As I said, I was more positive for something worked out from the highly watched Trump/Xi summit. We now know the outcome was nearly perfectly matching with what I have expected; "Somehow I'm more optimistic and think a better than expected outcome with a goodwill deal may very well materialize." "Then we will likely see a pleasant surprise on Sunday that both US and China have agreed on a concrete framework to work out the differences on the trade issue. " Yes, we have got a very clear framework dictating what to be further worked on with a specific timeline, 90 days. In return, US won't further raise the existing tariffs to 25% on the $200 billion goods imported from China and currently taxed with 10% tariff. China will immediately buy a lot of agricultural and energy-related products from US, which effectively will eliminate the tariffs they are imposing on the US-exported goods. But what is more important is the coming negotiation on trade issues, including technology transfer, intellectual property, non-tariff barriers, cyber theft, aiming for an agreement within the next 90 days. Don't take it lightly for this gesture from China as such issues have been considered no issues at all by the Chinese side since the very beginning and the Chinese side has refused to discuss them as pre-conditions. Now the tone has fundamentally changes. While it is too early to predict what can be done on these very thorny issues within 3 months, I have a very strong feeling that US will gain a lot from these areas given the overwhelming pressure currently on the China's side that is severely damaging their economy. The stake is very high if no progress is made in the next few months. Both sides understand very well.
So how the market will react to the summit outcome? I think likely quite positive at least initially. The market futures are showing quite positive moves as of now. If such gains can hold till opening tomorrow, it will immediately challenge 2800, the target I have been looking for since a few weeks ago. The question is how far the market can go if indeed it is now shifting to a rally mood. Just a week ago, the mood was extremely depressing and it seemed an end of world was coming. But I advised to be more positive at that moment: "As I said, I have been expecting a year-end rally now. Although I don’t know how highs it can go, I feel more confident that a rally is coming pretty soon. Maybe at least towards it 50 DMA which near 2800ish as I’m writing? I know there is a lot of uncertainty making people really nervous, especially about the coming Trump/Xi meeting whether or not they could make at least a hand-shake verbal deal on Nov 30. Of course no one knows for sure but the TA is signaling that we are in the course of a rally in the weeks ahead. " Well, just within a few days, the market mood has totally changed from very depressing to quite optimistic. S&P jumped about 130 points within a week with a 2 year best weekly gain of 4%. When the market is moving so fast up with a blink of eyes, it is always making me nervous to be on the positive side for the near term. At the moment, the sentiment is completely opposite to its week ago mood, too bullish for now. The positive surprise from the Summit may likely push it further to the upside extreme. In this kind of extreme, it is always wise to be cautious for the near term upside limit. I'm certainly not changing my mind about the potential for a Melt Up to be seen in 2019, but I'm worried about the next week or so bullish behavior of the market and would question how far it can go without coming back first. If you follow me,
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