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Jan. 24, 2019, 11:08 a.m. EST

Trump, in a bind on trade, will determine the direction of the stock market

The president needs to decide between political expediency and the long-term national interest

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By Nigam Arora


Bloomberg
President Trump

President Trump is facing a conundrum. He watches the stock market carefully. An easy way for him to prop up the stock market is to enter into a soft trade deal with China and declare victory.

However, that is clearly not in the long-term national interest. If Trump stays true to the long-term national interest and there is no deal with China soon, the stock market will go down and Trump may not even get re-elected.

If Trump strikes a soft deal and gives up on the long-term national interest, the stock market will go up and Trump may get re-elected. Herein lies the conundrum.

The stock market is myopic and has become a short-term casino to some extent due to the momo (momentum) crowd. This is the present reality. You cannot change it. What should investors do? That is the key question. Let’s explore with the help of a chart.

The chart

Please click here for an annotated chart of S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.06% . Similar conclusions can be drawn from charts of the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% , Nasdaq-100 ETF /zigman2/quotes/208575548/composite QQQ -0.04% and the iShares Russell 2000 ETF /zigman2/quotes/209961116/composite IWM -0.62% . Please note the following:

• The chart shows that the market is in the resistance zone.

• Volatility in the resistance zone is normal.

• The chart shows that the market has not decisively broken the down trendline.

• The chart shows the Arora signal to buy ETF SPY or leveraged S&P 500 ETF /zigman2/quotes/208392941/composite SSO +0.15% which moves at twice pace of the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.03% . This signal was given on Christmas Eve, which turned out to be the exact bottom.

• The chart shows that an overbought condition has been temporarily relieved and this potentially sets up the market for a rally after a brief pullback.

• The chart shows The Arora Report signal to take profits on the short-term trade.

• The chart shows the Arora signal to reduce cash and deploy it in the market on Christmas Eve. This was meant for individual stocks and ETFs that had fallen into the previously given buy zones independent of the short-term trade.

• The chart shows the signal to add a short-term hedge on this rally.

• Volume has stayed relatively low during the rally. This is a negative.

• The chart shows that on this rally, The Arora Report gave a signal to add a small short-term hedge.

/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 301.10
+0.18 +0.06%
Volume: 74.19M
Sept. 18, 2019 8:00p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,147.08
+36.28 +0.13%
Volume: 215.60M
Sept. 18, 2019 6:20p
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/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 192.52
-0.08 -0.04%
Volume: 31.17M
Sept. 18, 2019 4:00p
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/zigman2/quotes/209961116/composite
US : U.S.: NYSE Arca
$ 156.52
-0.97 -0.62%
Volume: 19.85M
Sept. 18, 2019 8:00p
loading...
/zigman2/quotes/208392941/composite
US : U.S.: NYSE Arca
$ 131.21
+0.19 +0.15%
Volume: 1.42M
Sept. 18, 2019 8:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,006.73
+1.03 +0.03%
Volume: 1.71B
Sept. 18, 2019 5:35p
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