Tuesday, May 21, 2019

Market Alert - PreMarket

Futures vs FV: SP +17.32; DJ +153.10; NASDAQ +58.55

Futures started higher in the last hour Monday, continued to edge higher in afterhours trade, and jumped more starting 5:00ET on word that the Administration is easing the Huawei ban until 8/19 for specific items. Futures hit a peak at 7:00ET, faded, rebounded to match those levels with DJ30 up near 200. As the open has neared, however, futures are backing off.

Trade: Huawei easing deals with maintaining existing broadband networks and security updates for existing handsets. As a result, GOOG lifted its restrictions, retying the ties that were severed Monday. The chip stocks most directly involved (SWKS, AVGO, TXN, XLNX et al) are rebounding 2% or so. This is likely just a temporary fix; it does not solve the trade impasse, but hope springs eternal and some see it as an easing to try and keep negotiations going. No. This is a practical adjustment to keep people in the US from losing services.

Yuan is near 7.0, deemed a critical level by those claiming to be experts. Below this level Chinese asset prices fall.

BA: China Eastern airline asks BA for compensation for grounded 737 Max planes. You knew this was coming.

South Korea: Exports -11%, chip exports -33%.

AVGO: Under investigation in the US re chip sales. Kind of vague at this point but it does not look good.

Turkey: cuts interest rates as inflation surges. Of course the lira dives lower. Bizarre leader, bizarre policies, predictable results.

TSLA: MS says worst case scenario the stock is $10. Why not $1?

Earnings beats: HD; AZO

Misses: KSS (BL); JCP (BL)

BA: Jumps a bit on reports that a bird strike may have caused Ethiopian airline crash.

Bonds: 2.43% vs 2.416% 10 year

EUR/USD: 1.1156, -0.0014

USD/JPY: 110.50, +0.46

Oil: 63.35, +0.25

Gold: 1271.50, -5.80

Futures have backed off the highs considerably. The steady rise from the Monday close suggests a steady bid, but commentators are stating this rise is false, it is driven by an adjustment in strategy that is nothing more than a temporary adjustment to again give those providing products and services to switch to other providers.

That is the message US companies need to take to heart: get out of China. There will be no deal that really is a deal unless China is on the verge of economic collapse and it capitulates just to survive. Again, the message, as the house in Amityville Horror said, is 'get out!'

Near term the chips are jumping on the policy adjustment. We have downside on SWKS and AVGO and AAPL. Will have to see how they react at the stop points. This could be a short-lived event but we don't want to get in a protracted test.

New positions? The market was getting oversold and prepping for a bounce -- talked about that last night. The Huawei adjustment is acting as a trigger for that bounce. Stocks that remained in good position are candidates and we put some more of those on the report last night: they held up in the selling, kept their patterns, and thus are solid candidates to play upside.

Jon Johnson, Chief Market Strategist

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