Trade Negotiations Will Take Time – Market Will Be Stuck – Cash Is King

Posted by Pete Stolcers on May 18
www.oneoption.com

The market is consolidating above the 100-day moving average while it waits for pending news. Trade negotiations are in focus and the process is ongoing. Trade talks could last through the summer. The longer they take, the greater the risk of inflammatory tweets.

Last night there was a rumor that China would reduce the budget deficit by $200 billion. Boeing was one of the largest benefactors and that still might be the case. China denied the rumor. Both sides have made concessions and that is a sign of progress.

NAFTA won’t happen until Mexico holds its elections (July 1). It is likely that negotiations will be hard-fought under new leadership.

The EU is fragmented and each member has its own interests. These negotiations will also be difficult. Sanctions against companies doing business with Iran will complicate the process.

For the time being, nothing has to change. Current trade deals will remain in place. Any timeline is self-impose. That said, Trump could decide to set deadlines and that makes investors nervous.

Earnings have been excellent, economic growth is strong, inflation is moderate and the Fed is dovish. Buyers want to nibble, but they know the rug can get pulled out from under them at any time.

Swing traders should be in cash. The market won’t have a meaningful rally until trade negotiations with China are finalized. Both leaders are headstrong and these are the two largest economies in the world. If the tone sours the market will tank. The downside risk is much greater than the upside reward. Option buyers will be fighting time decay as the negotiations drag on.

Day traders need to follow the intraday momentum. Use the first hour range as your guide. The SPY is just above its 100-day MA and we need to use that as a guide. If that support is breached, buy puts and consider holding some overnight if the SPY closes below $270.

Next week the trading volumes will decline ahead of Memorial Day. Look for nervous trading on light volume during the next week.