Headlines

A quick note.  Markets are up in the premarket based on headlines that seem to indicate trade talks with the Chinese may be back on the table.  Markets have been very volatile this month as they've been held hostage to the news on the trade war front and whatever blurts from the President's mouth.  That being said we're only down about 1.5% for the month based on where the futures indicate we're going to open.  Not so bad for August and not so bad for a year where markets are up on average double digits up to this point.

Lost in all this though is that economic data continues to be decent here in the US.  Pay more attention to what's actually going on with the economy as that's what will ultimately drive stock prices.  There is always short-term headline risk but it is the hard data that makes for long-term market advances.  Probability indicates this data will be ultimately supportive of stocks as long as it remains positive.

Back late next week.

The Last Rose of Summer

'Tis the last rose of summer,

Left blooming alone;

All her lovely companions

Are faded and gone;

No flower of her kindred,

No rosebud is nigh,

To reflect back her blushes,

Or give sigh for sigh"

    -Thomas Moore

This week marks the last official week of summer, ending as it always does with Labor Day.  It is ironic that we say this holiday is summer's end because at least in Chicago, September can serve up some of our best weather.  The heat's usually gone, as is the humidity.  The days are still long enough that you can enjoy the outdoors after work or on the weekend and the autumn rains generally hold off until the end of the month.  

The end of August is for most of us usually languid and bittersweet.  Time seems to slow down a bit as we enjoy this final burst of summer.  Even if the kids are back in school, it never feels like it's officially started until after Labor Day.  We also have some time to remember what we did over the past few months or regret the things we said we'd accomplish but never seemed to get done while the weather was nice. 

It is the same with the markets.  Stocks will be thinly traded this week and the investment community will concentrate on one last jaunt to whatever watering hole they use as a summer playground.  For one final part of 2019 the rest of the world will be shut away for a little while.  It is not as if the issues concerning the markets  will go away.  The President I'm sure will tweet something provocative.  The pundits will talk about whether the economy is really weakening, whether interest rates will continue to decline or our current trade spats with the rest of the world, especially those with the Chinese.  Others will take a peek at the next year's elections or point to whatever crisis is likely to brew as the weather cools.  These events though will be shunted aside and put on the back burner until after Labor Day.  The world will slow down for a bit and that's a good thing. 

I too am going to take the rest of this week off in terms of this blog.  We'll shut this down now until sometime the week after Labor Day.  First post here will probably be the 5th or 6th of September.  I have a car to drive home from Rhode Island over the holiday weekend and it's going to take some time for me to get organized when I'm back.

Shakespeare famously stated that "summer's lease hath all to short a date".  Those of us that live in parts of the country where we actually get cold weather for months at a time know true well the meaning of his words.  Summer goes by so quickly for most of us.  It seems like only yesterday when we were getting ready for Memorial Day.  Now September is nearly upon us while football, the true herald of autumn, has already started!  I'm a bit out in the country when I'm in Rhode Island.  The little place where we stay was once a farm and there's still a field out in back.  Perhaps because of that  you can feel summer waning away now.  I notice the day's aren't as long as they were a few weeks back.  The light looks a bit different at dusk.  Nights are a bit more crisp, it was in the 50s here last night and they serve up a reminder that the principle season of the north is not the one you're currently in.  Crickets, the other heralds of autumn, now chirp incessantly throughout the day.  It is time to take a break and enjoy these things one more time and smell those last roses of summer.  Whatever issues we have can wait till the clock rolls into September.  Well see you after the return trip from the east coast unless something warrants a break in from out this way.

I will leave you with two thoughts that  merit more discussion at a later date.  The first is evidence is starting to mount that the President is now more of a headwind to both stocks and the economy than a help.  The second is what I currently see as a higher probability that the President will not be reelected next year.  Don't read any political commentary into these statements.  I am simply analyzing numbers and prospects, while leaving you something to chew on until we meet again next month.

I will See you then.

And One Last Thing

The US stocks are basically flat now on a price basis since late January of 2018.  Everybody talks about an upcoming correction but few talk about the fact we may have been in one now for nearly 19 months.  Sometimes stocks can correct by time instead of price and this is looking like one of those periods.

