Three times in the past five trading days, the S&P 500 has gapped up at the open on positive news about a China trade deal. The news Thursday was the that there was an agreement to roll back planned tariffs, but late in the day headlines hit that there was "fierce internal opposition" to that move and the indexes reversed.
As I discussed in my opening post Thursday morning, technical conditions were good for an intraday reversal. The trade news has already been priced into the market to a great degree and technical conditions were extended. The bears have been growling loudly about excessive bullishness, but the contrary thinking doesn't really matter until there is some weakness to start the ball rolling.
We shouldn't make too big of a deal of this reversal since the indexes still didn't have any significant losses, but most of the corrective action in recent years has started with a reversal on "good" news. Bears look for "sell the news" reactions to everything and are more often wrong than right, but after a third gap on the same general news, there just wasn't enough buying power out there to keep chasing the market higher.
While the indexes still aren't in bad shape, what has been the main problem lately is the action in individual stocks. The great bulk of gains in the indexes was solely a product of a huge amount of capital being parked in Apple (AAPL) and a couple of bank names. Apple finally weakened late in the day and the indexes turned down, but if it wasn't for Apple, there would be some deep red on the screens.
Apple has been the ultimate safe haven lately, but small caps have turned ugly. Stock picking has become quite difficult again. Most of the action is exchange-traded fund driven, so there is not much value to trying to pick stocks.
We'll see if this intraday reversal leads to more corrective action. Of course, there is always the chance of another headline on China trade to jerk around. We can rally on that same news over and over, but when intraday reversals start to occur, then it is time to be more cautious.
Have a good evening. I'll see you Friday.