The good news this morning is that market players will not be held hostage by headlines about China trade negotiations like they were all of last week. The bad news is that it is already being reported by Bloomberg that China wants further talks soon to hammer out the details of the 'phase one' trade deal.
It isn't a giant surprise that there is still much uncertainty about a trade deal but the market was relieved that there was some progress although many market commentators are taking great delight in characterizing the trade situation as a mess with no end in sight.
The most important question of all at this point is whether the market is now set up for a 'sell the news' reaction. The conditions are nearly ideal with the S&P 500 running up 2.7% over three days into the well-anticipated news The fact that the deal is vague, unsigned and could even fall apart suggests that it may be a good idea to lock in some recent gains into strength.
The main positive at this point is that the 'sell the news' trade is so obvious that it may not be quite as easy as the bears may think.
The negative narrative that the trade deal is a disappointment is being widely circulated by the bears that have been trying to catch a market turn but this is a market that is tired of that trade issue and is looking to move on. There was some progress made on the issue and at a minimum, there appears to be at least a partial truce. That is good enough for many market players that would like to focus more on stock picking rather than dancing around to each new headline about China trade.
What is likely to prevent a 'sell the news' reaction from gaining too much traction is that the focus will now shift to the Fed and the likelihood of two rate cuts before the end of the year and upcoming third-quarter earnings.
Talk of a slowing economy is driving down expectations for third-quarter earnings which will be helpful especially if there is increased confidence that the Fed is going to stay on a dovish track.
My game plan at this point is that I'm looking for some 'sell the news' pressure as market players digest the China trade mess but for some fairly fast support to develop. The S&P 500 has its first support at around 2950 which would fill the gap created on Friday morning. Under that is the 50-day simple moving average at 2935.
If some good support can form then it should help set up some trades into earnings season. Ideally there will be less focus on macro matters and more focus on individual stocks that have been beaten down without regard to their individual merits.
I'll be looking to take off index shorts that were initiated on Friday quite quickly and then start looking harder for technical setups in individual stocks.