Three Quick Thoughts

Whatever you read in terms of markets or the economy right now you need to understand three things.  

The first is that with interest rates likely headed lower and with trillions of dollars of debt yielding negative returns around the world we are in uncharted territory right now in terms of how this will pan out.  Anybody who says they know for certain what's going to happen is either lying or lying to themselves about what they know.   These are uncharted waters folks.

Markets will be thinly traded next week as summer winds down.  Pay no attention to their gyrations unless something unexpected crosses the wires.

Finally as markets are seemingly held hostage to our issues with the Chinese remember that nothing is going to get resolved, if it's ever going to get resolved between now and Labor Day.  Again pay no attention to those headlines right now.

Now go enjoy your weekend!

What’s To Blame For All This Summer Volatility?

By Christopher R. English, President of Lumen Capital Management, LLC

It would be an understatement to say there’s been a lot of price volatility in stock prices recently. Almost daily, we see stocks moving in 1-2% ranges. One day we’ll be up quite a bit, then the next day we give it all back and more. What’s going on? We’ve gotten used to volatility lately, but why this sudden increase? Here are some brief thoughts as to why our markets are going haywire.

Remind Me Why This Is Happening...

Abrupt up or down moves in markets occur when investors are caught on the wrong side of an event and have to adjust their portfolios or investment analysis to what has just occurred. There have been several recent negative and unexpected pieces of news that have caught investors by surprise.

The Fed

First, markets started declining at the beginning of the month when the Federal Reserve lowered interest rates but indicated they were not necessarily inclined to keep on that same course. Investors had hoped they would indicate this was the beginning of a cycle of lower rates for the economy instead of a one-time event.  

Trade

The markets are also seemingly held hostage to the twin concerns that the economy is weakening as a precursor towards a recession and the never-ending Chinese trade talks. These issues are related, as investors have tied the slowing economic growth with rising trade tensions with the Chinese as well as other countries. Despite the legitimate worries, I still think the risk of a recession next year is low. Recent economic data isn’t signaling that an economic contraction is on the immediate horizon. It’s hard to believe we’re on the cusp of a recession when unemployment is at record lows and shows no signs of changing course. Corporations may already be in a profit recession and growth may slow but a full-scale recession seems like a low probability at the moment.  

However, I have come around to the view that in the current environment a trade deal with the Chinese, or at least a meaningful one, is also an unlikely event. In my opinion, the political class in both China and the U.S. view each other as more of a strategic competitor than a reliable trading partner. As such, we probably won’t see the Chinese being willing to give up enough for the Trump Administration to come away with a comprehensive deal before next year’s elections. That's not to say we won’t see something before we all vote in 2020, such as a deal on agricultural products, but it won't be in China’s strategic best interest to give up on technology transfers or limiting market access to U.S. companies. The world is now going through a period of adjustment to this new trade reality.

The Seasons

You’ve heard me say, over and over, that the seasonal weakness that often starts in late summer and lingers into  autumn is something to take into account. We’re now in the dregs of summer and historically, negative things seem to pervade the markets around this time of the year.  On that front, we can add the situation in Hong Kong, tense relations between India and Pakistan over Kashmir, or a whole list of the usual suspects to remind us that the world is a tense place right now.

Got It. So Will This Continue? 

That's the backdrop to all this volatility. Now, let's look at some numbers and money flow thoughts. As I write this, major indices are down about 5-8% from their most recent highs. Stocks tend to start corrections with violent sell-offs and it's pretty normal to see markets lose 5-10% in a short amount of time when markets change directions. I think there’s a high probability that the volatility we’re seeing will continue this month and perhaps bleed into the September to October period as well. Volatility is likely magnified right now because we’re in the last two weeks of the summer vacation season and market liquidity is not as deep as it might be at other times of the year. Again, volatility is how we speak of the day-to-day movement in stock prices, but for the most part, investors relate to volatility in terms of market declines. As you can imagine, they're not too worried about price movements when stocks go up. 

