Morning Comment: Trade deal already priced-in....AAPL due for a drop.

  • We're close to a trade deal....again.
  • Any deal will be a much smaller one than the one they were "close to" back in April...when the stock market was more than 5% lower.
  • Will Hong Kong cause a deal to fall apart after its agreed to?
  • The stock market has already priced-in most of the good news on trade
  • Others now agree with our bearish short-term technical call on AAPL

Broken record: We're close to a trade deal...again.

THAT GOD!!! We’re finally “close” to a trade deal with China…according to several senior member of the Trump administration!!!! Wait a minute, wasn’t what they said a week ago…two weeks ago…three weeks ago….etc.? In fact, isn’t that what they said about a much bigger deal back in late April???.....Anyway, the futures are trading higher this morning off of this news, but we question just how much the market will rally once a “Phase One” deal is agreed to. Actually, with the impact of today’s algo’s, it wouldn’t surprise us if we got an initial pop in the stock market, but we seriously question the sustainability of that kind of rally.

Any deal will be a much smaller one than the one they were "close to" back in April...when the stock market was more than 5% lower.

The administration has done a masterful job of spinning this “Phase One” deal to make is sound like it’s going to be a substantial one. We do not know the details of it yet, but from everything we can glean, it’s very, very small deal. All we will get from China is what they’ve been willing to give us all along (although the size of those agricultural purchases now seems to be in question)…and nothing substantial will come on intellectual property, technology transfer, etcetera will be agreed to at all. (Sure the U.S. will get some promises on those issues…and the President will claim that it is a much better deal than it really is.) However, those important issues will still be out there going forward. The U.S. is not going to give-up on them…and thus the uncertainty that has existed for the past two year for business executives will remain high.

The situation in Hong Kong is not improving. That could impact any trade deal that is signed.

On top of all of this, the situation in Hong Kong is not getting any better. There are fewer protestors, but there are still plenty of them…and the ones that remain are acting in a much more forceful way. Therefore it is becoming more and more evident that these protests are not going to end without China intervention. In other words, even after a “Phase One” deal is signed…the deal will stand on unstable ground. If China moves into Hong Kong, the U.S. will have to respond…and the Phase One deal…as weak as it is…will fall apart.

We don’t mean to paint such a dark picture. However, the stock market has rallied to new all-time highs on the expectations of a trade deal. However that deal is a much, much smaller deal than the market was pricing-in back in late April (when the market was more than 5% lower). We just question whether such a watered-down trade deal can create a significant further rally…at a time when the stock market stands at all-time highs…when U.S. and global growth is shrinking and when earnings growth is at zero. A lot of people are hoping that both economic growth & earnings growth are bottoming. However, very few (if any) of them is looking for the kind of (substantial) bounce back in economic/earnings growth that would justify a significant (further) rally in the stock market in our opinion.

The stock market has already priced-in most of the good news on trade

Therefore…given the overbought condition of the broad market and many important groups that we touched-on yesterday morning…we believe the upside potential for the stock market over the near-term is very low. Yes, we could get one more thrust into the end of the year…for reasons that are not fundamentally based…but we do not think that will happen until AFTER the market sees a pull-back.

Others now agree with our bearish short-term technical call on AAPL

Finally, we hear that a technician made a very similar (bearish) call on APPL late yesterday to the one we in our Wednesday morning piece. Therefore, even though we were out on an island by ourselves calling for a pull-back in AAPL just two days ago, this cautious call on AAPL could become a popular call very quickly…given that this call was made on a financial news outlet. Thus investors who are thinking about acting on this call should not wait.

Again, any shorts should have very tight stop levels, but as we said Wednesday morning, AAPL is definitely ripe for a tradeable decline…and it could come very quickly now that others are jumping on the band wagon. (BTW, Warren Buffet has cut back some of his position on the stock. That could have been for a lot of different reasons, so we don’t want to harp on that development too much. We’re basing our call on its technical condition…i.e. its extremely overbought weekly RSI chart…and its premium to its 200 week moving average.)

As a reminder, this is the chart we provided on Wednesday morning:

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Nov 15, 2019 — 8:11 AM
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