Intermarket Analysis: Trump Tariffs & Expensive Markets. Remove chips and buy defense.
In our last presentation, The US Market Sell Off. Is this the end? on 5 Feb 2018, we advised that the markets were approaching short term oversold, but that history tells us wait before going back in. Sure enough, the price rebounded before pushing to dropping to challenge the Feb low again.
So what now? We think the correction is not quite over, but we will need a successful break of the 50 DMA support (2588) to confirm it.
President Trump, you actually did what you said you would do. You signed an executive order to put tariffs on China products.
I have never seen any president do so much in his first year. Tax cuts. Trade tariffs. Gitmo. Funding for black colleges. Lowest unemployment rate for black communities. I think that if we never knew he was a reality star, or saw his picture, and only read his accomplishments, we might think he was a different person!
This move on China might be good for the US on the longer term, but on the flip side, there is uncertainty on how the markets will be affected, and how the negotiations will be resolved.
Add this uncertainty to an expensive market, and you'll understand why I feel its safer to take some chips off the table, and get some defense.
To summarize, the bull market is still intact as it is not proven that Trump's tariffs is sufficient a catalyst to usher in a bear market yet. But that doesn't mean that the market won't take this as an excuse for a bigger correction.
If the trigger point at 2588 is broken, the correction is not over and may go to 2500 and then to 2400. We think it might be a good idea to be defensive until the correction has blown over.
Attached is our slide deck explaining why the markets are expensive, but one sector
Till next time, everyone stay safe,
The QuantZombie team.
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