The S&P 500 has broken down significantly during the trading session on Tuesday as the announcement came out that another $200 billion worth of tariffs were going to be leveled against the Chinese. The Chinese will certainly retaliate, and this shows that we are going to escalate the trade war. Breaking through the 2750 handle was of course important, but even more importantly we have bounced enough to test that area, only to turn around and start falling again. If we continue to go lower, I suspect that the target will be the 2725 handle, followed very closely by the 2700 level.
I believe that this market will struggle to contain it’s fear until cooler heads prevail. Until then, I think that it will be a “sell the rallies” type of situation after this most recent escalation. That being said, we are not in a downtrend yet, just on the short-term charts at best. Longer-term, we are still very positive looking, but I think that until we get through the rhetoric, it’s likely that the market will continue to be skittish to say the least. If we broke down below the 2700 level, that would be a huge turn of events in my eyes. Until then, I believe that value hunters are waiting underneath, but will probably be quick to pull out of the market if the escalation continues, because quite frankly it’s hard to tell where this in his. So far, even though the selloff it’s been relatively measured reactions.