china US trade

China Will Never Make Reforms Under US Pressure: Global Times

The Global Times, known to be China’s state media outlet had some telling comments.

The title of their latest jab at the US was, “China will never make reforms under US pressure.”

China Admits Needing Reform

I had a couple of questions on that.

They would be ready to make reforms without US pressure?

Is this admitting that they need to make reforms but US pressure is holding them back?

The inference in their headline’s language shows global pressure pinning them to need to make change. But needing to save face they need to do it only in a reduced state of “pressure.”

It Gets Better

At the end of the Global Times post they again hinted confirming the need for such reform.

They said, “US Treasury Secretary Larry Summers got it right when he said that Chinese companies’ leadership in some technologies is not the result of stealing from the US.”

Wait a minute. “Some” technologies are not the result of stealing? They agree with that statement? So that would mean some are the result of stealing?

In that one Global Times message from the state of China, they hint and admit that reform needs to be taken but they need to save face and can’t be pressured.

Trump Negotiation Step Two

As we’ve seen many times President Trump initially puts obscene pressure on his target. He then follows that up with relief and ingratiating consolation to close a deal.

Sounds like we’re headed there.

As soon as Trump enters step two, China will “make reforms [not] under pressure.”

Hitting Tech Stock Earnings Home Runs

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We’re about to hit our prime time, earnings season.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Stock Market: Could Trade War News Turn?

The stock market (NYSEARCA:SPY) has bounced back from the last two weeks of trade concerns. That’s pretty impressive strength against negative catalysts.

We see three bright spots that could get this news to turn more positive.

1. Trade War Summer Vacation?

We wrote Friday morning premarket that there’s a chance the negative trade war news could take a summer vacation.

While President Trump has threatened to raise the tariff ante if China responds, The Wall Street Journal reported that new tariffs have some hurdles and “won’t be ready to put into effect until the late fall.”

Since China said they’d only respond to Trump actions, the next actions may not be for another few months. So we may have some quiet news time on tariffs which could be bullish for the stock market.

2. Germany Flinched

While China was trying to cozy up with the EU, Germany appeared ready to drop mutual auto tariffs with the US. That would be a key sign that US trade pressure is working to improve trade relations. While the market’s worried about the negative impacts, The US-Germany news would tell you trade could actually improve.

While North Korea’s not a done deal President Trump did make headway there and it’s possible he also makes headway with another huge topic, global trade.

3. Could China Flinch?

South China Morning Post quoted an advisor to the State Council of China as saying, “Discontent among developed countries at China’s trade practices has been building for years…. China will have to make concessions.”

Hearing that from a government advisor and a local media outlet sounded like a change in tone.

The article quoted another local China expert as saying Chinese President Jinping Xi’s rise to power has benefited from a strong economy. “The legitimacy to rule of the Communist Party was built on economic performance,” he said. “If an economic crisis happened because of the trade war, it would surely damage that legitimacy.”

It’s very possible that while the chances seem slim now, much like Germany, China could also flinch and give the US trade concessions. If it did this market would go nuts to the upside.

Conclusion

The stock market’s been holding up on negative trade war news. The bad news may be about to pass and we could be in a period setting up a better news environment. If so, that would be bullish for the stock market.

Hitting Tech Stock Earnings Home Runs

Above we talked about our top down view. If you’d like to know about our bottoms-up work we have a free trial. We spoke to the top 60-70 tech companies over the last few months to identify what tech stocks have home run earnings stories. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

We’re about to hit our prime time, earnings season.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Stock Market’s Next Move

The stock market has been on a roller-coaster ride the last two weeks but has shown some support. We still see a downtrend but we’re going to let the market tell us what it wants to do next and we’ll tell you what we’re watching.

The S&P 500 ETF SPY (NYSEARCA:SPY) closed yesterday just below June 25th’s open when we turned cautious. That’s when trade war news intensified.  Since then China’s vowed to strike second, not first.

Trade War Summer Vacation?

Looking at the sequence of potential events, striking second could give the market a break from trade concerns for a few months.

This is what The Wall Street Journal said,

“Mr. Trump’s threat to levy tariffs on another $200 billion also won’t be ready to put into effect until the late fall because the U.S. has to clear a number of procedural requirements.”

