A trade war has come?

     We have seen scary news that the Trump administration has imposed the tariffs on steel and aluminum for EU, Canada and Mexico and each of them has also imposed their retaliatory tariffs on the same scale. As you know, I have been consistently saying that I don’t think a trade war will come. Sounds like a situation that I need to wipe off eggs from my face, isn’t? Not really actually.

Of course, you can call it whatever you like but it is not a trade war in my book. A trade war in my book should have some significant impact on the whole economy. What we have now is a size of just $3 Billion worth goods in an $18 Trillion economy, even less than a tiny drop in the ocean sort of speaking. Even the EU ambassador specifically denied that this is a trade war but just a trade skirmish, or a battle to the most. I continue to say that don’t believe a trade war is coming. It is just part of the Trump’s tactic to show his seriousness on this that will force the other parties to negotiate for a better deal for the US. Believe me, this is what will be coming in the weeks ahead. I have no doubt whatsoever!!   

The market seems very volatile these days. I predicted that the market would go down at least towards its 50 DMA less than 2 weeks ago and it did so on Tue this week. Then it had a wonder rally on Wed after the Italian drama shock that scared most of people to run. The rebound was indeed very impressive and strong, so much so that made many people too happy and  call for further up-run. I saw some exhausting energy in the near term and told my friends to watch for a quick downside move on Wed. And the market did tank on Thur. Then we saw today’s rally again following the job sreport. No fear of trade wars anymore? As I said before, it seems the market is moving in reaction to headline news but actually it is other way around. In reality, the short term market move is more driven by the herd mood than anything else, and of course inversely. When the market is set up by the herd mood for its next major move, it will find any news as excuse to move towards that direction. I didn't know two weeks ago what would trigger a significant downdraft, right? The market got the excuse to do so by the news of the Italian drama. I didn't know what could cause a sharp decline yesterday in advance and it did so due to the trade war fear. I hope you got the sense why we could foretell some big moves in advance regardless what is happening. Fundamentally it is the herd mood that dictates whether the market is at its extreme to either move up or down and then it will use whatever news out there to do so. Don't be fooled by the pundits telling you that this or that move is due to this or that news or event. Rather you better watch what's their sentiment is when they talk. 😜😜  


  So the big question is if this is just a wonder rally for a day or two or a more sustainable rally into the summer? While the market is moving around violently up or down on a daily basis, it is actually almost doing nothing in the past week and being bounded within its trading range between its 50 DMA as the low end (moving) and the 2740ish as its upside resistance (moving). At most we can say the market is still in a state of directionless and moving around more driven by the herd moods. When they are too happy, you can safely bet the market will go down to punish them or vice versa. A more sustainable rally that I’m expecting to see in the summer will likely only come either the market mounts another severe low testing with a technical positive divergence or decisively breaks out its overhead resistance. Until then, don’t expect any meaningful sustainable moves! 😎

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