Let's say it like it is... the equity markets are acting like crap. Many believe that the equity futures are going to go lower, and some think they going to go down hard. With the exception of last Friday’s big buy imbalance, most of the selling has been centered on the Dow Jones and S&P 500. However, the one bright spot has been the Nasdaq, which has seen nearly $5 billion go into tech-focused stock funds this year, more than any other sector.
According to Thomson Reuters Lipper data, that $5 billion figure represents nearly half of what the group pulled in for all of 2017. In January alone, tech funds received $3.9 billion in inflows, the most in a single month for such funds since the peak of the tech bubble in March of 2000. Tech stocks have gained 13% since major indexes fell into correction territory on Feb. 8, compared with a 6.4% gain for the S&P. The PitBull (Marty Schwartz) once said to me that the U.S. will always be the world's leader in the technology sector.
Last week, JP Morgan’s well-known Marko Kolanovic essentially said that he didn't think there was going to be a trade war, indicating that he expected the large-cap S&P 500 would to go back up to new all-time highs. He said that a significant trade war would destabilize the global equity markets. Should this happen before the November elections, it would change the ‘scorecard’ and likely lead to massive election losses for Republicans, which could lead to many systemic complications. It is hard to say how far Trump with take this before the Chinese retaliate, but rest assured, they will not take large tariffs sitting down.
This week the Federal Reserve's two-day meeting is on the schedule, and the Fed Fund Rate futures predict a 94.4% chance that they will raise rates this week. Is that a negative? Not really, but it could cause some weakness and a further drop in volume. The markets are struggling and can't seem to hold the rallies. On the flip side, when volume drops, it usually works in favor of the upside.
If the S&P 500 gaps lower, our lean would most likely be to buy the open or any early weakness. If the ESH18 gaps up, we would lean toward selling the early rallies on a 10- or 15-handle rally., but ideally we want to get a look at the price action. My gut says this market still favors selling rallies.