A few thoughts on the US/China trade deal this morning in no particular order:

  • There is clearly a huge amount of money long equities right now simply because of the belief that a positive US/China trade deal is a foregone conclusion.
  • From my estimation it is almost impossible for the US & China to come to a positive (for the US) final agreement. Trade between US & China is a zero sum game and both leaders do not want to lose their share of the pie. Moreover, they both want to be able to proclaim victory in front of their home audience.
  • China is guaranteed to cheat on trade and to continue to steal intellectual property (it's what they do and the US can't enforce anything against China), therefore, any stringent regulations and/or penalties within the agreement are a non-starter for China (and I believe this is actually where the deal is stuck right now).
  • I don't love doing macro analysis but it struck me this morning just how many times Trump or Kudlow have made comments about a deal almost being complete, or how things are "going well" during the last couple of months.
  • We've had a lot of sizzle and now the steak is almost cold.....

Major equity indices & sectors appear to be on the brink of breaking lower as we have US jobs data on tap before the market open Friday. Our very own @Ty pointed out a ripe head & shoulders top pattern in place on the 30-minute S&P chart yesterday just before the market close:

SPX (30-minute)

That open gap down near 2710 in the cash S&P from February 12th looks to be a reasonable near term downside target. However, I wouldn't count this market out just yet. Time and time again we have seen stick save after stick save just as things appeared to begin to roll-over. Hopes of a positive China trade deal or strong jobs data on Friday morning could quickly send the S&P back above 2800.

Turning to gold and gold miners, yesterday was a puzzling day in the goldies with most miners down 2%+ while gold was relatively flat:

GDX (Daily)

The next two trading sessions become critical for the GDX as a breach of $21.40 would likely bring into play a deeper retracement down to the $20.50 area, whereas, a strong close to the week could easily lead to a retest of the February high.

Meanwhile, gold itself continues to sit at support in the $1280s:

Gold (Daily)

Extreme oversold MACD on a daily with RSI hanging down in an area in which we could easily expect a retracement to test the median line from below. If $1280 is breached on a weekly closing basis the focus becomes a much bigger area of long term support down near $1250.

I can envision a rally in gold, mining stocks, and bonds in combination with a deeper drop in equities to end the week. However, my level in confidence in this scenario is slightly more than 50%. Keep an open mind. Strong opinions weakly held.

Finally, a stock that I have followed on and off for a couple of years, Sarama Resources (TSX-V:SWA) surged 33% on heavy volume yesterday and I can see this stock hitting C$.13-$.14 near term (30%-40% above Wednesday's close). I was fortunate to get filled on some additional ( I have had a core position for a while now) shares at C$.07 shortly after the open yesterday - with a bottom finally appearing to be in place I like Sarama as a buy on any weakness below C$.10. 

Over C$.14 and we could potentially see SWA shares back into the C$.20s over the coming months which means that risk/reward appears to be quite favorable near current levels:

SWA.V (Two Year)

Disclosure: Author is long SWA shares at time of publishing and depending upon market conditions may buy or sell at any time without notice.


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