Thoughts

1 am. The stock market can fall a little more in the short term.

The stock market is medium-long term bullish. The short-term is also becoming increasingly bullish, but that doesn’t mean the market can’t fall a little bit more in the short term.

For example, the Put/Call ratio is used by many traders to pick stock market lows. A ratio of 1 is a BUY signal for stocks. This ratio is not quite there yet right now.

Momentum is low, but it is not extremely low. The market can keep falling for a few more days when RSI is as low as it was on Friday.

The bottom line is, nobody knows if the S&P 500’s exact bottom is in. Risk:reward is becoming bullish, and the medium-long term is bullish. Focus on the medium-long term.

1 am. New developments: odds of a trade war are decreasing.

Treasury Secretary Manchin made it clear that the U.S. does not want a trade war. The U.S. is using the threat of tariffs to bring China back to the bargaining table. These talks are progressing in the right direction so far (see Bloomberg). China has no choice: they hold the weaker hand because China is a net exporter while the U.S. is a net importer.

Munchin said:

We’re not afraid of a trade war, but that’s not our objective.

Trump initially wanted to reduce the U.S.’ trade deficit with China by $100 billion. Trump always negotiates with a high ball number. The end result will probably be less (perhaps the U.S. and China will agree to reduce the trade deficit by $30-40 billion?)

Other countries that hold weaker hands have folded as well. South Korea is close to striking a trade deal with the U.S. that would limit the amount of South Korean steel exports to the U.S.