• Will China help the S&P500 regaining its all time highs?

    In the past trading days, large investors have been continuously pouring money in the markets, expecting a positive outcome out of the Chinese/US trade talks.



    The NQ8 sector attracted somewhat less money as trade talks will have more impact on the real economy.



    Small caps started showing some negative Money Flow, which is probably a sign of continued pair-trades activity.



    We all know that the trade talks concluded positively and markets gapped up overnight. I fully expect a small caps shorts squeeze here with the IWM/SPY ratio extending well above the current envelope.



    Treasuries might however continue to bounce to the resistance level shown in Yellow, as China could be expected to restart buying US Treasuries.



    Note below that although XLU is in a downtrend, the Money Flow does not show strong selling. A break above $49.5 is a buy here.



    We can see below that the defensive sectors are bullish and probably a good buying opportunity here.



    On the currencies front, the US$ is still relatively bullish against the Euro and the Japanese Yen.





    The Yen's EV pattern does not look that negative though, but we have to see what happens to the Chinese/Japanese competition, for the US markets. I suspect that Trump will want to also make a trade deal with Japan. More Yen weakness in the coming days?



    You will note extended bullishness in the Swiss Franc. Although pegged to the Euro, the SF attracts good money here because of the Euro risk generated by the recent Italian elections. The SF/Euro is a buy here.



    The Canadian $ looks weaker not only because of the strength in the US$ or the level of the Canadian debt, but also maybe because of an expected weakness in oil and Nat Gas prices.







    Conclusions:

    Today's gap will generate a small caps shorts squeeze. This could be shortable to balance a portfolio long in the NQ8 or in the large caps.

    Buying fixed income could also be interesting here if we expect the Chinese central bank to renew UST buying.

    Will China help the S&P500 regaining its all time highs? Of course I have no way to know that! The question mark will stay that way until eventually the all time highs are broken or the QE unwind puts a brake on exuberance. For now, the Money Flow is positive and this is all that matters.