Sifting Trough the Ashes

The sharp and short reaction to escalating trade war threats has put the market on the back foot yet again. In another of the mini-panic moves typical of the last six months, investors shed some risk yesterday on the fears of China's reaction to the threat of investment restrictions posited by the Trump Tweet House. But are they right to panic?

As I have been arguing, the stock market volume characteristics have "non-conned", or failed to confirm the most recent highs.

This left the market vulnerable to a sell-off. Although we got one, I can't be sure that this one will turn out to be yet another in a series of head-fakes experienced this year.

U.S. markets have been going it alone lately. Investors there seem to believe either that they are impervious to the effects of a global trade war, or that this all some kind of "Art of the Deal" negotiating tactic. Both thoughts stem from the same American hubris that MAGA is built on. Wake up and smell the tariffs America,

Harley-Davidson has.

It is now incumbent on the market to stage a rally with some conviction. This morning's stabilization sets up a Tuesday at 11 rally as calmer heads prevail. I have covered most of my shorts in the event that the market shows me some conviction. But that is not the slam dunk that it once was. At some point the battle between strong fundamentals and weakening stimulus will be convincingly decided. I'm not optimistic.

The FED seems intent on driving their policy of normalization to its conclusion, despite the protests of the long end of the curve. I'm not sure what will convince them to pause but that time will come. At that point, the long forgotten value trade will have its day.

I'm leaving it up to others to sift through yesterday's ashes for hidden gems.

For now, my focus is on the back of a golf ball.

Risk Model: 3/5 - Risk On

We are lacking two elements of risk-on behaviour - the AAII Bull/Bear ratio and the Copper/Gold ratio. These two elements are troubling when one considers their connection to the Trump Trade War and the fear that it engenders. Copper is a bell-weather metal for economic growth and it doesn't act well.

Risk taking by investors is showing signs of fatigue, as reflected by the volume weakness and in survey measures. The model just needs a jolt volatility to kick out the bulls. Not comforting.