Stay The Course

I do want to make you aware that there’s an increased chance right now that the short-term trend for stocks will be on the lower end. So far, there’s no evidence that the longer-term bull market is in danger. Unless you're a short-term trader or have experienced a change in your asset allocation strategies, investors should think carefully before making portfolio changes based on a few week's worth of news. I’ve been investing for clients in one form or another for over 30 years. I’ll bet you that a healthy majority of those years have seen a late summer scare or period of weakness. My guess is you could substitute this summer’s concerns of a recession or China tensions for any number of past issues and pretty much see the same script play out over and over. Sure, there were times like 2007 when investor’s concerns morphed into something more substantial, but the majority of those years investors that sold into the fear regretted their decisions.  

For example, in August 2011, the U.S. government lost its vaunted triple-A credit rating.  Concerns had been rampant for a while that this might happen and markets were already down pretty substantially from recent highs when one of the major credit agencies cut their rating on August 5th. Stocks declined between 5-8% the next day and didn’t fully come out of their funk until later in the fall. But the investors who sold based on that scare missed out on a pretty significant rally in the coming months. The S&P 500* is now up over 150% since that time, not including dividends. Nothing is guaranteed and returns like we saw back then may not be in the cards this time around since stocks were cheaper back then than they are today. However, my guess is that when we look back at this summer years from now, we’ll view our anxiety and worry in the same light as we’ve come to view most late summer periods of volatility. To use some Shakespeare, we will look back and see a lot of sound and fury that ultimately comes to signify nothing, or at least nothing substantial. There is a good chance that this is a normal correction made worse by the season and I’ll stick to that view until there’s deterioration in the economy or a change in our indicators. 

As always, we are here for you. Please let me know if there’s a change in your situation and reach out to me at 312.953.8825 or by email at lumencapital@hotmail.com if you want to discuss any concerns that are plaguing you.

About Chris

Christopher R. English is the President and founder of Lumen Capital Management, LLC-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for investors, developing customized portfolios that reflect a client’s unique risk/reward parameters. We also manage a private partnership currently closed to outside investors. Mr. English has over three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 312.953.8825 or emailing him at lumencapital@hotmail.com.

The information contained here is taken from sources deemed reliable but cannot be guaranteed. Mr. English may, from time to time, write about stocks or other assets in which he or other family members has an investment. In such cases appropriate disclosure is made. Lumen Capital Management, LLC provides investment advice or recommendations only for its clients. As such the information contained herein is designed solely for the clients or contacts of Lumen Capital Management, LLC and is not meant to be considered general investment advice.

*Long ETF’s related to the S&P 500 in both client and personal accounts.  I reserve the right to change these investments without verbal, written or electronic communication at any time.

A Summer Recap And A Look Ahead (Summer Letter)

By Christopher R. English, President of Lumen Capital Management, LLC

Below you will find an edited version of the summer letter I recently sent to my clients:

As hard as it is to believe, we have now bid adieu to the first seven months of 2019 and are well into what is traditionally considered Wall Street’s summer season. Between now and Labor Day, the leaders of the investment world will be more worried about where they will spend their summer weekends than the state of the markets. That means trading will slow down over the summer and markets will move languidly as the humidity rises, unless something unexpected washes over the transom.

A Bit Of Review

You may have heard on the airwaves that the S&P 500 hit new highs this July and finally breached the psychologically important 3,000 mark. While this is not to be discounted, let’s be realistic and note that this new level is less than a 3% advance from last September’s highs. Here’s a chart to give you a visual of the S&P’s progress since mid-2017:

All the market gurus proclaiming what a wonderful first half of 2019 we’ve experienced never seem to mention last fall’s rapid decline or the prevailing gloom that took hold back then. The investor consensus back in January was that things were about to fall off the cliff. I’m sure the average 20% decline in stock prices had something to do with that. In my "What Went Wrong" post from February 4, 2019, I stated that I doubted the premise that there would be a recession on the 2019 horizon. Instead of market declines, I thought corporate earnings growth would be in the 5-7% range for the year, GDP would be 2.4% in 2019, and that stocks had the potential to advance 10-15%. On the downside for stocks, I also thought there was a potential to retest or perhaps undercut last year’s lows.