That can act as good news especially since China said they will not strike first. If China has to wait for the fall for the next round of tariffs this trade war escalation could go on vaca.

So as China answers the current US tariffs, The US will not yet be able to implement the next round until the fall. That would mean that the tariff part of this story could take a break which could be good for markets.

S&P 500 SPY ETF Chart 

SPY ETF Chart levels
Source

We want to watch the stock market to see what it wants to do. For now we think we are still in a downtrend and so don’t want to say the market is turning up until we see it actually turn up.  We also see big resistance overhead as we drew in the chart.

Fundamentally a great case can be made that stocks should go down based on the trade war but so far the stock market is holding up very well.

We don’t want to think we can outsmart the market but rather want to try to understand where it’s going.

Market Action: Putting It All Together

When looking at markets you want to integrate what the market’s saying it wants to do with the news that it’s fed. The fundamentals are one thing but how the market responds to those fundamentals is ultimately what matters. Fundamentals alone don’t drive stock prices. Market participants reaction to those fundamentals drive stock prices.

For example, if shorts don’t see the market go down they’d need to cover which can cause the market to go up on bad news. If it happens that would be a bullish sign of bad news-good action. That would be a case that despite bad news the market couldn’t go down which could cause buying follow through.

For earnings events, the fundamentals are the over-riding driver to stock moves that day which is why we speak to so many tech companies to try and understand an individual company’s most important driver, earnings.

But for markets there are so many influencing factors and investors positioning. We want to understand what the sum total of all of those decisions are saying by watching the trend and reaction to the news.

By watching what the trend is and how the market consumes all that fundamental data you start to see what the market wants to do.

When you get bad news like a trade war and the market doesn’t want to go down, in essence it may be telling you it wants to go the other way, higher.

We’re not there yet. We still see those downtrends and that overhead resistance. But we want to always respect markets and the next few days are critical to see what the market wants to do.

Hitting Tech Stock Earnings Home Runs

Above we talked about our top down view. If you’d like to know about our bottoms-up work we have a free trial. We spoke to the top 60-70 tech companies over the last few months to identify what tech stocks have home run earnings stories. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. We have no holdings in the stocks mentioned unless otherwise noted.

Trade war likely to usher world into chaos: China

The Global Times, often thought of as China’s state media outlet, asked on the trade war, “Is the world on the eve of chaos? It appears so.”

They also expected that the “tit-for-tat” moves could cause “domino effects” specifically citing ZTE’s US penalties and said “China should prepare for the worst.”

Interesting, the US also prepped markets this week with its own warnings. Commerce Secretary Wilbur Ross talked to financial asset risk by saying that there was “no level of the stock market that’s going to change policy.”

Micron’s China Injunction Tit-For-Tat For ZTE?

The China-warning report cited above was dated July 3rd came in tandem with the recent Micron news. It was reported yesterday that sales of Micron (NASDAQ:MU) semiconductor products would apparently be limited in China after losing a patent case.

In another Global Times report when speaking directly on ZTE they were quoted as saying, “we should prepare to strike back.”

And so through Micron they have.

The parallel messages of building trade war risk by the White House and the Government of China means investors should all take heed.

Two Monday’s ago we went from bullish to cautious on tech stocks based on the conflict.

Semiconductor Stock Downside 

Semiconductor stocks are among the most exposed to a trade war between the US and China.

We wrote on Sunday that the “semiconductor chart shows downside.” Combine that with the negative news of Micron and the rest of semiconductors could continue to see weakness.

Exactly where the ETF SMH (NYSEARCA:SMH) closed July 3rd represents important support. A closing break below that 100 level would likely mean more downside in semiconductor stocks.

That downside could get ticked as investors assess the potential of direct corporate earnings repurcussions as we saw with ZTE and we may have just seen with Micron.

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White House Stock Market Warning

US Commerce Secretary Wilbur Ross just said there’s no “level of the stock market that’s going to change policy.” Those are some very strong words. The White House is telling you to expect stock market downside which counters last week’s media reports that the administration backed off after seeing the market down.

CNBC reported more fun quotes from Secretary Ross today. He also said, “There will be some hiccups along the way.”

Hiccups? He knows. That’s not very bullish. We need to take heed.

