When the Emperor was Divine, is a historical fiction novel by Julie Otsuka. The story loosely follows her family’s wartime experiences in a U.S. Japanese internment camp during WWII. In the novel, Ms. Otsuka tells an emotional story with contrasting unsentimentality. The daily title is meant as a play on the novelist words.

As the market ended an emotional week, the analysis of what’s to come must be told with similar contrasting unsentimentality.

Like the beautiful (and ancient) kimono pictured, the market is draped with silk, yet embroidered with skeleton heads.

From the private collection of Arnold Lieberman-Art Dealer, Santa Fe, NM

What should investors do when the Emperor, who drives the price, does so in less than a divine fashion?

A pattern that has emerged, considering we have a President who makes all of his thoughts known, is trading those thoughts, and then evening up before (if ever) thoughts turn to actions. If you look back over 2017, and now into 2018, the money to be made just on that course of action, is what I now see as a gift.

One example from 2017 is the proposed infrastructure plan. Trump promised that his plan will leverage $1.5 trillion into new infrastructure spending.

The best indicator to see how that sentiment was received by investors is the Transportation ETF, IYT. In anticipation that the plan would be released in early 2018, late 2017, IYT rallied from $170 up to a peak of $206.73. Nice move if you bought his promise. The reality of the plan introduced at the end of January, resulted in IYT crashing from its zenith price, all the way back down to $176.62.

Why?

Although truly a bipartisan issue (everyone agrees infrastructure is a necessity), Trump’s plan counts on spending money unaccounted for, increasing the debt further, and potentially raising taxes-after he accomplished lowering them.

The most recent example, hot off the press, is Tariffs. On Thursday, Trump announced he would place a 25% tariff on steel and a 10% tariff on aluminum.

U.S. Steel (X) jumped by 5.75%, while the U.S. market cap fell by 1%. On Friday, with no substantial news confirming that Trump will employ the tariffs, (other than threats of retaliation by the EU should they pass), steel fell and the market rose.

To be clear, the Russell 2000 rose, while the big caps of the Dow still declined.

Fascinating that the head of the Modern Family, IWM, found buyers.

For the coming week, besides watching for any new statements from the “Emperor,” watch the small caps and the rest of the Modern Family.

And, I would not take eyes off the dollar, interest rates, and commodities. The dilemmas facing the Fed on interest rate policy, the debt and potentially rising inflation, will ultimately supercede even the more or less Divine Mr. T.

S&P 500 (SPY) Closed over 268.50, the weekly exponential MA. Depends on where it opens but will use that as either support or resistance. Below next is 266. Above is 272.

Russell 2000 (IWM) 152 now pivotal but 154 is where the true test lies.

Dow (DIA) This did close beneath the exponential MA (246.68) that SPY closed above. Big Blue is not the place to be right now

Nasdaq (QQQ) Ultimately held the 50 DMA. 166.45 resistance now and 163.22 pivotal support