Trade issues are driving the post-holiday trading once again, but this time the reaction is positive. The US is proposing that there be zero tariffs on cars imported and exported to the European Union. This 'zero solution' is boosting automakers in both Europe and the US.
However, Asian stocks are hovering around their lowest point since last September as there is no change in the tariff situation with China. Tariffs are set to be implemented on Friday and the rhetorical battle has been gaining steam.
Oil is holding steady dispute a push by President Trump to lower prices. Oil inventories continue to fall and there isn't much new supply coming on line.
Pre-holiday trading was lackluster although there was a decent bounce on Monday after a poor start. The dip buyers are still out there but they are not sticking around for long.
The slightly positive action on Monday was followed by some bidless action into the early close on Tuesday. The FAANG stocks traded poorly and there was little inclination toward speculative trading that often occurs around holidays.
Part of the blame for the late dip on Tuesday was the banning of the sale of certain Micron (MU) chips in China. MU is under pressure again this morning and that is partially offsetting the positive reaction to the European auto tariff news.
There is quite a bit of economic data coming up this morning, and the minutes of the last Fed meeting will be released this afternoon. There may be some reaction to these reports but this market is primarily focused on the China tariff issue and until there is some change there the market action is likely to remain soft.
Overall market conditions are lackluster. The S&P 500 is holding around its 50-day simple moving average. The DJIA is lagging and small caps are still exhibiting some relative strength. It isn't very exciting action but it is not bad enough to push the indices into a downtrend.
The hope that President Trump will back-off on the trade issue is helping to keep bids under the market. Since the election his pattern has been to take positions that cause market concern and then back-off and help ignite a rally. We are seeing that to some degree with the auto issue this morning. A breakthrough in the China tariff issue could come at any time and there are traders that are anxious to catch a sharp move on that headline.
While the hope of a trade breakthrough is helping to provide some support, it isn't doing much as far as creating positive action in individual stocks. Stock picking is extremely poor right now. If you are looking to catch sustained momentum in some individual stocks, it is extremely difficult.
My cash levels are currently at their highest point of the year simply as a function of not finding many stock setups that I like.
My game plan is to monitor the action, stay vigilant and wait for a change in the price action. The recent pullbacks have the potential to create setups and with earnings season fast approaching there are some potential catalysts as well.
It is a tough slog right now but it isn't a market that is in full blown downtrend.