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You probably have read by how Trump's comments apparently emboldened China to take a harder line on trade talks. According to Wall Street Journal:
"In particular, these people said, Mr. Trump’s hectoring of Federal Reserve Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed."
Even though negotiations are scheduled to resume tomorrow Thursday, the expectations and the stakes have changed significantly. The US has filed paperwork for the 25% tariff to go into effect on Friday. The odds of a trade deal on Friday is practically zero.
So what are the take-aways for us traders from this latest development?
Lesson 1: Don't play poker with big stakes, employ bluffing and trash talk at the same time. Can you imagine tweeting about your hand while at the poker table? That's pretty much what happened.
Lesson 2: Be patient and let the poker players go through their motions. Let market sentiments settle down a bit. Enter only low-risk, high-reward, high-probability setups. Don't overtrade. This is a highly volatile market.
Late in the day today, we wrote this in our intraday comments:
"3:45 PM EST Don't hold long short-term positions of $SPX $NDX $RUT tonight. Looks like a drop tomorrow to Tuesday lows again."
What suddenly caused us to change our mind?
Our short-term signals turned bearish in the last 30 minutes. And as we write this at 11:00 PM EST, S&P 500 and Nasdaq 100 futures are both down close to 0.6%. The odds of market being down tomorrow is quite high.
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