President Trump signed a "pro-democracy" Hong Kong bill that is largely symbolic but is raising the hackles of the Chinese. They have stated their unhappiness, but have not yet announced any obvious retaliation. The key date for the trade negotiations remains December 15, when various tariffs are set to escalate. The market is anticipating that those tariffs will be delayed as slow progress is made, but if they aren't, the potential for a negative market reaction is quite high.
The endless hope for a Phase One trade deal has been the chief catalyst for a series of new highs. Although most trade participants find the continuous headlines and proclamations of progress to be rather ridiculous, there has been little choice but to stay long just in case something of substance really does occur. There is almost universal agreement that if and when a Phase One deal is done, it will be a monumental "sell the news" situation.
The recent series of new highs and the endless focus on a trade deal has set up market conditions where nearly everyone is looking for some sort of pullback or corrective action to begin soon. The S&P 500 has not had any meaningful selling since October 8 -- and by any measure is overdue.
The market headlines tend to overlook the fact that not even the bulls want the market to go straight up without a pause. That is good for buy-and-hold investors that are already fully long, but for those bulls, with a more strategic approach, it is nearly impossible to put money to work when the indices are acting in this matter. There are no lower-risk entry points. If you are truly a bull, you understand and embrace the idea that some market downside at this point would be healthy and productive.
When both bulls and bears are hoping for some sort of corrective action, it is typical for the market to be uncooperative. Both sides grow worried that the pullback will not come and they take actions, such as covering shorts or chasing strength, that help the uptrend to continue.
The market has done a nice job of producing the seasonal strength that was expected this week, but traders are very aware that there is a strong tendency to give some of those gains back on Monday. It is likely that they will start to anticipate that action -- and given the extended technical conditions, the potential for the long-awaited corrective action is high.
So far we have a mild, negative start today, but everyone is now looking for a pullback and Monday is a nearly perfect time for it to begin. There should be some positioning moves today, but there isn't much of an appetite for working.