At the mercy of Trump’s finger tips

I was actively travelling most of the last 2 weeks and couldn’t post anything last week. But it didn’t mean I was not watching the market. Certainly not as much as I would like but I did take a quick peek from time to time, which gave me enough food for some thoughts. As such, while I didn’t write anything for the blog, I did manage to send a few notes to my WeChat group with my thoughts on the market. Here are a few key points I made to my friends:

• As I said earlier about two weeks ago at the extreme pessimism (S&P touched 2605), I was expecting S&P a heck of rebound towards its 50 DMA around 2840ish at that time (see here). It did so by bouncing back to about 2825ish within a week or so after my writing. I advised my friends to sell at the strength and definitely not to chase highs. I personally closed a few double profits via SPY and AAPL etc.
• I have been expecting another Oct low testing (2600ish for S&P) following the rebound. That’s why I strongly urged my friends not to chase highs during the seemingly strong rebound. The question is whether the market would go straight down to retest the lows or would make another hoaxing rebound first to complete its unfinished work to bounce back to its 50 DMA before coming back hard again? The past few days were quite bloody for sure, which has made quite a pessimistic sentiment to the market and it seems very logic to think that the market would fall apart from here. With that in mind, I’m more leaning towards the latter scenario that the market may want to confuse everyone by mounting another rally first. Here is what I said last evening to my group: “As said before, I’m expecting a severe correction to test the Oct low around 2600 before mounting the final year end rally. The question is whether it will head straightly down or another attempt of rally? Given the pessimism we’re seeing now, my hunch is that it may rally first in the next few days before another final hard crash down to 2600. But if it breaks down through 2685 first, then it’s almost certain to directly retest the low immediately. So watch 2685 in the next few days to get a sense which way the MG is heading”.   Well it seems my hunch was totally wrong as S&P dropped immediately down to 2670 this morning but miraculously it fought back fiercely later in the day today by finishing with 1% higher from yesterday, closed at 2730. I cannot say I’m certainly right but I like my odds now with today’s bullish move.
• I also talked about oil, which has been a bloodshed lately for sure. But oil has done something very rarely. The severity of this continuous breakdown for 12 days has only been seen 3 times in the past 30 years. This kind of extreme pessimism is actually a good bullish sign. I bet there will be one heck of rebound coming very soon if not immediately for oil.
• Then I talked about the Chinese stock market as well, which has been one of the key concerns for the market that triggered the severe selloff since Oct. While it has been extremely painful for the Chinese market for the whole year and it seems there is no hope to see for the time being, I start to see some light at the end of the tunnel as a contrarian. The Chinese market is very much oversold by all means and its valuation is very attractive at this level compared to the US stocks. I still hold the opinion that a breakthrough in the trade talk will come sooner or later; maybe very soon actually. Here is what I said a few days ago,  “On the other hand, I think the Chinese market looks bullish to me. I think it may go up more than down from here around 2600 for the Shanghai index. If I’m right it may challenge 2700 soon and then 2800 thereafter. Again I could be wrong. Watch 2550 as the line in the sand. If it decisively breaks down through it, I’m definitely wrong and it will go down further. For now I’m more willing to bet for its upside”. In a way, I think the Chinese stocks are at the mercy of Trump’s finger tips as if he just tweets some positive progress regarding the behind the scene talks prior to his meeting with President Xi later this month, it may trigger a revenge rebound for the Chinese stocks, much more than the US stocks given how much oversold it has been. After all, when someone is pushed down into the water for so long without being able to breath, he will be fighting back forcefully if any relief is given. This is how I feel about the Chinese market at the moment and I can easily see a double or even triple within very short period of time if Trump’s fat fingers push a positive button in the next few weeks!

Finally, I haven’t talked to anyone yet but I’m betting for a severe correction for natural gas, which has been on fire in the past two weeks or so. While there is no question that natural gas demand will be higher for this earlier than usual start of the winter, the current moonshot is too fast too soon to me and I don’t think it is sustainable. I’m expecting a very harsh correction for natural gas in the weeks ahead.