China – end-game, or just a correction?

China is in the news today. Once again, President Trump is tweeting away – calling the trade deal precarious. I know that I will become instantly unpopular for saying this – but I actually admire Trump’s negotiating tactics and business savvy. As such, I do believe that he had done more good for America (non-economic policy aside) than most other Presidents. I recently finished “The Art of the Deal” – a book authored by Donald Trump on his business career. One has to admire his ability to analyse what the negotiating party on the other side of the table really wants, and what will motivate them to crack a favorable deal. He really does have some common sense – despite his sometimes wildly strange tweets and verbal flatulence. So, deplorable personality aside, I have learned to admire the man’s ability to do the job – economically speaking, anyhow. It’s a love-hate kinda thing for me.

Watching Trump move back and forth between “The deal is never gonna happen” to “We’re really close to a deal” may seem like Schizophrenia. But, from what I see, it may be part of a very effective negotiating tactic. One that will, hopefully, crack the best deal possible for America in the trade agreement. And that, at the end of the day, is his (or any negotiator’s) job. Trump’s business-friendly atmosphere certainly hasn’t hurt the US economy so far – as seen in this blog. So, my opinion – i.e. my non-quantitative, non-analytical, view –  is that Trump is going to use his negotiation savvy to scare the Chinese into meeting better terms.  A deal will come through, and the current talk is a tactic. But, that’s just an opinion. I may be totally wrong. So better to look at the charts!

Given today’s weakness on the Shanghai – and on our markets – perhaps it’s time to take a look at a battle plan on preserving our capital. It would be a shame to lose our gains from the past few months – having ridden the markets up so far. Here’s a weekly chart of the Shanghai Stock Exchange. Note how technical resistance at 3300 –something I have noted on prior blogs- was tested and failed. Support lies right at current levels, somewhere near 3000. While I would tolerate two or three days of spikes below that level, a longer lasting break would concern me. So keep an eye. The market is overbought  – lining up with the technical resistance.

Next, let’s look at the US market. The SPX is not as overbought as the Shanghai on the weekly chart – but its still up there. We are starting to see a bit of rounding over by stochastics and RSI. According to my Bear-o-meter, discussed in the last blog – the S&P 500 sits in a neutral risk/reward zone. So there’s little edge I can give you beyond suggesting, as I did on that blog, that a correction is probable- although it does not yet look like it will be overly deep. But that can change.

Finally, let’s look at the TSX. It’s a little more overbought than the SPX. Momentum is rolling over from a higher level. So the correction here may be a bit deeper than the US. Again, though, it’s hard to see how deep it will go.

Conclusion

I have noted in past blogs that my outlook is for a choppy market over the coming months. Markets tend to trade sideways for extended periods of time. To me, this looks like less of an environment for a bear market, and more of a trading environment. Quite frankly, if that’s correct, you and I have an advantage if we use Technical Analysis to play the chop. Happy trading!

2 Comments

  • Couldn’t disagree with you more on this one. But I still enjoy your analysis and style in delivering your analysis.

    At best Trump will get a mediocre deal, at worst he will rattle the markets for months. His style is to overwork everything and get little in return.

    He’s harmed healthcare–lied about healthcare, too– driven up debt, and he has used his big mouth style to hide his mediocrity or poor job performance. I know some believe he is dumb like a fox, but I believe he really is dumb–no more than that. He is protected by enablers and co-dependents.

    He came in to leadership in good times. And it is the prolonged low interest rates that have kept the system going, not the goofball in the white house.
    No, as an American, I look forward to saying adios in 2020.

    You’ve consistently delivered great advice on reading charts and how to use them to make disciplined decisions. And always in good humor. What’s not to like? Thanks!

    Reply
    • Thanks for the balanced intelligent approach of your response Mary–Trump is a hard guy to like. I find him an a hard guy to read lots of the time–but I do like his business friendly policies surrounding tax, repatriotization of corporate money and the way he views supporting the economy (as opposed to our snowflake who focuses on buying votes, nothing to help the economy) -the trade deal terms are actually not “his” alone–they are decisions made by his trade group collectively–and they do address many of the issues that have been unfair to the USA
      But to your point–he can be so polarized on so many issues its really hard to like much of what he does.
      I tend to stick to how it affects the markets–and while it has been a good environment for economic growth with or without him\ there is no doubt that he has been supportive of that growth, rather than crushing of it like our own scandal-plagued boy in Canada.

      Reply

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