Trade War Headlines

There has been a pattern to these trade war headlines that some observant traders will have noticed.  In general, when the market has been rising for a few days, near SPX technical resistance levels, a negative trade war headline usually pops up and brings the market down quickly (last two Fridays).  Then a positive trade war headline shows up during low liquidity hours or over the weekend (last two weekends).  On triple witching expiration day, Friday September 20, the China canceling the Montana farm visit dropped the SPX 25 points in a flash, then the White House denied that China canceled and said it was the US that canceled.   Same with the China investment ban headline.  Also denied over the weekend. 

The White House is treating the US stock market as their personal piggy bank manipulating the markets regularly and profiting through offshore corporate shells that are trading on their behalf.  I don't wear my tin foil hat much, and almost all conspiracy theories are bogus, but the amount of market manipulation based solely on US/China trade headlines is unprecedented.  It puts to shame any kind of trial ballooning that the Fed used to do to test the effect of certain policies. 

If the White House is putting out these trade headlines and profiting from them through trading them through offshore accounts in other people's names, then they have no incentive to make a decision on a trade deal.  The ideal situation for them would be to continue to keep the market on its toes, providing a sliver of hope, and then taking it away, escalating tariffs, and then delaying them.  Politically, making a trade deal with China only benefits Trump if the stock market continues to go higher after the deal.  There is no guarantee that will happen, especially if a trade deal is accompanied by a more hawkish Fed. 

Most people are skeptical of a long lasting US-China trade deal, and rightfully so.  So expectations have been lowered quite a bit.  That means a mere delay of some Chinese tariffs that were recently introduced should be enough to provide a relief rally.  At this point, the best strategy for both sides would be kick the can on tariffs and agree to future talks with nothing concrete happening. 

SPX is stuck in a 2950-3000 range for the past week.  The pullback from the trade war optimism of 2 weeks ago makes it less likely that you will get a sharp drop if the US and China don't agree to do anything.  The trade talks are scheduled from October 10-11, so there will be a lot of fast money traders that will look to get out of their positions before that date.  Since it seems like most of the fast money is short, we could see some short covering a few days before October 10, so it could start late this week/early next week.  If there is another dip down towards 2950 this week, I will consider a small trading long position.