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China Manufacturing PMI at Record Lows, Coronavirus – Trader Talk and Charts, What Next?

China Manufacturing

Production declines at a record pace as factories shut down due to Coronavirus. Efforts to contain the recent outbreak of the coronavirus in mainland China weighed heavily on manufacturing sector performance in February. Production, new work, and staffing levels all fell at the quickest rates since the survey began nearly 16 years ago.

At 40.3 in February 2020, the headline seasonally adjusted Caixin China General Manufacturing Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – fell from 51.1 at the start of the year. A PMI number above 50 indicates expansion, below 50, contraction. In short, China is tanking for obvious reasons, Coronavirus. 

The China situation with the Coronavirus has hit the US stock markets hard. Most stock indexes are off more than 10% from their recent all-time highs. But it is not just the Coronavirus. Here is our list for the recent stock sell-off:

  • Coronavirus – a Black Swan event.
  • Rise of the Socialist Democrats – a recent rise in Bernie Sanders’ fortunes, has spooked the markets.
  • Markets were already at all-time highs and were due for a pullback anyway.
  • Some have suggested that elites that hate Trump are encouraging them to sell. We have not seen huge evidence that this is happening.

Before you panic about your stock portfolio, take a longer-term view of where stocks are at today. The reality is that stocks are still in a long term uptrend, and the recent pullback is merely back to the trend line support.

The markets could stall their recent decent around the 25K area on the DOW, pending whether the Coronavirus turns into a more serious pandemic or not. Stocks perhaps will build out a wedge between the 25K and 29K on the DOW, pending this outcome. It boils down to what you believe on this call. We, for sure could be wrong, and perhaps we have too much faith in healthcare authorities, but we believe that the situation will eventually be brought under control. In this case, we could see a good snapback rally propelling markets back to new highs, exploding out of the upward wedge. If not, … get your helmets on.

For China, it may not be such an easy ride. If the Coronavirus situation stabilizes, it may take a few months to see this rebound in their economy. It also may encourage the Chinese to cut a favorable trade deal with Trump. Perhaps Coronavirus will do what trade sanctions could not do.

This obviously is critical for the election of Donald Trump in 2020. Democrats will use any negative situation against Trump if it goes the wrong way – regardless if it makes any sense. A developing story.

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