Summary:
- The stock market fell 1% last week, with the S&P 500 (SPX) down 33 points to 2600.
- This occurred as remarkable dramas around the world continued to churn, including the China trade war, Brexit, and the “yellow vest” protests.
- Our projection this week is for SPX to complete its current cycle, with a strong chance of breaking below its recent intraday low of 2583.
The stock market maintained its weak character last week, as every attempted rally was met with aggressive selling, as I pointed out in the latest Market Week show. Around the world, investors appeared concerned with slowing growth, as economic data continued to weaken.
The week began with a Chinese court ruling that Apple (NASDAQ:AAPL) had infringed on Qualcomm (NASDAQ:QCOM) patents. This may result in a ban on selling iPhones in China, however Apple will likely update its software to address the matter.
Trade news continued to bubble out. As China and the US resumed talks, the former announced it would cut tariffs on cars produced in the US to 15%. But China also arrested two Canadians, which was possibly in retaliation for the arrest of the Huawei Technology Co Ltd (SZ:002502) CFO.
Elsewhere, the yellow vest protests continued in France, spreading as well to new countries. Also, Mario Draghi ended the ECB’s quantitative easing program, even as European economies continued to slow.
The Brexit drama dragged on, with Theresa May winning a vote of confidence that allowed her to continue to serve as Prime Minister in the UK Parliament.
But the week ended on a disturbing note, as Reuters reported that Johnson & Johnson (NYSE:JNJ) executives had known for decades that its baby powder contained trace amount of asbestos. Needless to say, their shares dropped 10%, pushing the Dow Jones lower for the day.
Each week we step aside from the news and project the price action for the SPX each week, using an approach that combines technical analysis with market cycles.
Our projection is for stocks to continue to decline this week, within the context of its current minor and intermediate cycles. As short term momentum is negative again, there is a strong likelihood it will break below the recent 2583 intraday low.
In the following week, after this cycle completes, we believe the SPX will set up for a bounce. What we don’t know is from how low of a level that bounce will begin.