World Market Death Cross Forms: 'Summer Swoon' In Store For U.S. Major Indices?

As shown on the daily chart below, a moving average "Death Cross" has formed on the World Market Index. It closed out Q2 2018 just above horizontal price support and below trendline support, as well as below both moving averages.

All three technical indicators are in negative territory, hinting of further weakness ahead, particularly if price drops and holds below 1950 on accelerating RSI, MACD and PMO declines.

The following 1-year and 6-month charts of the U.S. Major Indices show where they closed out Q2, relative to their 50-day moving average.

The following year-to-date graph of these Major Indices shows the percentage gained/lost for the first half of 2018.

My general conclusion is, if we don't see some serious buying of the Dow 30, S&P 500, Nasdaq 100, Nasdaq Comp, Russell 2000 and the S&P 100 around their 50 MA soon, we may see the beginning of a 'summer swoon,' and, possibly, some aggressive selling until they reach their 200 MA. Keep an eye on the World Market Index for potential clues and on the ROC (rate-of-change) indicator on these Major Indices.

Trump Drives HOG Out Of U.S.

* See UPDATES below...

Because of President Trump's trade tariff tantrums, Harley-Davidson (HOG) may be forced to move some of its manufacturing facilities oversees in order to build its motorcycles destined for sale in the European market...thereby cannibalizing its American jobs in the process.

In Q1 of 2018, U.S. sales were -12%, while European sales were +6.8%. Additional tariffs will cost the company around $90-100 million/year if they don't make such a move.

Price has broken below several important support levels that I described in my post of March 2 and dropped over 6% today...it sits just above major price support at 40.00, as shown on the monthly chart below.

This may just be the beginning of a great migration of businesses out of the U.S. if Trump continues his hard line on trade.

Trump's former praises all done for show?

The U.S. already has 12,000 tariffs in place on a variety of goods from numerous countries, so Trump's tariffs will be piled on top of those. American consumers will pay the price of a trade war, which will end up costing the U.S. far more than any minor benefits to its producers and manufacturers, inasmuch as these tariffs are paid to the government as taxes, not to U.S. companies. So any tax relief offered to Americans by the recent 'Tax Cuts and Jobs Act' will be offset by trade war taxes, including job losses.

And, why would he want to restrict the sale of U.S. products to world markets? It makes no sense!

U.S. and world markets aren't too happy today...possibly over trade worries.

(as of 2:49 pm ET)

(as of 2:49 pm ET)

* UPDATE June 26...

And, so now the President has flipped from being a (purported) supporter of Harley-Davidson to its judge, jury and executioner...and, so, yes indeed, it was 'all done for show.'

So much for this company being hailed as an American icon by Trump...but their global brand name will continue in spite of his actions. U.S. brand origin is more important in today's international marketplace than where it's manufactured or assembled. Harley's engines (the 'heart' of their bikes) will continue to be made in the U.S.

N.B. In any event, Trump's name appears on hotels throughout the world and they're not 'made in America.' So, he's being hypocritical, narrow-minded, and regressive, in my opinion!

* UPDATE July 3...

Like I said...hypocritical...

Regardless of how much competition there is, bikers will continue to buy Harleys because...they're Harleys!

He's obviously ignorant of that fact, so he'll continue to use this American company as his latest punching bag in order to entice foreign companies into the U.S. and to force his business ideas on American companies (at their and consumers' expense). Leaders of a free and democratic country don't do that.

Who's next? No doubt, there will be plenty more to spar with and threaten, as he's already done since he took office. Watch your back...

Vulnerability Intensifies For China's Shanghai Index

* See UPDATE below...

Price action on the following monthly chart of China's Shanghai Index has been under the bearish influence of a very long-term downtrending Andrew's Pitchfork channel since it peaked in October 2007 and bottomed the following October.

After a weak attempt to break out above this channel at the end of January of this year, it retreated and is currently dropping early Tuesday morning following President Trump's latest threats several hours ago to impose tariffs on an additional $200 billion worth of Chinese goods in connection with their recent trade war. It has broken below its near-term major support level of 3000 that I had identified in my posts of April 9 and February 16.

