariff on aluminum, raising concerns of protectionist trade policies and likely sparking sell-off from Chinese shareholders.
US Steel Corp. (NYSE: X), Nucor Corp (NYSE: NUE), and Century Aluminum Co (NASDAQ: CENX) were all up sharply on this announcement. The big worry for the market is retaliation that might follow in a new emerging trade war.
We knew the President was going to fight for American interests when he was elected President rather than let foreign governments like China continually take advantage of the U.S. by undercutting the steel market through currency manipulation and product dumping.
I think the sell off was far more related to the market's worries over the Federal Reserve. New York Federal Reserve President William Dudley argued earlier this week that four rate hikes this year would be half as aggressive as the eight-per-year hikes the Fed executed in the last decade, which he called the "alternative to gradual."
In other words, the Federal Reserve is thinking of raising rates four times this year, which it considers gradual, and which sent the stock market into another plunge.
It doesn't matter what the Fed projects as the number of rate hikes it is planning - here is what it means:
The Fed will raise rates enough to "invert the yield curve" to induce the next recession in order to offset any inflationary stimulus that might follow the recent tax cut legislation.
The investment bankers know how this works and they have been the ones primarily selling into this long-in-the-tooth bull market.
Technically, with the major indices unable to hold the price of the major indices above the 50-day moving averages, the indices are now heading down again to retest primary support at the 200-day moving averages.
So far, we have seen rather standard bearish market behavior by plunging to the 200-day moving average, then rebounding back to the 50-day moving average, and then failing the back test and falling back down to retest the lows. We may even breach the 200-day moving averages more forcefully on this second sell wave.
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Crude oil prices broke primary support in February in a bearish development, which hints that oil has likely made a major topping pattern.
Crude oil broke down through the major uptrend line in February, then rallied to the uptrend line to new resistance, and is now selling off from this key resistance.
This chart is also being repeated in the equity charts with a pattern of lower highs.
We have a very high probability of another forceful secondary down leg in the stock market, especially if oil breaks down to $58 per barrel, or attempts to test its 200-day moving average at $53.17 a barrel. That would really shake up the stock market.
It's not just energy (NYSEARCA: XLE) that is looking horrid now; consumer staples (NYSEARCA: XLP), real estate (NYSEARCA: XLRE), and utilities (NYSEARCA: XLU) are all closing in on their November lows. The NYSE, Transports, and small caps aren't far away either. We are suddenly seeing a lot of non-confirmations, i.e., price failures.
The market is going to get increasingly rough now, having established a lower high, and is focused on whether it can hold primary support for its weak sisters (the Russell 2000 and the NYSE).
To your wealth,
Dennis SlothowerEditor, Stealth Stocks Daily Alert and Wall Street Underground Profits
Dennis Slothower has been leading a small but profitable group of investors to some extraordinary profits in both good markets and bad over the course of a 38+ year investment career, starting as a stock broker in 1979. In 2011 Dennis was named the top performer by Hulbert Financial Digest for avoiding the Crash of 2008. Now, he is bringing his extensive experience to the public through Outsider Club, Stealth Stocks Daily Alert, and Wall Street Underground Profits. For more about Dennis, check out his editor page.