Stocks fell today as geopolitical tensions hit a fever pitch after House Speaker Nancy Pelosi landed in Taiwan this morning. The market opened slightly lower today and traded flat through noon before a shocking warning from Beijing hit the airwaves 15 minutes prior to the close.
“China’s Vice Foreign Minister Xie Feng summoned US Ambassador to China Nicholas Burns overnight to protest against US House Speaker Nancy Pelosi’s visit to Taiwan island late Tuesday night, stressing that the nature of Pelosi’s visit is extremely vicious and the consequence is very grave,” read a statement in state-run Global Times.
“The Chinese side will not sit idly by.”
The Global Times readout continued:
“Noting that the US government should have restrained Pelosi’s unscrupulous move and prevented her from going against the historical trend but instead indulged her and colluded with her, which exacerbates the tension in the Taiwan Straits and seriously damages China-US ties, Xie said the US must pay the price for its own mistake. China will take necessary and resolute countermeasures and we mean what we say.”
It seemed as though only Chinese military drills near Taiwan would result from Pelosi’s visit. Now, though, analysts are wondering whether sanctions against the US are on their way.
“I do think the trip will not lead to any real economic disruption, but of course the rhetoric and the headlines start to intensify and it’s something we need to watch going forward,” said Edward Jones strategist Mona Mahajan.
“Geopolitical tension has been a theme we’ve really been seeing all year that has been weighing on markets.”
With Pelosi’s trip wrapping up tomorrow, China is expected to retaliate relatively soon. Or, at the very least, clarify what Beijing plans to do.
By closing lower, the S&P (as represented by the SPY) has finally broken its short-term uptrend (yellow trendline) of the last few trading sessions. The index also closed a red candlestick below the upper Bollinger Band (BB), and the stochastic indicator still suggests that the market is overbought.
If the high of yesterday was indeed the bear market rally high, it will have been a lower high relative to the June high, indicating that a longer-term bear market continuation should soon follow.
Bank of America (NYSE: BAC) is in a similar predicament after failing to join in on the broader market rally last week. BAC stalled, setting a lower high relative to the highs of June.
More recently, though, the stock has bumped along support (yellow line) without crossing it. But that may change should the general market turn further south. The stochastic indicator suggests that BAC has plenty of room to fall as well.
For those reasons, should BAC take out support, it might make sense to take the stock short with a trade trigger of $32.67, below support and today’s low, as the general market deals with problems of its own.
