S&P500 Key Levels

The S&P gave up 22 percent of its 6.54 percent YTD gain today.

We nailed it in our 3 AM post, The Increasing Risk of A Major China Trade Debacle,

Look to the government shutdown as your template as to how Trump & Co. have painted themselves into a corner with potentially disastrous consequences.

We know the president has trouble with the public perception that he has “caved,” which now raises the risk of a complete debacle and sharp market sell-off.  — GM

The administration trotted out Larry Kudlow with the Dow down over 400 points today. We think this weakens the administration’s negotiating position as China clearly understands Trump can’t stand a bear market and is obsessed with every 10 point move in the S&P.

Moreover, Xi and China play the long game and are not obsessed with every tick in the   Shanghai and oversee a command economy not subject to market discipline.

We fear that Trump is painting himself into a corner and is one who can’t appear to have blinked.  The Chinese can delay and wait for another 10 percent flop in the S&P and bet Trump caves.

That makes for some unstable nonlinear dynamics.

Uninvestable and hard to trade, unless it’s scalping.

We’ve been burnt twice on the “fake” tape bombs of an imminent trade deal. We are waiting and watching.

A test of the December low?   Moreover, then some.

Key Levels

The marker is on the upside with Thursday’s high at 2675.47.

The first level of support down is the 50-day at 2623.00, which broke but managed to claw back and retake it at the close.   We are looking at 2594.40 as a new Fib retracement, which needs to hold for this rally to remain intact.

Stay tuned.

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