Trader Gagan: Indices Analysis – Feb 28

Charts, Commentary, News, Stocks

Today indices will likely be dominated by front-running of Donald Trump’s address to Congress (at 21:00 EDT 2:00gmt Wednesday). The market will seek confirmation and detail of his much heralded expansionist fiscal policy. In other words, justification for the triangle of hitherto rising rates, stocks and USD. 

 

These expectations have already been fueled by a pre-release of the speech’s bullet points  http://tinyurl.com/Trump2802 which will be further highlighted by an interview with Fox he gave yesterday due to be released between 06:00-09:00 EDT 11:00-14:00 GMT. So far there is little to get excited about either way except for a clear commitment to greater military spending. Although we have already seen executive orders on deregulation and there is clear reference to tax in the speech, it is neither the time nor place to outline the detail that the market is craving. At best he may commit to a Border tax in some form. But since this will still be open to negotiation with (WTO? and) and House Republicans and will likely form part of a Tax package still be worked on for the March 13th budget, it would be foolish to commit to detail in advance. Ironic though it may seem the fact he is ticking off pre Election promises suggests he is keen at least to be seen to meeting promises. He is therefore unlikely to create hostages to fortune with detail that negotiations and the overall budget framework would preclude.

Prepare to be disappointed then and prepare for a repeat of previous Trump Events as outlined in the so far accurate SPX Trump Fractal.


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This clearly suggests our projection of an early week new high before a possibly sharp but shortlived retracement is on track. The question is firstly whether SPX/DJIA (or indeed Nifty) can spike to further new highs on a buy the rumor buy the fact oops sell play first. We suspect 60-40 not. Secondly the scale and duration of both of a stock/USD sell off. Since FTSE and Nikkei remain a hybrid of global risk and their currencies against the USD these are theoretically the markets most at risk and yet they appear technically to be the most limited to the downside. This can partly be reconciled by any movement in stocks before during and after the speech being seen as US centric rather than global. Ironically perhaps the erratic DAX is clearest in terms of duration (no more than 24 hours) and scale (2% down) due to its close match to February 2nd price action. Either way, we clearly favor shorter term shorts until another tremendous buying opportunity.


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