Now that we have some data to look back on, we can see that there has been no recession and first-quarter GDP numbers came in at 3.1%. GDP has been slowing down but still clocked a respectable 2.1% advance in the recently finished second quarter. So far, second-quarter corporate earnings are coming in slightly better than the analyst community expected. Most broad U.S. market indices were up between 14% and 19% as of July 25th, while international markets have again underperformed the U.S. Finally, the markets never retested last December’s lows, but we did see an average 8% decline in broad market indices in May. I took that opportunity to do some repositioning in portfolios depending on client mandates during that decline.

Do These Market Highs Matter? 

The market, as represented by the S&P 500*, has recently broken out of a period of consolidation that now goes back nearly two years. By this, I mean that the index has been locked in a roughly 500-point price range, from which it has simply moved sideways since the summer of 2017. Markets that break through important psychological barriers force the investment community to take notice. Investors will watch carefully to see how the market reacts now that it is in the uncharted territory of all-time highs. This is especially true when noting that stocks have hit troubled waters the last two times they tried to make new highs. One of those failed attempts last fall set the stage for 2018’s 20% decline. The other failure this April led to May’s over 6% decline.  

The investment community is currently divided on their market outlook. Those who follow money flow analysis think that each time you test important price levels at either the upper or lower bands of a trading range, then the weaker the resistance is to stocks moving through those important price levels. The optimistic view, then, is that when stocks or indices advance through important psychological barriers, they should, in theory, continue to move higher. Investors who believe this would argue that, given the amount of time we’ve spent in the current trading range, we could potentially see a substantial price move in the coming months. Based on that thinking, probability would suggest an environment where stocks could trade higher. 

The other side has a more negative view of things. While we are near new highs, stocks have sold off each of the last two times we attempted this kind of vertical move. The fundamental backdrop is a bit dicey right now, and at these prices, stocks aren’t necessarily cheap. Also, history has shown in this consolidation that failed rallies have led to negative consequences. Investors in this camp would argue that the markets, at a minimum, should retest the prices we last saw in May and that would point toward some downside.

So there’s your summary of the two extreme views in play right now. The environment is somewhat negative in the investment community, and frankly, the Wall Street crowd is more interested in lowering their golf handicaps or deciding where to vacation until Labor Day than the day-to-day movement of stock prices. Still, if we get positive news out of trade talks this summer, a potential interest rate cut by the Federal Reserve this month, or better-than-expected corporate earnings news, then we could potentially see an upside surprise to stocks.

One major clue as to what might happen is how the major averages respond the next time the market has a sell-off. A market that bounces higher near the levels where stocks have broken out this month would suggest a larger sustained move in the months ahead. However, stocks that ultimately trade back into their previous price range would suggest an environment where markets have more work to do in their consolidative phase, or could even indicate lower prices in the weeks ahead. In any event, a sell-off in the coming weeks, if it were to occur, would also be in keeping with part of my theory of seasonality, which notes the late summer and early autumn periods as being traditionally the worst for stocks. I let my indicators be my guide as to this secular bull market’s health.  

And Then There’s Politics…

Given that we are a little more than six months away from the first caucuses and primaries in 2020’s Presidential election, it is worth spending some time to parse out what it could mean for investors. First, as always, I don’t cover political opinions for political opinions’ sake. Any discussion on politics is solely within the context of how they play out in financial markets. Having said that, the polling numbers right now would indicate the President Trump should be concerned and he will likely face a very tough bid to get reelected. He is behind in polls in many of the swing states he will need to carry next year. That doesn’t mean he’s sure to lose, but it does mean that his reelection is not guaranteed, especially if the Democrats nominate a more moderate candidate. Markets likely won’t really start to care about this until sometime next year, probably in late spring or early summer when the official Democratic challenger likely emerges.

