The headline, "Stocks Rise On Optimism Over Trade Talks Between China and the U.S." has been a staple of the market for months. The same headline has appeared at least a dozen times and is now the subject of jokes and sarcasm by market players that view it as uninformative and manipulative.
Nonetheless, the market is up Friday morning after Treasury Secretary Steve Mnuchin tweeted that he has concluded constructive talks in Beijing and will continue those talks next week in Washington. There are indications that there is progress on the difficult issue of forced technology transfer, which would definitely be a positive.
While the response in the U.S. markets is quite sedate so far, China markets were up over 3%, which seems to indicate some level of real optimism. However, if any progress is being made, it is quite clear that it is going to take weeks or months before something definitive can be announced.
The big question for market players is whether these platitudes about progress on a China trade deal can keep a bid under the market -- or will this result in 'sell the news' action?
There is always hope that something new and substantive will be announced, and that has prevented the bears from digging their claws into the market for weeks, but it is clear now that this process is going to take quite a while -- and that will give the bears the ability to press without being blindsided by a headline. The market has been quite nervous and uncertain recently, with a series of intraday selloffs, but there has been consistent support that has prevented any really negative closes.
Market players need to watch recent lows very carefully. If there are some breaches of near-term support, it can get ugly fast. This market has had very limited upside momentum lately and it has been frustrating for bulls looking for some action. Strength is being sold, but the selling isn't gaining momentum either.
In addition to China, there are two other important issues in market trading on Friday. First is the Lyft IPO, which was priced at $72 -- the very top of the projected range. The stock will start trading a couple hours after the market opens, and will be the highlight of the news coverage today. The reaction there will have a major impact on the overall market mood.
The second important issue Friday is that it is the last market day of the first quarter of 2019. It has been a huge quarter, after the nightmare that was the fourth quarter of 2018. There is likely some major allocation into and out of bonds taking place, and some window dressing taking place, which may cause some random movement.
The big danger today is a "sell the news" response to the tired China trade headlines. If the early lows are taken out, be ready for selling to accelerate.