MACRO BACKDROP:
Welcome back, market readers. A bittersweet start to December, I think. Bitter, for lack of a better term, was the passing of the late George H. W. Bush on Friday Nov. 30th; yet, sweet was when we consider events from the weekend. Over the weekend, it appears that some headway was made in the G-20 meetings, according to some sources. While many conversations between various nations were had, the centerpiece of the event appeared to be the face to face between Trump and Xi. Both countries have agreed to stop tariff hikes for the time being, leaving each other’s current tariff duties at 10 percent of imported goods. The U.S. and China now have a 90-day shot clock to get something tangible on the table. China has agreed to purchase an unofficial yet “substantial” amount of certain U.S. product. In my view, this has provided certain sectors of the equities markets (as well as some treasuries) some supportive price levels.
With that said, I think it’s important to note that the way forward on trade and foreign relationships between the two countries has not yet completed the “structural” terms needed to set the ironclad expectations on trade practice behavior on things like non-tariff barriers or intellectual property protection. Certain stock sectors will really need for these items to be spelled out, in my opinion. If that’s the case, then it’s my contention that optimism won’t be as euphoric as it was over the summer; thus, any further rallies will be met with heavy resistance at key levels for underlying NASDAQ and S& P 500 components. Blue chips will remain volatile in my opinion, as will small cap issues.
STRATEGY: If your portfolio is heavy in NASDAQ stocks, I have a couple key levels to watch in the NASDAQ futures from which selling a rally may be a good opportunity if the new trade talks were to fail from now until the deadline in the next 90 days. If you are heavy in S&P 500 stocks, I have a strategy that underscores the idea being long volatility in futures but simply playing the ranges where risk and reward potentials are carefully selected.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary. The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
For questions, comments or deeper conversation regarding these insights or to talk more specific trade ideas, please reach me via email: bsears@walshtrading.com or my direct line: (312) 957-8079.