Log Entry: The Gift That Keeps on Giving

12/24/18 Monday

The market picked up where it left off this morning with a 400-pt Dow decline near the open; that was to be expected. Stocks are presently 100% at the mercy of short-term swing traders who are playing the headlines along with the intraday support and resistance levels.

We gotta be nearly on the verge of a substantial snap back relief rally. The oversold S&P chart has to have traders licking their chops; they absolutely know that when the bell rings the shorts who have made so much money the past few weeks will cover en masse, so as to give up as little of those profits as possible when the market snaps back. That covering will of course exacerbate the upside move.

At one point it looked as though we might (although probably too soon) see a hint of that this morning as the Nasdaq turned positive and the Dow and S&P were threatening the same. That’s when the headline that the President is once again lashing out at the Fed this morning hit; which of course inspired literally a 300-point plunge in the Dow. Again, the shorts have had an absolute heyday, and the headlines out of Washington is the gift that keeps on giving.

What the President’s tweets and Mnuchin’s pleas (refuting last week’s news that the President was threatening to fire Fed Chair Powell, and yesterday’s ridiculously unnecessary statement that he’s talked with the banks and they confirmed they have ample liquidity to lend to consumers and businesses going forward [my how that one could backfire]) speak to is the recognition of the political risk inherent in such market turmoil.

There is mounting evidence that the President understands that putting the trade war to bed would be hugely bullish for the market. Unfortunately, his in the meantime attempts to deflect from that reality and onto other stressors (read the Fed), sends a message to Wall Street that he’s not quite in tune with what the market is ultimately worried about. Which simply emboldens the shorts.

If the President is looking for the next head to legitimately roll, the exodus of trade adviser Peter Navarro, at this juncture, would be utterly huge for the markets, and would provide all the confirming evidence he needs that of the issues presently pressuring the markets, the trade war is #1.

In the meantime, emerging market equities and currencies have held up remarkably well of late; suggesting that the smart money sees a trade war truce on the horizon, and is subtly positioning to catch that potentially huge upside if/when it's announced.