Yesterday's Calm Before the Storm
Davin Blythe of FairValue Trader - - Thu Dec 06, 10:22AM CST

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Volatility continues in the U.S. stock markets. Late last week, construction spending for October was reported as being down month over month, a miss of expectations, and in addition, last Thursday’s weekly jobless claims were higher than expected and are now showing upward momentum not seen since 2011.

However, before the markets could turn bearish, a report was released saying that Trump and Chinese leaders were going to negotiate regarding the tariffs and other factors in the “trade wars.” This caused the U.S. stock markets to make a huge jump Monday morning before turning on the “sell the news” response as doubts increased regarding the legitimacy of those talks.

As the week got underway, it became clear that the talks had failed. Tuesday the stock markets turned lower with the major indices all down more than 3% and the small-cap Russell 2000 down more than 4%. Also down more than 4% was the DJIA Transportation sector, which is considered a leading barometer.

Yesterday, U.S. markets were closed due to the state holiday for the mourning and funeral of former President George H.W. Bush, and the financial circumstance was quiet. However, during the day, it was discovered that Meng Wanzhou, the CFO and daughter of the founder of Chinese giant Huawei Technologies, had been arrested in Vancouver with the possibility of extradition to the U.S. This led to serious, charged rhetoric directed toward the U.S.and an expression of fear from potential travelers to China.

When the U.S. index futures opened up last night at 6:00 p.m. EST, markets experienced an extreme amount of selling in the opening minutes to the extent that the CME Group, the exchange for the futures markets, said it had to intervene to keep the markets from a considerable tumble.

As of 8:00 a.m. ET, the S&P 500 and Nasdaq futures are trading down by 2% or more. We don’t know how the day will look, but at the time of this writing, it appears that the S&P 500 large caps, S&P 400 midcaps, DJIA and Russell 2000 small caps will all open today’s session in negative territory once again for 2018, while the Nasdaq is up only slightly for the year.

Given this, our concern is that money managers could be tempted to finally throw in the towel at break even or with small losses on the year and move on to 2019 rather than explain to customers why they held onto stocks that were tanking into the end of the year.

MrTopStep advises traders to be careful out there, to trade small, and to stick to good rules and common risk principles.

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