Rebounds have been at best an attempt to mark ‘em up before you take ‘em down. That perhaps sets up a penetration of the S&P (SPX) 2700 level and that’s where the large notional selling quantities might be triggered. It closed at 2700 Tuesday, writes Gene Inger.

The Chinese are saying they never agreed to the auto-tariff shift. Of course, that already helped many made-in-America auto stocks like BMW (South Carolina) or Mercedes-Benz (Alabama). GM and Ford tend to make vehicles in China. And Tesla doesn’t seem to gain from the tariff issue.

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So, it’s an absence of bids Tuesday. Be prepared for the possibility of back to Dow minus 800 to even 1000. And for S&P in the 2600s. 

Reuters: Wall Street drops 3% on trade and economic worries Tuesday.

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My crash alert resumption was also an understatement earlier Tuesday. This is bordering on panic now. Besides our S&P 2800 call the idea of fabrication by President Trump about China dealing has hit the market hard. (Is that a new technique for him?)

Reuters: As Trump touts trade war truce, China holds its tongue Tuesday.

Perhaps the biggest factor, JPMorgan’s (JPM) nearly-unprecedented warning that goes counter to their normal and historical role in the markets.

Market defense was an understatement. Probably JP Morgan’s reactive admonition (months after the rallying thought ideal for distribution and building liquidity) to build cash and Treasury holdings got lots of attention. It is unusual for JPM to come forth with such a statement. 

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Remember our forewarning of inverted yield curves and possible significant defeat in the UK Parliament of PM May’s Brexit plan. The evolving recession dating from last Spring in the U.S. is my interpretation of facts coming from everything from Housing to Autos to Banks supports our proactive stance of selling rallies earlier this year in the rinse & repeat saga (an opportunity to batten-down-the hatches before the storm arrived).

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Today is not merely a growth scare. There are issues and some believe the administration more or less fabricated a deal with China. Or at minimum overstated what had actually been achieved.

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Most everyone talks of when we might see a recession based on inverted yield curve. Hah! Consider my view that sluggishness and early recession nuances date from Spring of this year. Recession is not something in the future. 

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For now I expect a rebound a bit and likely defensive given no trading on Wednesday because of the President Bush 41 funeral.

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Overall, I generally mean that the economy is and will be slowing down just a bit. And in the context of Capital Expenditures not too much will be ramping up in 2019, pending (with bated breadth if you will) an agreement deadline which is actually April 1. It is appropriately April Fool’s Day not March 1. (Trading discussions related to the 90 days means the 1st Quarter according to the chatter from Washington, rather than 90 days from Saturday preliminaries). 

chart 1 

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In essence the trade truce worked out about as anticipated, with time bought for a pause needed by both sides. And it avoids even worse threatened escalations that go beyond tariffs if you consider some of the harder-lines that preceded the talks in Buenos Aires. The key will be how much progress can be made with regard to safeguarding U.S. intellectual property and other key complex issues with China that everyone agrees to talk about. but let’s see the degree of concession.

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Already the Chinese are saying they never agreed to the auto-tariff shift.

Of course, that already helped many made-in-America auto stocks like BMW (South Carolina) or Mercedes-Benz (Alabama), which export from the USA to China. GM (GM) Ford (F) tend to make more vehicles in China. BMW has a major plant in China now, and of course their largest is in the United States.

I met one young Chinese new training engineer, as the two of us toured the BMW Munich plant as the new engine factory in China was just starting. I suggested the crown jewels not be made in China. But BMW decided to.  

chart 2  

Ironically only now is BMW considering an engine plant in the U.S. while it is U.S.-made SUVs that BMW mostly ships to China.

Perhaps now that most of the German manufacturers will roll-out dozens of new mostly electric vehicles, they aren’t so worried about transferring technology. (They need not worry with the U.S. but it was curious with China.)

Germans are more aggressively and more upscale in EVs than in the USA. As EV long range increases to nothing less than 200 miles in any upcoming models we have glanced at (often prototypes but forthcoming), it’s less essential to have a hybrid petro-powered engine that can kick-in.

Plus, great new charging techniques and battery improvements are significantly speeding up durations to charge by orders-of-magnitude.

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Because the bulk of new vehicle demand (over time) shifts to China, India or the EU (when viewed in the aggregate compared to the United States), and because almost everyone else has enforced the transition to alternate fuels (while the U.S. allows more leniency), Americans haven’t noticed this quite as much.

I would anticipate this U.S. view is shifting. Part of that relates to the factory and car-line changes many are presently complaining about.  
   
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Perhaps that’s valid. (If they don’t upgrade those facilities for new models of course). Simply focusing on plant locations (U.S., Canada or Mexico, not just whether overseas) and jobs tends to overlook the technological change.

It also may be one reason why even tariff reduction talk did not help Tesla (TSLA) all that much. The basic reason: there’s lots of competition coming down the pike, and from major companies that some will argue have better networks of dealers. Other reasons: the ability to fund charging stations on a wider scale and also an ability to ensure better quality-control that has especially plagued Tesla Model 3s. (Those are selling well, but consumer reliability reviews are very mixed.)   

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