Technically Speaking For The Week Of April 9-13

Summary

• The markets are still confused about trade policy.
• The Fed is in a tightening mode.
• The markets may be poised to rally soon.

Let's review the somewhat twisted path that has been the plight of international trade deals over the last 16 or so months. One of the president's first actions was to have the US leave the TPP. He had promised this during the campaign, so this decision was not much of a shock. The trade issue lay fallow until about a month ago, when, after passing a budget that would lead to a budget deficit of over $1 trillion, Trump jumped full-force back into the international trade ruckus by saying he would hit Chinese imports with about $50 billion in tariffs. After a Chinese counter-threat, he later upped this amount by another $100 billion. The Chinese again threatened to retaliate by imposing their own set of tariffs - but on goods that were sent directly from the American heartland, which also, coincidentally, were largely filled with Trump voters. Finally, Trump comes full circle and says the US should seek a way to re-enter the TPP as a way to open up new markets for US farmers. It's almost like we never should have left the deal in the first place.

This week, the Federal Reserve released its latest Meeting Minutes - the first of the Powell era. The FOMC did take note of the trade issue:

A number of participants reported concern among their business contacts about the possible ramifications of the recent imposition of tariffs on imported steel and aluminum. Participants did not see the steel and aluminum tariffs, by themselves, as likely to have a significant effect on the national economic outlook, but a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy. Contacts in the agricultural sector reported feeling particularly vulnerable to retaliation.

It also saw a stronger economy that granted it plenty of room to raise rates:

All members viewed the recent data and other developments bearing on real economic activity as suggesting that the outlook for the economy beyond the current quarter had strengthened in recent months. In addition, notwithstanding increased market volatility over the intermeeting period, financial conditions had stayed accommodative, and developments since the January meeting had indicated that fiscal policy was likely to provide greater impetus to the economy over the next few years than members had previously thought. Consequently, members expected that, with further gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace in the medium term, and labor market conditions would remain strong. Members generally continued to judge the risks to the economic outlook as remaining roughly balanced.

...

Members expected that economic conditions would evolve in a manner that would warrant further gradual increases in the federal funds rate. They judged that raising the target range gradually would balance the risks to the outlook for inflation and unemployment and was most likely to support continued economic expansion. Members agreed that the strengthening in the economic outlook in recent months increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.

None of this is surprising; it simply confirms what market watchers have noted about the Fed over the last few months.

Turning to the market, this was a very positive week:

The QQQs had the best run, rising a little more than 3%. This is a welcome development because, thanks to the sell-off in the FANG stocks for the last few months, the QQQs have been a lagging performer. The IWMs also rallied. But the SPYs - which remain a collection of well-established companies that have strong international sales - were up a little over 2%. There was a mild sell-off in the Treasury market. But this week was mostly about equities.

The markets remain expensive:

This despite a very strong earnings season in the fourth quarter and an expected strong performance in 1Q. From Zacks:

• Total Q1 earnings for the S&P 500 index are expected to be up +16% from the same period last year on +7.4% higher revenues, the highest quarterly earnings growth pace in 7 years.

• Earnings growth is expected to be in double-digit territory from the year-earlier level for 11 of the 16 Zacks sectors, including the Technology and Finance sectors. Only two sectors (Autos and Conglomerates) are expected to show earnings declines in Q1.

Last week, I noted that the market was consolidating, which is still the overall trend we see on the daily chart:

Prices are still moving between trend lines that connect the higher of January and early March and the lows of early February and early March. Prices recently bounced off the 200-day EMA - a positive technical development

However, there is potentially some good news on the horizon:

The top chart is for the SPYs while the bottom chart is for the QQQs. The bottom panels of both have the percent of stocks above the 200-day EMA and the percent of stocks above the 50-day EMA. When both indexes have been at these levels previously, they've rallied. And considering we're entering what could be a solid earnings season, we could see another rally soon.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.