What will concern the investment class is who emerges as the Democratic front-runner. Markets won’t like the nomination of a progressive who proposes all sorts of policies that would cost trillions of dollars. If the Democrats follow that route, then there is a very high probability you will have four more years of President Trump. The base of the Democratic Party is skewing more liberal these days, just as the base of the Republican Party has tilted more to the right. However, the vast majority of folks in this country reside closer to center and there’s no evidence yet that they are skewing that far into the progressive camp. Of course, all of that could change in a year, but present trends don’t support the notion of the vast majority in this country yearning for a more socialist economic system. Expect whomever the Democrats nominate next year to recognize that and rapidly move toward the middle once his or her nomination is secure. In any case, getting many of these policies through Congress, in their current proposed iterations, is unlikely to occur even if we have a more progressively inclined President in 2021. If we assume a best-case scenario for the Democrats in 2020, where they control both branches of Congress and the Presidency, they would still need to round up 60 votes in the Senate. Even if the Republicans take a shellacking next year, there is a low probability of them losing that many seats.  

Don’t Forget All The Other Factors At Play

TV and print pundits will note the many crosscurrents pushing and prodding stocks right now. There’s Iran, the trade war with China, immigration, and the beginning of the 2020 presidential cycle, just to name a few. Also, depending on whom you listen to, the economy is either doing great or beginning to slow down toward a possible recession. 

There are always crosscurrents in the markets. The important thing for most investors is to keep focused on the long term and their own unique investment plans. Stocks will rise and fall. We’ve chronicled time and time again that stocks typically experience at least one correction between 7-15% every year. We’ve already had one of those this spring. As I noted in my May letter  “Seven Trends That Make Me Feel Optimistic About the Markets,” there are simply too many longer-term positives out there for me not to think there is a higher probability of stocks advancing over these next few years than not. Regardless of what we see in the short run, these longer-term trends are not likely to go away. Pay attention to long-term secular trends, especially in times of heightened volatility, as that will give us opportunities to add to positions we like. In the meantime, remember that Wall Street, for the most part, will be calling a time-out until after Labor Day.

Got Questions?

I am happy to speak with you about your portfolio, its current asset allocation, and my market orientation any time you would like. Please also let me know if anything has changed in your current circumstances that would need me to review my investment profile for your account. Call my office at 312.953.8825 or email us at lumencapital@hotmail.com to set up an appointment. As always, thank you for your continued trust and support. 

About Chris

Christopher R. English is the President and founder of Lumen Capital Management, LLC-a Registered Investment Advisor regulated by the State of Illinois. A copy of our ADV Part II is available upon request. We manage portfolios for investors, developing customized portfolios that reflect a client’s unique risk/reward parameters. We also manage a private partnership currently closed to outside investors. Mr. English has over three decades of experience working with individuals, families, businesses, and foundations. Based in the greater Chicago area, he serves clients throughout Illinois, as well as Florida, Massachusetts, California, Indiana, and other states. To schedule a complimentary portfolio review, contact Chris today by calling 312.953.8825 or emailing him at lumencapital@hotmail.com.

*Long ETFs related to the S&P 500 in client and personal accounts, although positions can change at any time. We reserve the right to change these investments without notice in writing, on my blog or via any other form of verbal, written or electronic communication.

Volatility And Other Matters

A few quick thoughts on the markets and other things.  I will try and do something more substantial on what's going on when I can find the time to do so.

Volatility has picked up in the markets but so far we've managed to avoid a major decline.  For all their gyrations, stocks have more or less traded in place this past week.  We are still higher than we were on August 7th which so far has marked the low for this recent corrective phase.  We are still only about 3% off the most recent all time highs as well.

Volatility is likely being magnified because it's August and market liquidity is not as deep as it might be at other times of the year.   Volatility is how we speak of the day to day movement in stock prices but for the most part investors relate to volatility in terms of market declines.  Presumably they're not to worried about price movements when stocks go higher. 

I still don't think it's gong to end well for the protestors in Hong Kong.

There is an increased probability right now that the short-term trend for stocks is lower.  So far the evidence that the longer-term bull market is in danger does not seem to be present.

So far the evidence isn't there for the US to have a recession next year.  We are already in a profits's recession and growth may slow but a recession seems a low probability risk at the moment.  Economic statistics are too strong for that so far.  We may see a slowing economy but a recession still seems like a low probability bet.

