It’s About China’s Economy, if Not Trade War

There are a lot of narratives that can fit what is happening to/in the financial markets, and today it’s about China’s slowing economy. With or without all these narratives and headlines, we called – days before here – for a “breather” from the bear attacks AND a choppy range trading to ensue. 

The “breather” from any trend is typically characterized by choppy range trading for a while until the markets suddenly break out decisively and deeply in the direction of the trend or as a mark of ending the trend. 


Our models correctly called the “breather from the bear attack” on Monday 12/10, which may extend into the remaining sessions of the week. 

Nevertheless, do NOT take this as any “bullish” sign in the market! Our models indicate caution against establishing any new, medium-term positions (in either direction). Any spikes up/down could be followed by swift moves in the opposite direction, trapping any quick bears/bulls that jump in.

Patience and caution are needed while trading when the index is within the key range that our models are pointing to (see below for the range).  

Model Biases/Outlook:


With the mixed action following the midterm results, our models have adopted a cautious, “indeterminate” stand while between 2795 and 2745. As of Wednesday 11/14, this is updated to a “mildly bearish” stand while below 2755, which turned outright bearish with a daily close below 2685 on Tuesday 11/20.

As we reiterated since the midterm elections last week, “this market is still likely going to be fraught with bull traps rather than bear traps – be cautious when buying into the spikes”. 

The index has tracked our bearish forecasts and has come down to test the key support level of 2610-2620 and even the 2585 level before taking a breather on 12/10, Monday. While there might be some spiky consolidation ahead, no bullish bias is seen while the index is below 2705 and no bearish bias is seen while the index is above 2620. 

A Brief Trace Back of The Current Bias/Outlook


Thursday, 09/27, our models had negated the previously adopted bullish bias and signaled a neutral bias between 2933 and 2887, which was later updated to 2920 and 2880. 

On a break below 2880 on 10/10/18, our models executed the pre-published trading plan to book 142 points in profit on a short position! Our models have since adopted a “cautiously bearish” bias. This caution is in view of potential spikes up in a whipsaw mode.

As of the close on Wed, 10/24, our models turned bearish and continued to stay bearish while the index is below 2710. While within the 2710-2770 band, we reiterated an “indeterminate” bias.

As of Wed 11/14, we adopted a “mildly bearish” bias while below 2755. With the close below 2685 on Tue 11/20, we updated this to an outright “bearish” bias for Wed 11/21. 

With the close of Wed 11/28, our models negated this bearish bias and adopted an “indeterminate” bias for Thu 11/29. We reiterate this indeterminate bias for today, Friday 12/14, while within the range of 2618-2705.   

Trading Plans for FRI, 12/14:


Medium-term/long-term Investors


Our medium-term models started the month of December with indeterminate state and stayed out of the markets so far. 

Last Published Trading Plan/Forecast: Our last medium-term forecast stated: “For today, Monday 12/10, our medium-term models are monitoring the 2618 level – a daily close below 2618 will be interpreted as an opening for a fresh leg down. A daily close above 2660 is needed to negate the bearish bias. Between 2660-2618, models indicate staying flat”. 

Results/Outcome: For the fourth day in a row, the daily close on 12/13, Thursday (2650.54) was within the range (2705-2618) to be flat. No trades were taken. 

Today’s Plan/Forecast: For today, Friday 12/14, our medium-term models are monitoring the 2618 level – a daily close below 2618 will be interpreted as an opening for a fresh leg down. A daily close above 2660 is needed to negate the bearish bias and a close above 2705 for an outright bullish bias. Between daily closes of 2660-2618, models indicate staying flat. There will be NO trades taken today by our medium term models. 

Aggressive, Short-term, Intraday, or Professional Traders


Our aggressive intraday models mostly stayed out of the market in early December since dismissing the much hyped US-China trade “truce” related spike up which was short lived as “noise” (to see the original call click here to read the full forecast titled: “US-China Meeting Weekend Preliminary Results Driving Wild Moves – Let the Noise Settle!”) 


Mon 12/10: Booked 31.25 points in profit on two shorts
Tue 12/11: Booked 0.50 points in profit on a long
Wed 12/12: No trades


Last Published Trading Plan/Forecast: Our last aggressive intraday models’ forecast stated: For today, Thursday 12/13, our aggressive, intraday models indicate going long on a break above 2670 with an 8-point trailing stop, and going short on a break below 2645 with a 10-point trailing stop” (click here to read the full forecast and/or verify this claim)

Results/Outcome: The index gapped up (for the third day in a row) and opened at 2658.70. It reached the session high of 2670.19 – just 0.19 above th
e key resistance level we indicated in our forecast! This slight shoot-up did not trigger the long trade. The index drifted lower through the day and broke below the 2645 level, triggering a short position. With the session low registered at 2637.27, the 10-point trailing stop trigger was set to 2647.27, which was later hit. The models closed the short with a modest 2.25 points loss and stayed flat for the rest of the session.

        

Today’s Plan/Forecast: For today, Friday 12/14, our aggressive, intraday models indicate going short on a break below 2618 with an 8-point trailing stop, and going long on a break above 2672 with a 6-point trailing stop. For the trades to trigger, the breaks should occur during the regular session hours (9:30am-4:00pm EST).      
  

NOTE: Remember that a “trailing stop” works differently from the traditional stop-loss order. Please bear in mind that the trailing stop’s trigger level would keep changing throughout the session (click here to read on the conceptual workings of a trailing-stop). 

IMPORTANT RISK DISCLOSURES AND NOTICES – READ CAREFULLY:

(i) This article contains personal opinions of the author and is NOT representative of any organization(s) he may be affiliated with. This article is solely intended for informational and educational purposes only. It is NOT any specific advice or recommendation or solicitation to purchase or sell or cause any transaction in any specific investment instruments at any specific price levels, but it is a generic analysis of the instruments mentioned.

(ii) Do NOT make your financial investment or trading decisions based on this article; anyone doing so shall do so solely at their own risk. The author will NOT be responsible for any losses or loss of potential gains arising from any investments/trades made based on the opinions, forecasts or other information contained in this article.

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(iv) Past performance: This article may contain references to past performance of hypothetical trades or past forecasts, which should NOT be taken as any representation or promise or guarantee of potential future profits. Past performance is not indicative of future performance.

(v) The author makes no representations whatsoever and assumes no responsibility as to the suitability, accuracy, completeness or validity of the information or the forecasts provided.

(vi) All opinions expressed herein are subject to change at any time, without any notice to anyone.