Call Me Maybe.

“Sir the phone appears to be working fine.”

The Chinese are a proud group of people, and they have made it clear they will not reach out to the White House to negotiate tariffs, nor will they be bullied by Trump. Trump’s strategy has been to slap a 145% tariff on China to bring them to their knees (“the higher the tariff, the faster they come”-Trump), but so far, it’s not working. Instead, China cancelled 8,830 plane deliveries from Boeing today while other countries work together to strengthen ties with each other as the US isolates itself. Trump’s response today is “we want countries to choose between us and China”, while also saying “we are open to a deal with China”, “we don’t have to make a deal with China”, and the “ball is in China’s court”. Trump’s strategy will wreck US consumers and businesses, and he knows it, which is why he’s likely starting to get nervous that his master plan may backfire.

Where do we go from here? I think eventually Trump calls Xi, then simply lies and says China called him because “they want to make a deal”. This would obviously be a bullish development because at least the two would be talking, however I don’t expect this to occur soon. China’s data tonight was strong, and Trump feels like he has the support he needs at the moment, so I’d give it at least another 2 weeks, which means we could be in for more pain before a big gain.

If you want to get insight into where this may go, I recommend watching Bloomberg, The China Show. They have guests from Asia, which give a good sense of the cultural challenges and how folks in Asia are thinking about the situation. The US news is very US centric, so I find it helpful to obtain global viewpoint. Another helpful news resource is the South China Morning Post. Fun fact: In December 2019 I learned about Covid before anyone in the US simply by reading SCMP each week.

“What You Have to Believe” Sensitivity

The sensitivity I created below sensitizes end of year S&P 500 (SPX) targets and recession probability to estimate a hypothetical fair value for the S&P 500. Using the end of year average base case target from Goldman Sachs and Morgan Stanley combined with recession odds from Polymarket/Kalshi, the current fair value of SPX is 5,350. At the moment, anything in that yellow zone could make sense to me, but the current situation is highly fluid. For me the most challenging target is the “bull case level”. I can’t see the S&P 500 ending the year above 6,100 at this point, however many investment banks still have targets well above this level therefore I’ve tried to remain somewhat optimistic. Some banks are already bringing their targets down such as Goldman Sachs (5,700), Oppenheimer (5,950), JP Morgan (5,200), and BofA (5,600). These geniuses all had 6,500+ targets back in December while yours truly was less optimistic given many signals that positioning and sentiment were offsides.

Based on today’s estimates in the chart the S&P was trading a bit rich.

In afterhours trading index futures broke down from the pennant they had formed following the news that the White House has banned NVDA from selling it’s custom “made for China” semis into China, which will result in the company taking a $5.5B write-off. It appears that insiders prepped for this trade so I expect them to close their positions in the morning, which will help close the gap. Also worth noting that the White House informed NVDA of this update on 4/9 so the information is a bit stale.

4-Hour DeMark Price Charts with Gamma Support/Resistance Levels ($SPY, $QQQ)

If you’re looking for key price levels that may act as support or resistance, check out the charts below, which are based on the largest option open interest levels.

PLEASE READ: The chart below is what I use to time long-term buys (e.g. retirement funds). I always maximize my equity allocation when the market enters the dark green zone, but those opportunities only come around a few times a year. Buying equities in the light green zone is a good option as well because it’s better to put money to work sooner rather than later. The red zone is higher risk and can often lead to immediate losses, so I never buy equities when the red signal line is in the red zone (typically reallocating from stocks to bonds here). I also never go short in my long-term portfolio because stocks go up more than 50% of the time and when they do go down, they don’t tend to stay down for very long (i.e. shorting is hard).

S&P 500 15 Trading Day Model and Related Data (Explanations are in the Appendix)