It’s official, well for the next 90 days, the tariffs have been paused for everyone except China.
“President Donald Trump announced a 90-day pause on higher reciprocal tariffs that hit dozens of trade partners after midnight, while raising duties on China to 125%.”
Source: Bloomberg.
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” PresidentTrump posted.
It was the highest single day rise in the S&P 500 since 2020, and for Nasdaq since 2008.
Numerous firms raced to withdraw their call for a recession, the funniest was Goldman Sachs who called a US recession, then about an hour later said “JK”.
All the countries that were hit with the reciprocal tariffs have been paused for 90 days and set to a standard 10%, with the exception of China.
The President said that 75 countries have reached out to discuss the tariffs looking to negotiate in good faith.
The only country to retaliate was China.
“Based on the lack of respect that China has shown to the World’s Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately,” President Trump said.
Since the tariffs were announced last week the White House was adamant that they were focused on a fair deal for the United States, and not worried about the Stock Markets reaction.
But once China retaliated and played their hand, the US Administration with this new 90 day deal.
Markets immediately reacted higher, as I mentioned earlier rising from approximately 5000 on $SPX to close the day around 5465, nearly 10% higher in a single day of trading.
It’s also worth noting that the 10 Year Notes auction was well received before the 90 Day pause announcement.
*US 10Y NOTES DRAW 4.435% VS 4.465% PRE-SALE WHEN-ISSUED YIELD
Which brings us to the big question…was that the bottom?
For the past week the $SPX was in the bear quiet market regime (red part of the histogram) and on this gigantic jump higher it moves back into the neutral regime.
The characteristics of the bear quiet market regime are:
- larger intraday moves
- convincing rallies that fail
- news driven market
- good news gets sold
- bad news gets sold
Let’s focus on convincing rallies that fail and good news gets sold.
So far, this is the most convincing rally we’ve seen since Covid or the Global Financial Crisis, it’s big.
Bear quiet is a news driven market, since this news is what was sending the market so sharply lower, this news about pausing and negotiating would be the positive news we’d expect to send the market higher so convincingly.
What we want to see happen from here is multiple days of sustained higher prices, even if we do get a retracement lower, being a higher low would be constructive.
After a 10% intraday rally, we would expect to see a lot of new activity around the market.
Of note, Crude Oil is at $62 a barrel, down from $80 a barrel in January.
The DXY (US Dollar index) was at $110 in January, today it’s at $103, which makes buying US goods more attractive.
So yeah there’s some things happening.
Now, I’m not highly focused on macroeconomic outlook, I’m a systematic quant trader, which is why I didn’t make any big moves or have much of a drawdown during this period.
Our Quant Portfolio moved mostly to cash or less volatile assets for the past few weeks and only experienced a -1.5% Drawdown from all time highs.
So let’s focus on more systematic things.
If you’ve followed along with any of my work over the years, you know I rely heavily on using Market Regime tools (I mentioned the bear quiet regime above).
I use a tool called the SQN Indicator (I have done videos on this) that I made available for free on TradingView.
You can access the indicator here.
That tool is useful to understand the regime we are currently in so that we can apply the appropriate trading strategies and risk management given the regime.
I’ve also built a tool (will release it soon) that measures the speed and magnitude of the moves of the SQN.
So how fast it goes from Bull Quiet to Bear Quiet I find super useful.
If it’s a slow moving drift then we can understand what type of bear market we have. 2022 was like this, and it lasted for about 10 months before bottoming.
If it’s a fast moving spike lower then we can compare it more to 2020 or 2018 which were very fast drops and quick reversals.
The SQN Velocity Indicator (that’s what I’m calling it) is the bottom half of this $ES (S&P 500 Emini Futures) chart.
Yesterday it reached the same levels as the 2022 bottom, the 2018 bottom, the 2009 bottom and the 9/11 bottom.
You’ll also notice the large spike down in 2020, that was the Covid lows and then in 2008 there was a similar low (not seen on this chart) when in the Global Financial Crisis and on Black Monday in 1987 (not seen on this chart).
Keep in mind that just because this indicator reaches those levels it doesn’t mean that it was the exact day the market bottomed, for example in 2022, we got the extreme low reading in July but the market didn’t bottom tick until October.
Remember, the 2022 bear market was a slow bear market.
The 2020 bottom tick on the velocity indicator just happened to be the bottom tick to the day, it was a fast bear market, same with the 2018 bear market.
If this bear market is a fast bear market, then we can confidently speculate that we saw the bottom.
Monday was the bottom tick on the S&P 500 and Tuesday was the bottom tick on the velocity indicator.
But don’t get FOMO just yet, if you bought the day or even week after the absolute bottom in Christmas day of 2018, the $SPX still rallied nearly 30% higher before turning lower into the Covid crash.
If you bought two weeks after the lows of March 2020 it rallied over 75% before peaking at the beginning of 2022.
Would I have loved to have bought $10k worth of $SPY calls at .01 only to watch them turn me into a multi-millionaire?
Yes, but I didn’t.
In the meantime if this does continue along then we have a multi-year bull market ahead of us and I’m more interested in riding that low volatility trend with the systems I have built to outperform in that environment.
If you are interested in the systems that we trade you can check them out here.
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