The big "expiration" means we won't derive much from today's action
Today is a “quadruple witch” expiration day, so it’s going to be hard to derive much (if anything) from today’s action. The average volume on these big expiration days (that take place once a quarter) is about 4.9bn shares on the composite volume. That’s more than 50% greater than the average daily volume we’ve seen over the past three yeas, so you can see how these quarterly expirations can skew the data for the “internals” on these days.
The U.S. & China are talking...but only about an interim deal
The major stock indices did not see much of a move yesterday…as we saw a mirror image of the previous day. Instead of selling off early and then bouncing back to the “unchanged” level like it did on Wednesday, the stock market rallied in the morning and rolled back over in the afternoon. If there was anything that stood out to us yesterday, it was the news that the newest trade negotiations between the U.S. and China involved the issues of currencies, fentanyl and agricultural products. In other words, the key issues like intellectual property and verification that could create a major and important long-term agreement are not on the agenda. On the one hand, maybe that increases the odds that we’ll have an “interim” deal, but on the other hand, it means that the trade war with China is going to be with us for a long, long, LONG time.
The intelligence community is reeling after the Saudi attacks
Before we move on, we’d like to make one more comment this week about the attacks in Saudi Arabia that took place last weekend. From everything we hear and read, the U.S. (and global) military and intelligence community was taken COMPLETELY off guard by these attacks. They had NO IDEA that Iran had the that kind of sophisticated capabilities. (Don’t be fooled by the term “drone”…like it was something your kids play with in the back yard…the precision of these attacks was VERY sophisticated.)….These attacks may have quickly become a secondary issue for the markets (for now), but there are something the U.S. military and intelligence community are working on 24 hours a day. Make no mistake about it, these attacks were definitely a game changer…on several different levels!!!
China's stock market stands at a very important technical juncture
Anyway, since it’s going to be very difficult to draw any conclusions about today’s action (or yesterday’s for that matter), we’d like to switch gears and focus on the technical condition of China’s stock market. We all know that it has had a tough two years, but their market stands at a key technical juncture. Looking at the FXI China Large-Cap ETF, after a decent rally in the first quarter this year, it has been making a series of lower-highs and lower-lows over the past five months or so. In its most recent bounce, the FXI got right up to its 200 DMA and has begun to roll back over. However, whatever it does next should be particularly important.
During the more recent bounce over the past four weeks, the FXI was able to regain its trend-line going all the way back to the 2016 lows. It had fallen below that line in August…so the fact that it was able to move back above almost 3-year old trend line was encouraging. The problem is that it only move slightly back above that line…and when it got up to its 200 DMA, the FXI stopped dead in its tracks. Therefore, it’s next move is going to be important. If it can bounce back again quickly…move above its 200 DMA and then make its first “higher-high” since February, it’s going to be quite bullish for China’s stock market.
However, if it continues to slide lower…and breaks below its August lows, it’s going to be very bearish. A break below the August lows of about $38 would also take it below its 2018 lows. In other words, a meaningful move below $38 would not only give the FXI another “lower-low” in a series of “lower-highs/lows,” but it would also take it below a “double-bottom” low. Therefore, there is no question that it would be very negative development.
As you can see, there are a lot of “ifs” involved in our comments above, but China’s stock market is definitely approaching an important juncture…and its next meaningful move should very important as to how their stock market performs over the rest of the year.
The "U of Iowa Wave"...and what it says about Midwesterners
Since this morning’s note is a short one, we thought we finish it with a video. It’s actually the same video we sent out last year at about this time. It’s a video that was made a few years ago that deals with the University of Iowa “wave”…and what that “wave” means for cancer patients at the Stead Family Children’s Hospital that overlooks the U of Iowa’s Kinnick Stadium. At the end of the 1st quarter of every home football game, ALL of the fans in the stadium and ALL of the players on the field stop what they’re doing…and wave to the children who are looking down from the window in the hospital. If you watch the attached piece (which is quite short), it will show you just how much this act of kindness means to these young kids and their families.
It says A LOT about the students and athletes of the University of Iowa…and the people of the state of Iowa…and the people of the Midwest in general. Of course, I’m biased…because my wife is a graduate of that great university and spent a good part of her youth growing up in Benttendorf, Iowa. I was also raised by a mother from Indiana and a father from St. Louis……...The Midwestern states might be considered the “fly over” states by the people in Washington DC, but what happens at Kinnick Stadium in Iowa City several times each fall is a great example of what those fabulous people from the Midwest are like. I hope you’ll take a second to watch the short video (even if you’ve seen it before). I guarantee you, you’ll be glad you did.
To get notes like these on a daily basis, click here to subscribe to our newsletter, The Maley Report.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.