Stocks opened lower today after China unveiled some rough economic data before rallying into the close. The Dow, S&P, and Nasdaq Composite all traded moderately high as tech led the way.
Chinese retail sales, industrial output, and investment readings all missed estimates according to reports released premarket. The jobless rate for the 16-24-year-old age group soared to 19.9% also, hitting a record high.
“July’s economic data is very alarming,” said Raymond Yeung, Australia & New Zealand Banking Group’s chief China economist.
“Authorities need to deliver a full-fledged support from property to Covid policy in order to arrest further economic decline.”
Beijing then cut rates, catching nearly everyone off guard. Investors scrambled at the open to make sense of it.
“The rate cut shows the entire economy is in trouble,” warned ING Groep NV’s Iris Pang.
Other strategists doubled down, suggesting that the Chinese central bank is now in a helpless position.
“Beijing’s policy support could be too little, too late and too inefficient,” said Nomura chief China economist Ting Lu.
“We think markets are too optimistic about growth in the second half, and we expect a new round of cuts of growth forecasts in coming weeks.”
That’s bad for Chinese stocks and most US names as well. Bulls were able to overcome the China-driven anxiety this afternoon, but another major market hazard could the spoil party in just two days.
“For the next two weeks, the Federal Reserve should be preparing markets for a reminder from the Fed Chairman at Jackson Hole that the FOMC needs to get to a positive real policy rate, which means rates will be higher for longer,” said JonesTrading chief market strategist Michael O’Rourke.
“That messaging will start in a meaningful way this Wednesday with the FOMC minutes. The Cold War with China is escalating, thus inflation will be more stubborn than hoped for. If there are investors who are looking for a second chance to exit this equity market, this is it.”
O’Rourke said investors have a “second chance.” In reality, it may be their last chance to get out at favorable prices for several months (if not longer).
The reason being that the CBOE Volatility Index (NYSE: VIX) is near key support (yellow line). The stochastics remain buried as well.
“When the VIX is low, it’s time to go.” It is very low at the moment following a several-weeklong downtrend. And the VIX doesn’t like to break out past support levels of key support in the short-term.
That’s not to say traders should run out and buy the VIX at support. But it may be a good idea to watch for rebounds.
Traders should also keep a close eye on Chevron Corp. (NYSE: CVX), which triggered a short setup last week. CVX then rallied but is now approaching another short setup.
The stock closed right near its bullish trendline (yellow trendline) and the 10-day moving average. The stochastic indicator is starting to head lower, too, and suggests that CVX has plenty of room to fall.
Couple that with a sudden drop in oil prices today and you’ve got the makings of another energy stock rout.
For those reasons, it might make sense to take CVX short with a trade trigger of $151.91, below today’s low, as the general market hurtles toward what could be a major FOMC meeting minutes release this Wednesday.