If this index returns to its channel "median," it's in for one heck of a plunge! Look for a break and hold below its last swing low at 2638.30 to continue its current downtrend on this monthly timeframe. It's already in downtrend on the weekly and daily timeframes following its failed channel breakout attempt and the momentum indicator is firmly in downtrend on all three timeframes.

Otherwise, it will have to, first, fight its way back above what is now major resistance at 3000 before attempting to make a new swing high on this timeframe above 3684.57.

* UPDATE @ close...

How world markets closed today (the Shanghai Index was hit particularly hard and lost 3.82%)...U.S. markets did not escape unscathed by Trump's tariff tantrums...

...in fact, the Dow 30 Index is in negative territory for year-to-date gains/losses, as shown in the graph below.

President Trump is cannibalizing prior U.S. market gains with his tariff threats against its world trading partners, while destabilizing a delicate world market balance...not something that Republicans can proudly promote as they get ready for the November midterm elections. How many times will we see him flip-flop on this and other important issues before then and how will markets react? This, along with many other geopolitical and world market issues, will keep volatility whip-sawing until then.

* UPDATE June 26...

The Shanghai Index closed in bear market territory today...

Bear territory: China stocks lose market cap bigger than Canada GDP

South China Morning Post
13 hours ago

China stocks hit by trade war fears after sell-off on Wall Street

Financial Times - 8 hours ago

Shanghai Stocks Slide Into Bear Market, Piling On the Gloom in China

Wall Street Journal - 5 hours ago

U.S. Market Risk Surges as World-Wide Trade Wars Escalate

From the daily percentage comparison chart below of the four U.S. Major Indices, you can see that the Nasdaq 100 and Russell 2000 Indices have begun to surge above their recent all-time highs and have accelerated faster than their Dow 30 and S&P 500 counterparts.

The spread between the first two and the latter two indices is ever-widening and higher risk investing is on the rise...signalling that, either this latest surge is the beginning of a new bull market that would, ultimately, pull in the Dow and S&P and send them to record highs, as well, or is in the process of forming a climatic thrust before the end of a very long bull run that began when stocks plummeted to their lows on March 6, 2009, following the 2008/09 financial crisis.

With today's drop in these markets (as of 12:40 pm ET), presumably in response to further tariffs imposed on China by President Trump, we'll see how escalating world-wide trade wars, inflation, and Central Bank interest rate actions affect/infect U.S. (and world) markets in the coming weeks.

Muted U.S. Market Reaction Post-U.S./NOKO Summit

* See UPDATE below...

U.S./NOKO SUMMIT

Further to my article of June 3 (and my many follow-up comments/updates), I'm left wondering what planet I'm living on after witnessing a get-together with President Trump and Chairman Kim in Singapore last night.

At the conclusion of their meeting they signed a rather sketchy Joint Statement, which can be read in full here (part of it is shown below). Apparently it's not even as strong as past statements signed by previous U.S. Presidents and NOKO leaders.

We'll see where things develop in the future.

Excerpt from the Trump-Kim Singapore Summit Joint Statement

During brief comments to the press in several breaks throughout the summit and at his subsequent press conference, Mr. Trump was full of flattering remarks about Mr. Kim, while in the same breath, he continued to disparage his allies, especially PM Trudeau...his 'punching bag du jour.' He shouldn't be surprised that America's trading partners would retaliate with their own tariffs in response to his...he knows full well that they have their own countries' interests to protect and will do so, regardless of his personal opinions about them.

I got a kick out of this analysis of his post-summit remarks by CNN. World-wide responses to the summit and agreement are mixed.

Really???...NOT if he treats them like he did Otto Warmbier

(whose parents are suing NOKO for torturing and murdering their son)!

President Trump ends military drills with South Korea, calling them "provocative war games"...a description normally used in propaganda by your opponents.

