Stocks Will Hold Up a Week of Two More, Then Look Out
As I write this, the markets are entering a “risk on” period.
What do I mean by “risk on”? Stocks and other risk assets rally.
The drivers behind this move are:
- The fact that President Trump reached out to the CEOs of the largest banks in the U.S. during last week’s sell-off.
- Hype and hope of a potential “cease fire” between the U.S. and China regarding their trade war.
Regarding #1, late last week it was revealed that the President reached out to the CEOs of the three largest banks in the U.S. during the market sell-off on Tuesday.
This news suggests the Trump administration is looking to “put a floor” beneath the market, much as they did during the December 2018 meltdown. As a result of this, traders believe that downside risk is now minimized and are looking to load up on stocks.
Regarding #2, as it stands, Chinese officials plan to visit Washington D.C. to continue trade negotiations in September. This is giving investors hope that there is a chance the U.S. and China can come to an agreement regarding the ongoing trade war between the two nations.
However, this hope is misguided. The reality is that the U.S. and China cannot possibly come to an actual trade agreement. Doing so would mean addressing structural issues between the two nations that are political suicide for leaders of either country.
Neither the Trump administration nor Chinese leadership can afford to appear weak – particularly when it comes to issues of Intellectual Property theft or threats to national security.
So… what does this mean?
Profits Are Coming for Prepared Investors
Stocks have at most two to three weeks before the “floor comes out” beneath this rally.
That’s the bad news.
The good news is that as soon as stocks begin to break down again, central banks will move to intervene directly in the markets. And when they do, the opportunity for traders will be ENORMOUS.
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Editor, Money & Crisis