The indexes ended up close to flat on the day, but the positive spin is that they refused to sell off at all.
Breadth was almost dead even, as were the number of news highs to new lows. Technically, this continued consolidation near the highs is positive, but further progress needs to take place soon, or the stalling could turn negative.
What was most notable about the action Thursday, was the quick recoveries following two negative headlines about China trade. First was news that the U.S. Senate is close to passing a bill that would impact Hong Kong's special trade status should Chinese troops enter. The indexes sold off sharply, but then jumped back very quickly.
A couple of hours later, a second headline was a story from the Financial Times that the "phase one" negotiations were a "struggle" and that a final deal was not likely to emerge in the near term. This time, the market dipped for just a few minutes and then recouped the loss completely plus more. The indexes actually ended higher following bad news, and that set up a close near the highs of the day.
This action illustrates how the short-term trading is dominated by computer algorithms. The news itself is meaningless. What matters is the price action. A dip on a China headline is a buy, no matter what the headline might be and the buyers keep on buying, because the bad news is not meaningful in this context.
What is really amazing about recent dip-buying action is how persistent it has been. According to Dan Rosenblum, the S&P 500 has not had a dip that has lasted longer than an hour since Oct. 9, which is nearly six weeks ago.
Even a single pullback during that time frame has been automatically bought regardless of the news or technical setup.
It is interesting to note that six weeks ago was when Fed Chair Jerome Powell announced "not QE" quantitative easing. The Fed created even more liquidity and that liquidity is being fed into the market on every single minor pullback.
The natural reaction to this sort of artificial action is that it can't last forever. That may be true, but the action has already persisted far longer than any reasonable person might imagine.
The way to deal with this is to stay focused on the price action and wait for it to change. As many bears have already learned, you can't anticipate that the market is on the verge of a shift. That has not worked. The change will come and those that recognize and react quickly will profit from it.
Have a good evening. I'll see you Friday.
