Trade-war fears fizzled out quickly as both Chinese and U.S. officials indicated that they are open to high-level negotiations to solve the problem. The specter that a deal will eventually be made is what keeps the dip buyers active and has prevented the market from falling into a technical downtrend.
At its core this is an optimistic market. Every time in recent years when the market has been met with a problem -- Brexit, Greece, the presidential election, terrorism, North Korea and trade -- it has anticipated a positive outcome and a protracted selloff has been averted.
We are seeing the same dynamic at work again now. The bears run around like their hair is on fire and warn us about the negative fallout of trade wars and the great disrespect shown for our allies. The market never buys the negative narrative for long, however. It stays optimistic about positive outcomes.
The whole NATO drama the last couple days is another example of how the pessimists fail to appreciate how these situations end up with a positive outcome rather than the disaster they keep predicting. Trump may have offended some with his bravado and ego, but the market is pleased with the results of the meeting and that is adding fuel to the bounce that started as tariff worries cooled off again.
This once again makes it very clear it is far better to focus on the price action rather than the arguments of the pundits. Those pundits, particularly the bears, have just been dead wrong about this market. That has been especially true when it comes to those who have a political bias against Donald Trump. They just can't understand how stocks can continue to run when the person they dislike so much acts in a manner they deem totally unacceptable.
Even though we are seeing a rebound Thursday morning on cooling trade war tensions, it has not made for easy trading. The selling the last two days shook traders out of some good long positions and it has been extremely difficult to find attractive chart setups. FAANG names showed relative strength Wednesday and small oils have been particularly good, although it's been a bumpy ride lately.
I am still holding very high levels of cash and my game plan is to just keep on looking for trade setups that I like. With earnings season kicking off with some big banks Friday morning the focus is going to be on stocks that are likely to report a good quarter. I think we will see some better setups especially if the market can ignore the trade issues until negotiations start again.
We have a solid start Thursday morning and market players are going to be looking to put some cash back to work.