I also think there is an increasing probability that President Trump will not be reelected next year.  Again we don't do politics on this blog,  I am simply looking at numbers.  I will go into this in more detail in the coming weeks.

Panic Is Not A Strategy!

A few quick comments and I'll have something more extensive on what's transpired since we turned the calendar to August next week sometime.

As I'm typing this the markets are set to open lower by about 1% this morning.  Still that's likely going to be nearly 4% higher than where we traded when the market's panicked earlier in the week.  Investors that sold into that route probably have seller's remorse right now.  Look, nobody knows where stocks are going to trade in the next few weeks.  Those that say they do are at a minimum fooling themselves.  The reality, even if you are bearish right now, is that if you had stayed disciplined then you would be selling at higher prices even accounting for today's likely decline.  Panic is not a strategy.

Markets are on average trading about 3% from all time highs assuming we don't trade much lower than today's indicated open.  There's been a lot of volatility this month but not a huge decline to show for all these price swings.

Expect volatility to continue this month.  A lot of people are on vacation and the market's will continue to trade thin through Labor Day.

The markets are right now seemingly held hostage to concerns that the economy is weakening as a precursor towards a recession and the Chinese trade talks.  I still think the probability of a recession next year is low.  I have come around to the view that a trade deal with the Chinese, or at least a meaningful one, is now a low probability event.  In my opinion the political class here in the US now views  the Chinese as more of a strategic competitor than a reliable trading partner.  I think it is now a low probability event that the Chinese will be willing to give up enough for the Trump Administration to come away with a comprehensive deal.  That's not to say we might not see something before next year's elections.  We may, for example, see something on agricultural products.  But it won't be in the Chinese strategic advantage to give up on technology transfers or limiting access by US companies to Chinese markets.  The world is going through a period of adjustment to this new reality.

As I said back early next week.

PS.  The day is young but so far the market has come back to basically breakeven before the first hour of trading is done.  So all those numbers I quoted above now look even better!  Again though, the day is young!

Ohio

I had hoped to put this blog on a bit of respite here in August but at least so far events are keeping me up on the turret so to speak.  In that vein, yesterday as I  sat  watching stocks regurgitate most of the past six months gains, the thought occurred to me that the shooting in Dayton, Ohio over the weekend may have just made the President's path to reelection a bit more problematic.  I grew up about 50 miles from Dayton and spent much time there as a kid.  I don't know much about what they call the Oregon District where the shooting occurred but I'm guessing by what I've read that it's an old industrial district, gentrified and repurposed for modern more upscale consumption.  

Dayton besides being the home of the Wright Brothers was at one point about as middle of America as you could find.  Dayton sits in that central part of Ohio that often decides how that state will fare in national elections.  Ohio like Indiana and Illinois are almost two separate states based on how they were originally settled.  The southern parts of these states were settled by folks coming from the south along the Ohio River.  The middle and the north became more industrialized and were settled by immigrants to work in these cities and farmers coming out of the east coast.  Ohio also has this historic belt in the middle that has straddled this  north south divide.  Most national elections in Ohio are decided by how this region votes.  In 2016 the middle part of the state swung heavily for Mr. Trump.  This is why Ohio is the ultimate swing state and it's also why seven Presidents have come from there.  Ohio has always mattered in Presidential politics.

Given that background here's why the President's electoral challenge just became perhaps a tad more difficult over the weekend.  Gun violence I think is going to shape up as a major issue now in next year's elections and is an issue that I don't see helping the President or the Republicans now in Ohio.  Mass shootings like that don't happen in Dayton, Ohio.  Growing up in that part of the world I knew many people who owned a gun.  May father owned a shotgun that he kept under the bed.  But most folks back then would have thought owning a modified gun whose original version was meant for military use crazy.  I'm sure there's many people in that middle part of Ohio who still feel that way and perhaps a few more that may have come around to that way of thinking given the events over the weekend in Dayton and El Paso.  

