Technically the indexes were set up well for continued selling and President Donald Trump made it easy with comments that a China trade deal may not be signed until after the 2020 election.
It looks like that the Dec. 15 tariff increases will go into effect as scheduled and that there won't be any major progress in the near term.
Many market players have been expecting exactly this, but they have been trapped by positive headlines, strong momentum, and endless short squeezes. Now, with the price action finally shifting, the bears are able to embrace the negative narrative they have been forecasting for so long.
While the indexes suffered some sizable losses, the mood was not excessively negative. After the early weakness, the indexes slowly drifted higher the rest of the day and closed near the intraday highs. Breadth was 2,650 gainers to 4,775 losers, which was better than yesterday, and didn't indicate widespread panic. There were some pockets of strength and my list of stocks that were up over 5% on the day was quite long.
Technically the indexes have room for further downside. There is not much technical support at this point, mainly because the indexes went almost straight up for so long. There are no major support levels down to the September highs.
Market players have been well conditioned to "buy the dip" and there were signs of that inclination Tuesday. This is not a market where the bids are disappearing, but without the constant positive headlines about China trade, it may be tougher to regain positive momentum.
So far this is still a positive correction and there is no reason to believe that a major top is forming. The bears have the advantage right now, but there are signs of solid underlying support. If there are a series of failed bounces and lower lows, then the character of the action will shift and sentiment will turn negative. Currently, many bulls are pleased to finally see some pullbacks, but if it continues too long the mood will turn ugly very fast.
We needed some corrective action, and we are now seeing it. But the important thing now is that some new support levels develop and buyers become aggressive with some dip buying.
Have a good evening. I'll see you Wednesday.