We don’t remember the White House ever warning Wall Street for impending downside. Anybody remember that? That makes it tough to be bullish.

As you know we turned cautious on markets last Monday thanks to these trade issues. That was after being big tech bulls for a while. On Monday we said, “We’ve had monster moves in our Buys if you’ve been following us…. This accelerated uncertainty is a as good a reason as any to step aside.”

On Wednesday we expected a “tough next few days” for stocks specifically tech stocks. Tech stocks have huge exposure to China.

For now we see stocks in a technical downtrend over the last week or so and the macro news is confirming that downtrend.

We don’t have positive earnings news to save the day for about another two weeks so the trend looks down ahead.

Conclusion

When the White House flat out tells you watch out stock market I think it’s fair to take heed. It confirms our first cautious notes from last week after being bullish for a while.

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Tech Stocks Step Into The Second Half

Tech stocks step into the second half with the first half just completed. We had been bullish that we’d come out of Q1 with good guidance. Q2 earnings reports should also see good guidance so we expect good reactions. The question is the macro.

Finger On The Trigger For Earnings Season

We had no clarity from President Trump on trade Friday as had been rumored.  We expect tech stock earnings season should show strong Q2 reports as well as strong guidance versus the Street for Q3. The combination should be good for tech stocks when we reach earnings in two weeks.

In The Meantime Macro 

What’s bothering us about macro right now is that the US administration’s call for “export controls” would hit revenue targets of key tech stocks. That makes macro trade policy relevant for tech stocks.

General Motors (NYSE:GM) just complained that tariffs would “lead to a smaller GM.”

Tariffs however only lead to raised prices and likely result in lower demand. Export controls, however would directly cut revenues stopping “industrial significant technology” from shipping at all. We need clarity on this progressing legislation.

Tech Stocks Up In First Half

As you know we’ve been bullish on tech stocks which have run nicely. Tech heavy ETFs like NASDAQ ETF QQQ, XLK and the Semi Index SMH are all up year-to-date.

The ETF SMH may be the most exposed to export controls since semiconductor companies have meaningful exposure to China. That’s the index to watch to understand trade sentiment.

The ETF SMH was down 3.7% on the news last week implying concern about the US’ new export control risk.

Conclusion

Earnings start in two weeks. We’re bullish for earnings but not bullish about the macro trade news just yet.  If we don’t get some trade truce ahead of earnings in two weeks we still most likely want to be exposed to our top ideas for earnings. We hope that the trade news doesn’t affect guidance but we’ll have to make that decision closer to earnings.

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China Answers On Trade Quietly

China’s trade tension response has been relatively quiet for about a week. While the US added tariffs, pressed forward to limit foreign investment and set export restrictions, China hasn’t directly answered to the last few moves; not directly. But indirectly China just showed where it stands on trade.

Iran And Currency Are China’s Answers On Trade

Despite US calls to China to end ties with Iran China openly accepted doing business with Iran.

That’s a bold move especially since the US nearly put ZTE out of business for ties with Iran.

China also allowed its Yuan to drop. That comes after countless accusations by Trump during his Presidential run that China manipulates its currency.

Both moves by China clearly stand counter to US preference and act as a hint that this trade war may not end so fast.

Why Is This Important?

The US initiated $50B in tariffs on China and China answered in kind. Then the US upped the ante to $200B and said if China responds the US will add yet another $200B. Since then China’s response has been silence.

Within these two moves though, Iran and Currency, we have a sense of where China stands. That stance tells us China doesn’t plan to back down. This may not settle quickly. With these two moves China directly poked The US on prior trade issues.

Conclusion

The longer the trade war takes to settle the more risk there is for stocks particularly tech stocks. The longer it takes to settle the more questions businesses will have which can slow fundamentals.  We hope for a quick solution.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

Tech Stocks: Tough Next Few Days

You know we’ve been big bulls on Tech Stocks (NYSEARCA:SMH) (NYSEARCA:QQQ) (NYSEARCA:XLK) but we changed on Monday saying “Did Tech Change Today?”

We’ll talk about the next few days but first a reminder of our change on Monday,

“For our Buys, the stocks we like most, I want to step to the sidelines. It’s not easy but I want to wait for the dust to settle. We need to know if the US is going to cut off huge chunks of revenues for top tech companies or not. Are there bigger moves ahead or not.

