Stocks Were Lower, and There Was Tariff Talk, but Are the Two Related?
Correlation does not imply causation when it comes to the stock market.
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It will surprise no one that the folks who like to put a narrative on market moves are saying the market was down on Monday because of the new tariff talk from President Trump. I would point out that the S&P was already down, and the Russell down quite a bit, when the news came out mid-morning.
I still don’t think new tariffs, or changes in tariffs, is what could scare the market. The market rarely reacts to the same news twice. So sure, folks had forgotten about the tariffs, but I suspect if we do get a correction this summer, it will not be due to tariffs.
One reason is, did you see how little actual selling there was on Monday? Sure, the breadth was the worst it has been in a month. But it wasn’t enough to turn the McClellan Summation Index down. Not yet, at least. It’s going to take more selling than that to do it.
If you are looking for a level to watch (folks seem to love levels), then I would watch the 5400 area on the SOX. There are two lines there. First, we have that uptrend line dating to the late May low that comes in (this week) around 5400. And it was the low from a week ago. Okay, I know, it really was 5500, but I like to give things some leeway.
Let me point out that a break of 5400 would only measure down to fill that gap near 5200, but it would be the first break and the first lower low. Notice that the mid and late May lows were twins, as were the two from mid June (around 5100). Thus, a break of 5400 would be a change in pattern.
There was one big change in the market that I saw on Monday that got very little fanfare. It was the move in the US Dollar. Oh sure, here I go again, waxing on how I think the buck will rally, but notice the Dollar Index is making a one-week high. I cannot declare any real change there (much as I would like to) unless/until it crosses over 98. That could clear the downtrend line as well as the two prior lows (the one in mid-April and the one in mid-June). Thus, like the SOX breaking 5400, that changes the pattern.
All we hear now is how the lower dollar is a tailwind for multinationals. Thus, should the buck rally, that narrative will surely change (probably telling us how a strong dollar is bullish!)
I wouldn’t even be surprised if the market rallied on Tuesday, but I still think we need to work off that overbought reading and that too bullish sentiment.
