For the past week or so a U.S.-Mexico trade deal has been expected. President Trump announced the signing of the deal at 11 a.m. ET this morning and the market has continued to cruise higher. There is no "sell the news" reaction, so far.
Here are some key points to keep in mind as you contemplate this news:
There continues to be almost no positive commentary from market pundits about how successful resolutions of trade disputes may drive the market. There were endless discussions about how trade wars would be a disaster, but almost no mention that positive outcomes could be a market driver.
There is no big mystery about why this is the case. Much of the media simply refuse to acknowledge that Trump could do anything positive. One of the big stories of the market since his election is how many market timers keep anticipating a Trump-created top. It is not happening.
The Mexican trade deal clearly indicates that other trade deals are likely. U.S. negotiators are quickly turning to Canada and there will be intense pressure to deliver something positive on China before the mid-term elections in November. Are these potential deals already fully discounted by the market? It doesn't look that way.
Positive news is driving positive speculative action. Many individual stocks are performing well. Breadth is around 5-2 positive and there are around 600 stocks at new 12-month highs
While this action is exceptionally strong the more difficult issue is where do you put some idle cash? The indices are overbought and the statistics suggest that a low-volume breakout move in the indices is ripe for a reversal.
Here are some names I'm looking to add.
1. DowDuPont (DWDP) is breaking out of a trading range and over the highs hit back in June. As Jim Cramer has discussed in his Action Alerts PLUS portfolio, DWDP has a number of catalysts coming up as it undergoes a major restructuring. Market players are now positioning to benefit.
2. Three biotech names on my radar right now: Sarepta Therapeutics (SRPT) , HTG Molecular Diagnostics (HTGM) (which is my Stock of the Week) and Zogenix, Inc. (ZGNX) . All three have had good news and have potential catalysts. Biotechnology tends to work well when speculative interest is high and that is what we have in the current environment.
3. Pinduoduo Inc. (PDD) was a hot China IPO that was priced at $19. The company sells "bargain products" that tend to undercut Alibaba Group (BABA) . After a strong start PDD sold off on news that it was being investigated for the sale of counterfeit goods on its website. This issue is likely to be resolved and the fact that Tencent Holdings (TCEHY) owns 33% is not a negative.
