"Human society is facing a major choice to open or close, to go forward or backward. In today's world, the trend of peace and cooperation is moving forward and a Cold War mentality and zero-sum game thinking are outdated. Paying attention only to one's own community without thinking of others can only lead into a wall. And we can only achieve win-win results by insisting on peaceful development and working together."
-- Chinese President Xi Jinping
The indices are jumping this morning as Chinese President Xi Jinping's promise to cut import tariffs, primarily on automobiles, eased concerns about a U.S.-China trade war.
Market players were not expecting the positive tone from Xi and had dumped stocks into the close Monday following gap-and-fade action. The technical conditions at the close were poor and that is helping to create a stronger reaction this morning as traders look to quickly reposition and add back some long exposure.
The question for the markets now is whether the positive tone from President Xi translates into real action. The Chinese leadership is not known for its extreme candor. General policy announcements don't result in quick and concrete moves, but there is no question that this is a positive development this morning and does provide some justification for President Trump's aggressive approach to the Chinese trade.
Market players will be looking hard for some long exposure Tuesday morning but it won't be easy given the poor technical conditions in most places. In addition, we are likely to be distracted by the continuing Facebook (FB) saga as Mark Zuckerberg appears before Congress and we are subjected to endless political posturing.
There will also be some attention paid today to the surprise raid of President Trump's personal attorney's office. There is still a lack of clarity as to what this is all about, but it is leading to increased speculation that the president will retaliate in some manner. While market hasn't cared much about this in the past it now has the capacity to cause more problems given the weaker technical conditions.
The big question today is whether this news will help to improve the technical action. As I discussed Monday, we no longer have conditions supportive of V-shaped moves. There is too much technical overhead and the mood of the market has shifted away from chasing of strength.
While the S&P 500 is sitting on some good technical support close to its 200-day simple moving average around 2600, there is massive overhead resistance up to the 50-day simple moving average at 2700.
This open should trigger some trading range action, which will be a good setup for another push as we enter earnings season in the next two weeks.
We'll see how aggressive early buyers are today. The key will be a much better close than we had Monday. If the indices can manage a solid close that will restore some confidence and lead to positioning into earnings.
Like many others I have quite a bit of idle cash and will be looking to put some to work as opportunities develop.