"Markets rise on trade optimism."
Hah. OK. We've seen this before.
If this is the normal cycle... the markets will jam higher with the anticipation that US-China trade relations will normalize...
But then something happens.
A wrench thrown into the gears. Gas on the fire.
And then, just like clockwork, the markets gap down overnight and we see a 2% selloff.
Couple that with a Federal Reserve that is a little ambiguous when it comes to policy, and you've got the setting for a market that puts in a garbage trading range.
Today's gap higher is... a little different. The market had been trading in a wide technical range for nearly a month and, for now, this has the look of a breakaway gap.
Even if you wanted to fade this move, it's a tough short.
Every other schmuck on the planet will be looking to short the S&P 500 into the 3000 level.
And if it's a crowded short... what happens?
A small pullback and the market gets squeezed higher.
This is not the best way to play for trade talks to fall through.
And I think they will fall through. Again.
My tinfoil hat tells me that trade relations will normalize Mid-March of 2020. Right after the Democratic Primary gets wrapped up.
What's the best way to fade this move?
I think it's FXI.
This is a China ETF that... let's say has not done well over the past few months.
Unlike US-based stocks, we can call this a proper bear market.
It's in a downtrend from multiple timeframes, and has seen two massive overnight moves on the potential resolution of the HK protests along with trade talk optimism.
You've got an ETF, in a long term downtrend, that is touching its declining 50 day moving average for the first time since the massive breakdown in August.
This offers better risk/reward to the short side than trying to short the S&P which is JUST 40 HANDLES FROM ALL TIME HIGHS.
I'm not going to give you a direct trade setup, you need to do your own DD. Standard disclaimers apply.
But if you need a good starting point, I'd be taking a look at scaling into the Oct 41 puts... SCALING because I'm probably early on this. And I'm definitely wrong if FXI manages to retake the breakdown at 41.60.