The indices are set for a slightly negative start on what should be a very thin day of trading in advance of the Labor Day holiday. Trade issues are providing an excuse for some profit taking, but as has been the tendency the market isn't too concerned about the issue.
The most significant thing to know about the market right now isn't in the headlines. It is not trade with China or Europe, economic news or political issues. The most significant thing to know about the market is that the indices broke out to new all-time highs in the past week and technical conditions look quite healthy.
The bears will scoff at this focus on technical action and point out the same negative arguments they have been using for years. They will assure us that the day of reckoning is fast approaching and that the only reason that the indices are at highs is because of the complacency of market players who are blind to the many warning signs.
There is absolutely no doubt that the bears eventually will be correct and the market will undergo some very ugly corrective action. Anyone who predicts a bear market will be proven to be a great forecaster at some point
The issue isn't weather a bear market will occur. The issue is when. The thing that matters more than anything is timing. I you don't have the timing at least a little bit correct, then you are just plain wrong.
There currently is nothing in the price action to suggest that the end is near. The indices had a great technical breakout in the past week, and the fact that so many pundits were not expecting it is what helped fuel it. This is supposed to be the weakest time of the year, which caused many market players to anticipate some dull action. They were caught by surprise and forced to buy when the breakout occurred and managed to show some strong follow through.
With the indices now extended there is an inclination toward some profit taking and consolidation. The latest trade war headlines provide a good excuse for some selling, but the market clearly isn't overly concerned. There have been dozens of trade war headlines that have caused slight dips but led to eventual new highs. So far they have been nothing more than good buying opportunities.
China, on the other hand, has been undergoing some severe struggles for a while. The Hang Seng Index dropped 1% and suffered its fourth straight month of losses. The Shenzhen Composite dropped 8% in August and has been down five months in a row.
Opponents of the trade war created by Trump argue that the issue in China isn't trade but a lousy economy. They argue that the China markets shouldn't be viewed as an indicator that they are under pressure to make a deal. Maybe, but the U.S. markets don't seem at all worried that there is going to be dramatic fallout for the United States.
The other big story this morning is speculation that Special Counsel Robert Mueller may have some news on the collusion investigation. The argument is that he has to make an announcement well before the midterm election to avoid an impact like former FBI Director James Comey had on the 2016 presidential election. There is further speculation that the lack of an announcement means Mueller must have something of significance. Perhaps, but once again the market doesn't seem to be very concerned about the possibility.
The key to this market isn't the headlines, it is the price action. You can come up with plenty of negative arguments, but until there is some sign of a change in the way the market is acting you are just wishing, hoping and dreaming.