Seriously?...He continued with his erratic and odd behaviour as he delivered threats to punish Canadians for PM Trudeau's retaliatory tariffs through snarling teeth and with scolding finger-wagging gestures...this came only hours after publicly scoring his relationship with Trudeau as a 'ten' in his press conference that immediately followed the G7 summit. So far, Mr. Trudeau has taken the high road and has refrained from engaging in such pejorative attacks, with the full backing of Canadians...I wonder if Mr. Trump has the full backing of Americans.

And, does this now mean that he will 'feel foolish' again if he's compelled to use tough rhetoric in the future on Kim...or, now that he's exposed this character weakness for Kim and the world to witness, will he continue with his over-the-top flattery of him no matter what?

Who can now take him seriously when he lashes out and uses harsh language with anyone?

MUTED U.S. MARKET REACTION

Meanwhile, U.S. futures markets were muted overnight in their reaction to this news and are slightly up as of 12:00 noon ET today.

If President Trump continues with his steel and aluminum tariffs, and implements additional ones as he's already threatened to do, we'll see how a world-wide trade war impacts inflation and how quickly Central Bankers then raise interest rates (or dispatch further monetary QE measures) to combat that effect.

That may have more effect on markets than future talks with NOKO.

FINAL THOUGHTS

So, will common sense prevail when it comes to President Trump, allies, and trade wars? Do actual (correct and proportional) facts matter to Mr. Trump? We'll see...for the time being he's cozying up to NOKO, China (ZTE) and Russia (inviting them back to rejoin the G7, which was NOT supported by G6 leaders).

* UPDATE June 13...

A slightly more hawkish tone was present in today's FOMC press release regarding future U.S. interest rate increases, including two more for this year...(click here for Fed meeting calendars, statements and minutes). Of note in Chairman Powell's press conference was his announcement that he will hold a press briefing after every Fed meeting beginning in January of next year.

How U.S. Major Indices closed today...

Bitcoin Continues Its Plunge

Since my last post of May 12, Bitcoin continues its plunge towards 6000, or lower...

From This Week's "Smile File"...Political Solidarity

In honour of this past week's political theatre...

President Trump: Not A Proven Win-Win International Political Deal Maker

* See UPDATES below...

A NO-WIN FOREIGN POLICY

It's clear that President Trump's "America First" policy does not produce a "win-win" outcome for it and other world trading partners...at least, it has not been proven, yet.

So far, he's only been successful in tearing up prior agreements related to the Trans Pacific Partnership, the Paris Climate Agreement, the Iran JCPOA, and has threatened to tear up the NAFTA with Canada and Mexico (see this Global News article: "Reality check: No, the U.S. doesn't have a $17B trade deficit with Canada"..."So the real trade balance with Canada is positive in the U.S.'s favour"...to the tune of "around US$12 billion") as reported by both Statistics Canada and the Office of the United States Trade Representative.

Although he is in current trade talks with China, he has not been successful in negotiating a new trade agreement with Canada and Mexico, nor has he been successful in negotiating any other bi-lateral or multi-lateral agreement that I'm aware of, including a peace agreement between Israel and the Palestinians.

In fact, he has exacerbated tensions in current NAFTA negotiations by slapping hefty and punitive steel and aluminum tariffs on these two closest trading allies, as well as on the European Union...under the guise of "national security" concerns.

He has also increased tensions with these and other countries by tearing up the above-mentioned agreements without replacing them with new agreements.

Inasmuch as the economy of the U.S. is in far better shape than its counterparts, with improved GDP, lower unemployment, rising wage growth, job growth, low inflation, lowered income taxes, reduced business and banking regulations, a comparatively lower dollar (although it has strengthened a bit this year), high business and consumer confidence, increased business capital spending, along with continued growth in its stock markets (likely due to his domestic agenda, much of which he has already implemented), it's inconceivable that Mr. Trump would want to risk all of those gains by taking a hard-line, "winner-takes-all" foreign policy approach by starting trade wars with countries that don't even pose a national security risk and which would create widening and unsustainable imbalances.

THE EVIDENCE

Just look at the evidence as reflected in these world markets and currencies.