The bears have been trapped numerous times recently as they have anticipated a 'sell the news' reaction to headlines about progress on a China/U.S. trade deal. Today that trade finally worked for them.
There were hints last night that the market might not be willing to chase the news like it has previously when foreign markets had a tepid reaction to the latest headline. But this morning, as soon as the indices gave back the opening gap, the selling momentum picked up strongly.
The big issue now is whether this is just some healthy profit-taking that is long overdue or is this the start of deeper corrective action that is going to cause some real concern?
The main issue facing the bulls right now is that there isn't much support on the chart. This morning the S&P 500 has already given back the last eight days of gains and there isn't much support down to the 2750 or so where it will hit the 200-day simple moving average and fill a gap. There will also be a bearish engulfing pattern on the weekly charts if the S&P 500 closes here.
At this point, I'm not trying to guess whether this is a major turning point. What I am going to do is to take some steps and sell some positions. I'll be happy to buy them back and even pay a higher price if the market stabilizes. But the name of the game is to keep accounts as close to highs as possible and the only way to do that is to do some selling.
Selling is your best form of insurance and it is very easy to reverse. The big losses always come when you are afraid to use that tool.
If this market closes near the lows of the day it is going to have a strong impact on sentiment, but we'll see if the dip buyers are brave enough to step up this afternoon.