Market participants have grown skeptical of talk about positive developments in the trade negotiations between China and the U.S., but news of a meeting in early October hit at a perfect time.
The negative narrative has been gaining traction lately, especially after a weaker-than-expected manufacturing report on Tuesday. Many traders were anticipating that the recent trading range would resolve itself to the downside as concerns about a slowing economy took hold.
That created poor positioning for positive news. First, the news of a meeting hit and then better than expected ISM Services numbers were released. The news hit at the perfect time to drive the indexes out of the recent trading ranges. The trading range has been so obvious it created the risk that it would not hold, but the negative sentiment seems to have prevented that.
The big question now is whether the market builds on this breakout of a long trading range, or if there will be a quick reversal back down. With many market players leaning bearish, there is likely to be some good underlying support. It was a little disappointing that the indexes topped out about an hour into the trading day, but they held very steadily, in a tight range, into the close. Breadth was better than 5-2 positive, and there were signs that market players were hunting for some new exposure.
Typically a technical move of this sort will stay sticky to the upside. There is always the chance of surprise news, but there should be no big rush to try to fight this breakout.
This action should lead to better stock picking, as we shift away from purely directional trades.
The 50-day simple moving average of the S& P 500 is around 2945. Wednesday, that was a resistance level. Thursday it is the key-support level. The next resistance level will be the highs hit in late July. I'll be looking to put more money to work as this pattern continues to develop.
Have a good evening. I'll see you Friday.