My prediction is a democratic candidate calling for some method to either eliminate or limit the impact of semi-automatic weapons will play better in Ohio than they would have before Dayton.  Will it be enough to swing Ohio blue?  Too soon to tell, but Ohio and its 18 electoral votes may now be more in play than the pundits would have thought before last weekend. The President likely has very few options for reelection if he loses Ohio.  This is simply an observation and there's no political point trying to be made.  That news may make you cheer or cry, I'm just looking at the math and the events.

China stopping agriculture purchases also doesn't help as Ohio farmers sell a lot of soy beans over there.

We'll see how the market shakes out today and may be back with some thoughts on trading tomorrow.

Break In-Today's Decline

A few quick thoughts as we watch stocks take it on the chin today.

Investors have been caught offsides the past few days and traders are therefore adjusting their portfolios based on three negative and unexpected pieces of recent news.  First, markets started declining in the middle of last week when the Federal Reserve indicated that they were done when they lowered interest rates by a quarter of a point.  Investors had hoped they would indicate this was a beginning of a cycle of lower rates for the economy instead of the one off inoculation as it's been portrayed.

The next two events are related.  The President on Thursday indicated he would put tariffs on the remaining $300 billion of imports coming from China that had so far been exempt.  Last night the Chinese retaliated by allowing their currency to fall below a key metric, thereby in theory making their exports more attractive on foreign markets.  China has portrayed itself recently as angry and hurt by the American actions.  This plays well internally in China.  It may also largely have to do with the internal crisis roiling Hong Kong at the moment.  In my view, China's patience with Hong Kong is almost gone and unless the tensions there are eased very soon we could see an intervention by the Chinese into Hong Kong. That move, should it occur, would likely not be seen as market friendly.  

Oh and it's August and bad things historically seem to percolate about this time of the year.  

Anyway that's the backdrop on what's occurring.  Now let's look at some numbers and money flow thoughts.  Major indices are down about 5-8% in the past week or so.  That's a pretty substantial move down in a pretty short period of time.  Per my post last Wednesday, so far we've resolved in the short term which way the market was going to trade.  We've currently fallen back into the trading range we've been working through for almost two years now, albeit at the upper end of the range.  We are nearing some important levels of support and we'll need to monitor how we react to these for clues as to where we go from here.  Stocks tend to start corrections with violent sell offs and it's pretty normal to see stocks lose in a short period of time 5-8% when markets change directions.  We will now watch for clues in any coming rebound in prices to see whether or not this is only a minor blip in the market's advance or something a bit deeper with more room to go on the downside.

If we're going to head lower then a likely probable level of support for markets is about 2,750-2,700 on the S&P 500.  That would represent about another 3-5% decline on stocks and a 8-10% decline from last weeks highs.  It would still be a gain of approximately 6-9% for the year depending on what happens and how close to those levels we'd potentially trade to.  Not saying this is going to happen.  Just giving some obvious levels on markets.  

Finally, unless you're a short term trader or have experienced a change in your asset allocation then one should think carefully before contemplating making sales based on the past week's news.  My suggestion is to see how we react to any inevitable rally before making that kind of decision.  Again, that's just a broad based thought based on past experience of how market's trade and shouldn't be considered a blanket recommendation for anybody reading this blog.

Things look pretty grim in my book for Hong Kong right now.  Oh and did I mention it's August?

I'll report back if I see anything of interest.  

*Long ETFs related to the S&P 500,  in client account and personal accounts, although positions can change at any time    Also established in a personal account after this post was placed on line a short term trading position in a security related to the S&P 500 as part of a separate individual portfolio strategy that I only employ in family accounts. We reserve the right to change these investments without notice on this blog or via any other form of verbal, written or electronic communication.

Update To Posting Schedule.

Unless something comes over the transom I'm going to take a bit of a break from this August from this blog.  Time to kick up my feet a bit out on the beach in Rhode Island.  I'll still be working and I'll perhaps push up a comment every now and then, but I'm going to take some time off from the disciplined schedule of putting something up here 2-3 times a week in a month where interest in stocks wains.

We'll be back to a more formal schedule in September.