We’ve had monster moves in our Buys if you’ve been following us. Scroll through our posts. This accelerated uncertainty is as good a reason as any to step aside after a monster move.

Markets don’t like uncertainty and it makes sense to see what’s in store.

…If we don’t get any export restrictions by earnings I want to build back on our favorite ideas for earnings reports. Until then I don’t want to be the one to bear the risk. An export ban, if any chance at all, is something different.”

That was what we said on Monday after being bullish for a long while.

Export Controls Are Risk

Yesterday and Today the media felt Trump was easing up on trade. We’ve been focused on “export controls” though which have been only moving ahead in legislation. That’s the risk to revenues and earnings for tech companies.

Here’s what The New York Times said on it today,

“The officials also said Mr. Trump will direct the heads of the Commerce Department and other federal agencies to review the nation’s existing system of export controls and recommend any needed changes. That could have a more significant effect on United States companies than restrictions on Chinese investment, since it would limit the ability of American companies to sell a range of products to China. The White House has targeted specific products that it wants to prevent China from dominating, including robotics, artificial intelligence and new energy vehicles.”

That’s the more serious of the laws but maybe until today, has had less focus.

The semiconductor ETF SMH was down all day potentially reflecting the greater exposure to export control risk.

The Next Few Days

Reports have come out that the White House will reveal its plans on Friday. Then on July 6 the first tariffs take effect. Unless we get a settlement between the US and China we’re staring down unknown or negative events plus a long weekend. A market that’s started a downtrend probably has more risk. Tech stocks nearer there highs and the center of the uncertainty get included in that risk.

Conclusion

We’re bullish on earnings season but want to watch out until we get closer or some clarity and settlement between the US and China on trade.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

Trade Threat Peak This Week? Bullish

The initial $50B of tariffs that the US issued on Chinese goods was quickly answered by China with their own set of $50B of targeted tariffs.

What’s more interesting however is that the US’ latest threats of an additional $200B of tariffs have so far gone unanswered.

That is meaningful.

Cooler Heads?

President Trump’s negotiating tactics have been far from meeting traditional political protocol. Such a strategy worked to calm North Korea and may have settled China from upping the ante on trade tariffs.

China sits on a debt problem of their own. As tough as China talks they’d prefer to avoid an economic slowdown.

Negative Trade News Peak Behind Us?

We may be in the peak part of the tariff threats. If China can’t answer the $200B threat then hopefully the largest negative news hit is behind us.

Both countries are apparently racing to negotiate a trade accord ahead of month’s end.

So either we have a peak in the negative trade news cycle or the US and China could even come to terms some time in the next week. Both would be bullish for markets that sustained a tough weak following a cross fire of trade threats.

Tech And Trade

We pointed out that thus far tech companies’ goods have been mentioned far less in items listed for tariffs.

We also think we have increasing confirmation we are early in a tech boom. As long as trade tensions don’t escalate to much we think many tech stocks have big upside from here.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We are long QQQ.

ZTE: A Hint To Easing Trade Tensions

ZTE US

US – China trade negotiations included both sides playing hardball with companies caught in the crossfire. China raided Micron offices and the US banned trade with ZTE. It was just reported that tensions may be about to thaw once again.

Reuters just reported that the US is close to a deal to lift the trade ban on ZTE. The move is likely an early signpost that trade tensions are on the mend once again.

China retaliated recently by breaking into Micron offices. Both sides can likely quickly ease the pressure.

The US – North Korea peace summit and US – China trade negotiations are intertwined. As we approach the peace summit June 12th you could get a continued show of solidarity between the US and China ahead of talks to pressure North Korea into a weaker position.

The ZTE agreement hints to that storyline.

Very Bullish

The Berlin Wall fell in November 1989 and the markets stormed higher in the 1990s almost from that point. Global peace accords can let the cap off of a market that wants to go higher.

World peace especially one that opens up Asian trade is very bullish for the economy and stock market and specifically the tech sector.

We’ve been pointing out that the market stopped going down on bad news (rate spikes, trade tensions, etc) which meant the market wanted to go higher.

World peace would be a great excuse to let the cap off of this market.

Conclusion

Bullish

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.