Stocks Rebound on Huawei Reprieve

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Tuesday, May 21, 2019, 12:31 PM, EST


Market Movers

  • Stocks are rebounding today after the U.S. granted limited relief to customers of Huawei Technologies.
  • Existing Homes Sales in April were 5.19 million vs. 5.35 million estimated.
  • Month over Month, home sales fell 0.4% vs. the 2.7% gain expected.

Mike's Commentary

Stocks rose today about 180 Dow points earlier,largely retracing the respective 98 and 84 point losses over the last two sessions. Reportedly responsible for the gains is the fact that the U.S. granted a 90-day relief period for certain U.S. broadband companies and wireless customers using Huawei Technologies equipment. The Dow is now up about 130 points as we write.
So trade headlines continue to be the driver for the markets. What's a bit odd is that this modest news of a reprieve has stocks erasing two days of losses caused by the larger issue of a ban on Huawei equipment that still overshadows the markets. Not to mention the potential retaliation by China and the risk of escalating this skirmish so that a deal is out of reach.
Stocks have largely been supported this year by the belief that rates will stay low and probably be cut. There are a lot of eggs in this basket. Fed officials are pushing back against this expectation.  The market is not listening.
Regardless, outside of Consumer Staples, all sectors are higher this morning so far with trade-focused Materials and Technology sectors outperforming. Semiconductors are helping tech stocks but even with the 2.5% gain for the SOX index today, the group is in the midst of a very difficult stretch, down 4% yesterday alone and lower by 11.3% over the past three weeks.
In economic news, Housing Starts were a bit lighter than expected, falling 0.4% in April to 5.19 million. Though lower than the estimate of 5.35 million starts, the number does not seem to have "surprised" anyone and certainly did not stop stocks from rallying this morning.  The U.S. has apparently been under building for a while according to a recent WSJ article.
Gold is down about while oil is flat and the CBOE VIX is back to 15. Treasury yields are ticking up a bit. Over 90% of S&P 500 companies are trading higher today.  If not for the potential risks on the trade front, it almost seems like a pretty good market today.
Sector Recap


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Brian's Technical Take
Economic data is light this week and with the majority of Q1 corporate earnings already in the rearview mirror, we fall back to talking about the U.S.- China trade war which over the last few weeks has gone from a "risk" to now being "officially underway".
The latest turn wasyesterday's highly publicized visit by China's Xi Jinping and his Vice Permier Liu He to a rare earth magnet factory in eastern China.  The photo-op by the Chinese President and his top economic adviser suggests China is ready to weaponized the rare earth industry for leverage.  The U.S. relies heavily on Chinese exports for rare earth metals.
Accordingly the Vaneck Rare Earth/Strategic Metals ETF (REMX) is quickly seeing a significant rise in interest which before ending last week with a YTD gain of 1.7%.  Yesterday the REMX gained 6% on volume of more than 3M shares vs. a 50-d average volume of just 60,000 shares.  As of noon today the REMX is +7.5% on volume 3.2M shares.  The prior record for total daily volume was 750,000 shares.
While it is tough to chase a security that has just gained 13.5% in two sessions, the below weekly chart shows the REMX bounced last week off its December low which concluded a 55% decline in 2018.  The POTENTIAL here is for a large "double bottom" pattern at the ~$13.40 support.    The midpoint of the pattern is $16.54, +6% from last sale.  This is the level price would need to move and hold above in order for the pattern to "trigger".
While it remains early to call the "double bottom",  the record volume today and yesterday is noteworthy.  At the very least $13.40 provides a clearly defined level to measure risk for latecomers.  With the trade war unlikely to be resolved in the near term and China likely hinting at rare earth metals as part of its counter, investors are taking notice.


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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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