China Tariffs – Full List Now Known – Stay In Cash and Wait For A Deal

Posted 9:30 AM ET - The market doesn't like the thought of a trade war between the two largest economies in the world. China's full list of tariffs was released last night and the S&P 500 is down 40 points before the open. The recent lows will be tested this morning and we will be back below the 200-day MA. This game of "chicken" is wreaking havoc on the market. It likes certainty and it likes when everyone plays nice in the sandbox. China has placed stiff tariffs on US products for many years and Trump is trying to change that overnight. Trump initially went after the steel industry because it would play well politically along the "blue wall". He said that he did this for defense reasons and that has some legitimacy. The steel tariffs were worth $50 billion a year. China's first round of new tariffs included agricultural products and they were worth about $3 billion a year. This move helped them to save face and it also gave Trump time to reconsider. China did not add to the list so this is not escalating - yet. Higher agricultural prices will impact every citizen in China almost immediately and the country has been trying to tame inflation for years. Why would China do this? Xi does not have to worry about re-election since he is appointed for life. Trump on the other hand needs mid-term elections to go the way of Republicans so that he can execute his game plan. Trump won the election in the middle of the country and that is the bread basket. Chinese tariffs will not play well with Trump's constituents in the gain belt. This is an interesting game of chess. Investors are wondering when the market will settle down. Trump did some chest pounding when the S&P 500 made an all-time high and now he will take heat for the drop. My concern has less to do with higher consumer prices. China has been subsidizing failing businesses for many years to corner markets. The steel industry is one of them and it is filled with inefficiency. China's shadow banking industry could suffer and a trade war had could lead to a credit crisis. Global credit markets are very fragile and this is the type of event that could spark fear. Swing traders need to remain sidelined. I mentioned in my comments yesterday that a close above the 200-day MA was not enough to get me back into the market. I need to see consecutive closes above that key support level. Right now cash is king. I don't want to short the market ahead of earnings season. Profits will attract buyers and any rumor of a trade deal will spark a massive market rally. Day traders should let the early action unfold. On the downside use SPY $255 as a guide. If we are below it, favor the short side. On the upside I would use the first hour high as a guide. If we are above it, favor the long side. Keep your size small. The moves will be big. I believe we could hit an air pocket. The longer this battle drags on the greater the chance that it will spill over to the credit markets. A deal will also be less likely with each passing day. Fasten your seatbelts. . .

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