Let's think about what happened to the S&P 500 futures last night and this morning. Let's think about how wrong traders were who sold the futures down 300 and how right it was to take the other side of the trade. Why did it make sense to take the other side of the trade, rather than join them in their panic -- contrived or otherwise? Why should you risk buying what they were selling?
Simple. I have been around long enough to recognize that when you think everything is "all over" and the bull, wherever it is, might be "finished," it is important to think "what could go right, here, what could catch the pajama gang off guard? And not just because they are so often wrong, but because markets can and do surprise these fools all of the time."
I want to parse their thinking and then show you how wrong they can be. First, the future sellers are basing their moves not on new news, but on a belief that real owners and traders will panic and sell again this Monday morning on what they knew on Friday.
Remember, this weekend all we heard was that the president had second thoughts on the tariffs, making you think he wished he hadn't tweeted the harsh comments about companies needing to leave China and that he shouldn't have decided to raise both the current tariffs from 25% to 30% and the tariffs set for September 1 from 10 to 15%.
But then he had his people come out and say he meant that he should have raised the tariffs even higher. Total confusion reigns. Still nothing new.
Presumably the pajama traders took that alleged reversal to mean that things with China are even worse than we thought, if that's even possible. Therefore the sellers on Friday would return and they wanted to get ahead of them.
But then, in the wee hours of the morning, we got the news from the president that the Chinese want to come "back to the table."
That meant every single seller last night was on the wrong side, that my thinking about "what could go right" is the lesson that happens often enough that you must accept it as a possibility especially with this president. The futures spiked and were up 300, a swing of 600 and a total wipe out of last night's futures sellers.
We know that no sooner than the president said he got two different calls and that things are better than ever, the best even, the rearguard journalists came out and said that it was pretty much of a joke and that there was no call or they were low level.
But then the president reiterated that the Chinese want to come back to the table just at the moment when the Chinese again would not confirm the call. That drove the futures lower, cutting the gain in half.
All of this is a demonstration of how you can't bank on anything so why bother trying?
We know the president reads the market. We know that the leaders in the G-7 understand that China has become the number one trading partner for two-thirds of the world, so the president is under pressure from these leaders to make a deal.
So, why not say that things are going well? The president got the calls that the market was going to get clubbed again and he didn't want it to happen. Why not refute his own view?
Now let's go one step further. The cynics who said that Trump made it all up don't get it. The fact is that the president can move the market and he doesn't want it down too much.
So why not conclude that he will do something that makes selling wrong? That's the real point. If you put on your pjs and start selling Sunday night based on a belief that there will be even more selling down 300, I am saying you are most likely going to be wrong.
And whether the president got Chinese calls or not, they lost. That's really all that matters. Don't put the pajamas on. Don't make the nighttime trades down -- or up -- a huge amount, for that matter. Wait. The buyers may know more than you. They know that things are way too unpredictable to bet that there will be more selling than down 300. They were right. That's really all that matters.