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Trade Prep: Can a Wave of Bad News Sink Stocks?

With summer trading winding down, the Nasdaq Composite is hitting fresh highs this month. Meanwhile, the S&P 500 remains less than 2% from its all-time highs.

Overall, investors have enjoyed a strong earnings season. Despite some early missteps, tech stocks continue to power the market higher. Expectations remain elevated heading into the last few months of the year…

“The bad news is that all of that is now priced into the market,” MarketWatch declares. “And with the dog days of summer now upon us, the market in the next few weeks is likely to be roused only when investors react to major headline news.”

Maybe so. But could a simmering currency crisis unleash hell on our sleepy summer bull?

Here’s your exclusive trade prep for the week of August 13th:

Tactic

Turkey’s currency plunge continues this morning. The lira tanked as much as 10% against the U.S. dollar this morning despite the Turkish central bank’s efforts to boost liquidity.

“But analysts said the measures won’t have any direct impact on the lira because it doesn’t ease a core concern—the hefty debt exposure of Turkish banks and corporations—and warned the central bank has limited reserves of its own to weather the storm,” The Wall Street Journal notes.

Emerging markets continue to tumble as the drama plays out. European and Asian markets remain stuck in the red this morning. Meanwhile, U.S. futures are down. Interestingly enough, gold futures have also dropped $12 this morning to fresh 2018 lows.

The word of the day will be contagion. It remains to be seen whether Turkey’s currency crisis can put significant downside pressure on U.S. stocks. While futures have dipped into the red this morning, the major averages have remained resilient compared to the action we’ve witnessed overseas.

Trade

Despite Friday’s drop, volatility remains relatively low and we have yet to see any major damage inflicted on U.S. stocks.

Yet while a sea of red crashed through the market to finish the trading week, we noticed some green on the screen in a few select sectors.

Discount retailers pushed higher Friday afternoon, led by a 1.3% gain in shares of Walmart Inc. (NYSE:WMT). The top dog of big-box retailers is just beginning to break out of a five-month bottoming pattern.

walmart

Walmart reports earnings Thursday morning. Judging by the price action so far this month, investors are expecting good news.

That’s not surprising. Last week, we showed you how the SPDR S&P Retail ETF (NYSE:XRT) has posted gains of 14% year-to-date after breaking out to new all-time highs. We’ll continue to keep a close eye on the sector as we search for strong trading candidates this week.

Takeaway

The financial media is going to bombard us with all sorts of hysterical headlines to kick off the trading week.

Our job is to ignore them.

Getting caught up in the drama surrounding the currency crisis in Turkey won’t help us manage our trades this week. In fact, trying to play the market headlines would probably lead to some poor decisions that would ultimately cost us money.

Futures have dipped into the red this morning — but not enough to cause alarm. As of early this morning, it looks like the start of a typical summer trading week. We’ll be quick to react if anything changes. But right now, price isn’t setting off any alarm bells.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO, The Seven Figure Formula and Seven Figure Signals. Over the past decade, Greg has helped build the small-cap and technical research teams. His analysis has appeared in Forbes, Yahoo Finance, Bankrate, and countless other publications. Greg is a member of the CMT Association...

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