Many stocks are probably overpriced but the Market keeps going up. According to CNBC one technical analyst is betting against stocks based on one chart.
“With the recent volatility, we have in fact broken uptrend support,” the founder of TradingAnalysis.com said Monday on CNBC’s “Trading Nation.” “That is not going to be a constructive thing for the bulls.”
Gordon is referring to a chart that shows the S&P 500-tracking ETF SPY has broken below what he sees as “support” at $244.
On a chart of the SPY, Gordon points out that the ETF has been making a series of higher lows starting in April, and connecting those dots shows where the market’s support lies. But with the SPY falling as low as $241.83 on Monday, the market has decisively broken below that trend line.
Gordon predicts that the SPY will fall back to $232.51 which is the first support point in recent trading. The issue with every stock rally is not if it will eventually correct because they all do. The issue is when the market will correct and how much. In this case technical analysis indicates a Stock Market Decline starting now.
Another Point of View
The market dipped for a few days and technical analysts said I told you so. But what are the reasons driving current market hesitation? After all corporate earnings are up and the economy is moving along and creating jobs. CNBC discusses what’s dragging down stocks.
The U.S. economy and corporate earnings continue to impress, but markets’ positive momentum has been sapped by the political follies of the Trump administration. And from a trading perspective, the U.S. dollar is unlikely to stage much of a comeback unless the tone from Washington becomes decidedly more disciplined.
This gets to the heart of why the market started to rally the day after Trump got elected. Promises of tax cuts, the stimulus of infrastructure spending, deregulation and a plan to bring US corporate profits back from offshore excited many investors who then poured money into the market. But 9 months after his election and 7 months after assuming the presidency the focus is on the investigation into Russian meddling in the US election, neo Nazi rallies in Virginia and Trump’s bashing of anyone and everyone whom he sees as an enemy. And that list of enemies appears to include the majority leader of the US Senate and Trump’s own Attorney General. The US is going to run out of money this fall unless congress gets their act together and votes to increase the debt ceiling. Folks see a White House of of control and are worried.
North Korea and Other Flash Points
Usually when there is an international crisis the president acts more presidential and works to pull the country together. This increases his support and tends to reassure the public and markets. However, Trump’s bluster in regard to North Korea frightened many who do not think he is up to the task of dealing the a nuclear threat from that country. Traders like volatility but they also like predictability and lacking that some traders are looking at technicals and predicting a market decline.
