Potential Trade War Resolution? How Will Stocks React?

The stock market traded higher after positive reports of the US and China coming to the table in ongoing trade talks. Now what? Click the link above for my take.

The sensitivity of the stock market to the trade war with China has been on the extreme end of the spectrum, with the slightest flicker of news causing the S&P to jump (or fall) 15 points in a matter of minutes.

You have have heard me say this before, but I equate the current market movement to the way my six year old acts when he’s been up two hours past his bedtime. His emotions are heightened, as if he’s on high alert. Everything MAY go his way, but heaven forbid he can’t find his favorite Minecraft pajamas or he doesn’t like the flavor of tooth paste I got him. The explosion of emotions that follows is something the neighbors down the block will consider knocking on our door to check and see if everything is alright.

The same goes for the stock market and the trade war. Any tiny piece of news is going to send this stock market rocking. Now, I’d prefer it be in the direction of the trend – to the upside – but, I always have to remember, the market does not care what I want. And, in all reality, it doesn’t matter. It just matters that we quantify the direction, and trade it.

Currently, we are stuck at a key line in the sand at $2950 in the S&P, and failing at that level (after a midday jolt of hope that sent us to $2959 but quickly faded).

So, what is my plan?

Well, we cannot ‘plan’ for news. We have no idea what President Trump is going to do, what China will agree to, etc. However, we have our technicals, we are aware of the situation, and will act as necessary when the move happens. I’m looking for either a significant upside break on positive news that will cause a rally in tech, semiconductors and discretionary into earnings, or a failure that will take the weakest links (the Russell, energy, financials, transports) lower.

For right now, I am keeping my risk in check, focusing on relative strength names to the upside and laggards to the downside – with very short leashes. I want to keep cash ready for when I know it’s time to strike. That time hasn’t shown up, yet – but it will.

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