Before we get to the usual market and portfolio commentary today, I want to let you know that we’re issued a “Sell” rating on the remaining Consumer Staples Select Sector SPDR ETF (XLP) March $50 Calls.

A few weeks ago, we had a sharp gain in the calls and I recommended that you trim the position to take profits of 65% at the time. That strategy left some skin in the game for us and we are now taking advantage of the continued move higher in the underlying XLP shares that are part of our Cash Strapped Consumer investing theme.

With the remaining portion of the XLP $50 calls trading at $1.37, or up 90% from our initial recommendation, it is time to close this position, particularly since the probability is high we will get several pieces of data this week that will spook the market. With that in mind, as investors make this trade, we recommend that they consider setting a stop loss at $44 on your Utilities Select Sector SPDR ETF (XLU) shares.

Now, here is this week’s commentary…

You may be aware of this morning’s “surprise” move when China’s central bank said that it will lower the amount of deposits that banks must hold in reserve by a half of a percentage point. Given the vector and velocity of the Chinese economy, I have to say this round of stimulus is anything but a surprise. Tracing back the Purchasing Managers’ Index (PMI) data over the last several months, it’s rather apparent that China’s economy has been contracting.

Here’s the thing. The economy is expected to have contracted even further in February, which would mark the seventh consecutive monthly decline in China’s manufacturing sector. Per a poll conducted by Reuters featuring 23 economists, China’s official manufacturing PMI is expected to dip to 49.3 in February from 49.4 a month earlier. The fact that China’s central bank made this latest policy move only a short while before Markit Economics publishes its take on the country’s economic performance in February is telling.

The likely fallout is that the Chinese yuan will fall, and that should boost our PowerShares DB US Dollar Bullish ETF ([stock_quote symbol=”UUP”]) shares and UUP June $25 calls, while the on-again concerns about global growth should spark our iShares Barclays 20+ Year Treasury Bond ETF ([stock_quote symbol=”TLT”]) shares. Remember, too, that European Central Bank ECB) President Mario Draghi has pledged to do “whatever it takes.” As such, there is a high probability the ECB will enact another round of stimulus policy in March. Much like China’s move today, the fallout from another round of ECB goosing the country’s economy will serve to weaken the euro further. The bottom line is you should continue to hold your UUP shares and calls, as well as your TLT shares.

In addition to the China PMI readings, this week also brings several key pieces of data on the domestic economy, particularly the slowing industrial/manufacturing economy. Based on the Flash February PMI readings that we’ve received, it is very likely the final data out this week will show another leg down in the domestic economy. Buried inside that report, we’ll also get our first glimpse at how March is poised to perform courtesy of the order and backlog readings, which are simply must-reads in my opinion. I’ll be sure to look for confirmation in the ISM Manufacturing Report for February that is also out this week, as well as the February Employment Report that drops this Friday. Confirmation is always key.

Given the prospects for another leg down in the domestic and global economy, I expect we are in for another round of downward growth revisions much like we saw earlier this year. From a portfolio perspective, that situation means we want to hold our ProShares Short S&P 500 ([stock_quote symbol=”SH”]), Health Care Select Sector SPDR ETF ([stock_quote symbol=”XLV”]) and Vanguard High Dividend Yield ETF ([stock_quote symbol=”VYM”]) positions, as well as our XLU shares. The last three of these are defensive plays that span my Economic Acceleration/Deceleration and Aging of the Population investing themes.

Online chatter is growing that the next Apple ([stock_quote symbol=”AAPL”]) event will take place on March 21 and include announcements about a number of new products, including a new iPhone model. Ahead of this event, you should continue to hold Technology Select Sector SPDR Fund ([stock_quote symbol=”XLK”]), which has just more than 13% of its assets in Apple shares.