COMMENT ON THE BROAD STOCK MARKET and the U.S./CHINA TRADE DEAL (2:00 pm EST)
Early Friday morning news of a trade deal reached between China and the U.S. pushed the broad stock market up, but when details of the deal were released, the market backed down again and closed the day flat. Apparently some of the Trump Administration's original demands are being compromised even as tariffs on some Chinese goods are being reduced from 15% to 7.5%. It is difficult to tell just how "bad" the deal is as some "anti-Trump" news sources are putting a negative spin on it while "Trump friendly" sources are presenting a neutral or even optimistic slant on the deal. (As is my policy, I am not making a political statement here - just observing how polarized journalism has become in recent years. To use the X-Files slogan: "The truth is out there". But it sure isn't easy to find in today's divisive political environment). There is also talk of a "second phase" in the deal to be worked out "later" which suggests that the Trump Administration is compromising its original demands at this point in time to deescalate trade tensions that are clearly impacting equity markets in a negative way. A collapse in the stock market would certainly compromise Mr. Trumps's chances for re-election in 2020.
Politics aside, our cycle and technical studies do allow for the possibility of a major stock market correction between now and next year's election so we will be watching carefully for this. The success or failure of a U.S./China trade deal could turn out to be a major factor determining if and when this correction will commence. For now, let's keep our eye on that 27,500 stop loss we established for our long position in the DOW in Thursday's trade alert.