Flip-Flops More Than Footwear

As a market analyst fortunate enough to live in Hawaii, the term flip-flops is most commonly used to express a type of sandal that are the prominent form of footwear worn on the islands. In Hawaii flip-flops are not only worn at the beach but with the exception of business attire, (no ties and aloha shirts) are acceptable casual wear anywhere on the island.

However, this term could be appropriately applied to market sentiment. It seems that almost on a day-to-day basis market sentiment seems to flip-flop as quickly as news headlines change. Yesterday’s statements by President Trump indicated that he was in no hurry to make a deal that would take the current trade war negotiations closer to a resolution. This caused the U.S. equities markets to plummet as gold prices soared with double-digit gains.

In fact, statements made yesterday by Commerce Secretary Wilbur Ross not only backed up the president’s sentiment but took it one step further. In an interview on CNBC, he said that President Donald Trump is “serious” when he said trade talks with China may last past the 2020 elections. Ross added that the White House has no “time pressure” to get a deal done. The Commerce Secretary also said that the president would impose another round of tariffs on Chinese goods on December 15^th unless there was “some real reasons (to) postpone them.”

However, market sentiment did a flip-flop today when Bloomberg reported the following headline “U.S., China Move Closer to Trade Deal Despite Harsh Rhetoric”. The article reported that the United States and China are moving “closer to agreeing on the amount of tariffs that would be rolled back in a phase-one deal despite tensions over Hong Kong and Xinjiang.”

This article was then used predominantly today to explain why both U.S. equities and gold reversed when compared to yesterday’s actions. As of 4:30 PM EST gold futures closed down $4.20 at $1480.20, and the Dow Jones industrial average gained 146.97 points and closed at 27,649.78.

However, the facts and fundamentals still remain largely unchanged. After 18 months of strong negotiations between the United States and China, all we have seen tremendous pushback from both camps and aside from a tentative phase-one agreement, which by the way is still not written, very little is changed in terms of a comprehensive agreement that both the United States and China would be willing to sign-off on.

There is also a case to be made that it would benefit President Trump to stall a comprehensive agreement until after the elections. This would provide him with a strong edge over any opponent during the 2020 elections  by stating that he was the only one capable of making a comprehensive deal.

To put it bluntly, “one should not presume to know the outcome of an event which is still in progress. More specifically, when a situation is (or appears to be) nearing its conclusion. Do not assume that the current state of an event is irreversible and clearly determines how or when the event will end.” Wikipedia’s explanation of the proverb “It ain't over till (or until) the fat lady sings”

Wishing you as always, good trading,