“This morning the preopening S&P 500 futures are up by some 15 points as China says the trade war is on ‘hold.’ As we have said since the “under cut” low of February 9, ‘the lows are in’!” . . . Jeffrey Saut, Monday’s Strategy Report (5-21-18)
At the risk of quoting myself, and sounding egotistical, I wrote yesterday, “This morning the preopening S&P 500 futures are up by some 15 points as China says the trade war is on ‘hold.’ As we have said since the ‘undercut’ low of February 9, ‘the lows are in’!” Indeed, if one reads the seminal book on technical analysis (Edwards and Magee) the bottom we anticipated in early February could not have been more classic. To wit, the indices fell into a selling climax low on February 6, followed by the perfunctory “throwback” failed rally, leading to the undercut low (below the selling climax low) of February 9, 2018. We termed that THE low, and recommended recommitting most of the cash that should have been raised in January for the equally anticipated February Flop. So yesterday, on CNBC, we were on with the uber-smart Jack Ablin and he does not see a new up-leg for stocks here, unless the China trade agreement falls into place, and the North Korea talks go well. Okay, that’s fair enough, but as we have said since the beginning of the trade talks, “This is NOT a trade war, but a trade skirmish!” And yesterday that point of view came into view as “the Street” embraced the cooling of the trade tryst often referenced in these missives. We have been adamant that said trade talks would not result in any trade trivialities and have said so repeatedly in these missives.
As our Washington D.C.-based analyst (Ed Mills) writes:
“Negotiations between U.S. and China wrapped up last week with a commitment to ‘substantially reduce’ the U.S. trade imbalance with China and strengthened cooperation on intellectual property protections. The agreement calls for a delay in tariff implementation and could delay the release of the Treasury’s report on restriction on Chinese investments. As the timing of the agreement aligns with the release of this report, it is viewed as a double positive near-term. Plenty of work remains but we continue to believe the final outcome will be a negotiated deal. The turning point to-date in these negotiations appears to have been the Trump Administration’s willingness to take actions to block Chinese companies from U.S. technology, which could easily be ramped up if trade talks breakdown.”
That said, the internal energy mix was pretty much used up in yesterday’s upside explosion. But, that does not mean the upward path is over. Yes, the upside energy has waned, yet that does not mean the path of least resistance is gone. What should happen here is a stall, which allows the internal energy to rebuild before a breakout to new all-time highs.