August 19, 2018 | Stock Market Has Found a New Reason to Rally MUCH Higher

When the Dow Industrials rallied 400 point last Thursday, I wrote here that it must be predicting a settlement of the trade dispute between the U.S. and China.  I went on to forecast that the prospect of improved trade relations would send the blue chip average significantly higher, into the range 27k-28k, implying a rally from current levels of as much as 2300 points. Lo, Saturday’s edition of the Wall Street Journal bore me out with this headline: ‘China, U.S. Chart End to Impasse’. There is good news in this, but one possible trouble spot. First the bright side: A summit meeting between Trump and Chinese leader Xi Jinping is scheduled for November, following midlevel talks next week between U.S. and Chinese officials to lay the groundwork. This means that, according to the old Wall Street adage “buy the rumor, sell the news,” the stock market has several months in which to rally on speculation that the two leaders will reach and agreement on trade that changes the status quo for the better. But if ever there were “news” to sell, it would be a rosy agreement on tariffs between the two countries, since, at that point, it would be hard to imagine the news getting much sunnier.  And that’s why I will be looking to short stocks on the eve of the summit. However, I’d still have to concede that, over the long haul, if Trump is successful in putting global trade on fairer footing, as he has already done with Europe, it would boost the case of those who have been predicting a rise in the Dow to 35,000 or higher.

Rick Ackerman August 19th, 2018

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