Although it shouldn't be too surprising, the trade war between the U.S. and China is intensifying and the market is increasingly concerned.
The big problem here on Thursday morning is that China has stated it will not resume trade talks until the U.S. has corrected its "wrong actions." The reference appears to be to the banning of Huawei Technologies, which is not being subjected to bans and restrictions by companies such as Panasonic in other countries.
Not only is there concern about trade talks, but there is fear of further retaliation by both sides. Goldman Sachs has a report here on Thursday about the risk to Apple Inc. (AAPL) should China choose it as a target for retaliation.
The market consistently has been saved by vague and hopeful comments by Treasury Secretary Steve Mnuchin, but it no longer has much confidence that there is any real progress. It is going to take more than empty platitudes to regain the confidence of market participants.
While the gap-down open here on Thursday is sizable, the S&P 500 is still within its current trading range. The key level of support is 2800 and current indications for the open are around 2835 or so.
Over the last eight trading days the biggest positive has been the underlying support. Dip buyers have showed up, there was a good V-shaped bounce last week and market players have tried hard to shrug off the negative. The thing we need to watch for is another trend down day. If early bounces do not hold and there are some lower lows and a poor close then the chances of a more substantial correction will increase greatly.
So far the market has been hesitant to fully embrace the economic danger of a full-blown trade war, but the hostilities now have progressed to the point where the phrase "technology cold war" is being used, which indicates far more severe and longer-lasting issues.
The market has been giving us warning signs for almost two weeks now and if you are a prudent trader you already should be holding high levels of cash. Good opportunities will develop out of this mess, but the key right now is to protect capital and avoid the temptation to try to guess a bottom.
Futures are slightly better at this writing than they were overnight, but this open is going to raise the level of concern and push more market players to look for exits.