TRADE TENSIONS LEAD TO BAD WEEK FOR GLOBAL STOCKS -- CHINESE STOCKS LEAD GLOBAL RETREAT -- TRADE SENSITIVE SECTORS DROP THE MOST WHILE SAFE HAVENS LEAD -- A LATE FRIDAY REBOUND KEPT STOCK INDEXES ABOVE MOVING AVERAGE LINES

CHINESE STOCKS LEAD WEEKLY RETREAT ... An escalation in trade tensions between the U.S. and China pushed global stocks lower this past week. The S&P 500 lost -2.2% which was its biggest weekly drop this year. Canadian and U.S. stocks are meeting resistance at their 2018 highs. Germany led the retreat in Europe. The biggest losers, however, were in Asia. Japanese stocks lost -4% during the week. China's Shanghai Index lost nearly -5% and was the world's weakest market. That helped make emerging markets big losers on the week. In currencies, the trade sensitive Chinese yuan fell, while the safe haven Japanese yen gained ground. Trade tensions pushed copper and oil prices lower, with even bigger losses in grain and livestock markets. Soybeans fell to a ten-year low. Safe haven gold saw a modest rebound. Sectorwise, the week's biggest losers were trade-sensitive technology stocks (led lower by semiconductors), industrials, and materials. Safe haven consumer staples, utilities, and REITs were market leaders. Bond prices rose as stocks weakened. A late rebound on Friday afternoon keep major stock indexes in the states above moving average lines.

STOCK INDEXES HOLD MOVING AVERAGE LINES... A late rebound on Friday kept U.S. stock indexes above moving average lines. Chart 1 shows the Dow Industrials finding support at its 200-day average (red line). Chart 2 shows the S&P 500 ending above its 50-day average (blue line) after trading below it earlier in the day. Chart 3 shows the Nasdaq Composite Index doing the same. That helped prevent more serious losses. So did a Friday rebound in Chinese stocks.

CHINESE STOCKS REBOUND ON FRIDAY... Chart 4 shows the Shanghai Composite Index rebounding 3.1% on Friday after retracing about 50% of its 2019 losses. Its 14-day RSI line (top box) also reached oversold territory below 30 which may have contributed to Friday's buying. Chinese stocks represent "ground zero" in the trade standoff.

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Chart 1

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Chart 2

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Chart 3

Chart 4

VIX INDEX STAYS BELOW 20 LEVEL ... Friday's late rebound in stocks also helped prevent an upside breakout in the CBOE Volatility (VIX) Index. The red bars in Chart 5 show the VIX ending the week back below 20 which it rose above earlier in the week. Historically, decisive closes above the 20 level by the VIX have usually been associated with more serious stock market declines. The most recent example of that was last October when a spike in the VIX over 20 corresponded with a market downturn. Although not shown here, the same thing happened at the start of 2018. The last daily red bar to the right of the chart shows the VIX ending the week at 16, and well below the 20 level. That doesn't guarantee that the market is out of danger. But Friday's drop below 20 is a positive move, and helped prevent a serious challenge to the market's uptrend. That pullback in the VIX also coincided with the S&P 500 ending the week back above its 50-day moving average (blue circle). Both of those are positive signs. At least for now. Stay tuned.

Chart 5