Market Overview

Despite Trade Tariffs, The Stock Market Appears To Be Holding Up Quite Well

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The stock market has been on a roller coaster ride over the last two weeks. We still see a downtrend, but we're going to let the market tell us what it wants to do next and we'll tell you what we're watching.

The S&P 500 ETF SPY (NYSE: SPY) closed Thursday just below June 25th's open when we turned cautious. That's when trade war news intensified. Since then, China's vowed to strike second, not first.

Trade War Summer Vacation?

Looking at the sequence of potential events, this could give the market a break from trade concerns for a few months.

According to The Wall Street Journal, "Mr. Trump's threat to levy tariffs on another $200 billion also won't be ready to put into effect until the late fall because the U.S. has to clear a number of procedural requirements."

That can act as good news, especially if China has to wait for the fall to enact the next round of tariffs. That would mean that the tariff part of this story could take a break, which we think could be good for markets.

S&P 500 SPY ETF Chart 
 

SPY ETF Chart levels
Source

We want to watch the stock market to see what it wants to do. We don't want to say the market is turning up until we see it actually turn up. We also see big resistance overhead, as we drew in the chart above (click to enlarge).

Fundamentally, a great case can be made that stocks should go down based on the trade war. But so far the stock market is holding up very well.

We don't want to think we can outsmart the market but rather want to try to understand where it's going.

Market Action: Putting It All Together

When looking at markets, you want to integrate what the market is saying it wants to do with the news that it's fed. The fundamentals are one thing, but how the market responds to those fundamentals is ultimately what matters. Fundamentals alone don't drive stock prices. Market participants reaction to those fundamentals drive stock prices.

For example, if shorts don't see the market go down they'd need to cover, which can cause the market to go up on bad news. If that happens, it would be a bullish sign of bad news-good action. 

For earnings events, the fundamentals are the overriding driver of stock moves on that day. But for markets, there are so many influencing factors. We want to understand what the sum total of all of those decisions are saying by watching the trend and reaction to the news.

By watching what the trend is and how the market consumes all that fundamental data, you start to see what the market wants to do.

When you get bad news like a trade war, and the market doesn't want to go down, it may be telling us it wants to go higher.

We're not there yet. We still see those downtrends and that overhead resistance. But we want to always respect markets and the next few days are critical to see what the market wants to do.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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