The market bounce that started on December 26 continues Tuesday morning, as market players anticipate positive develops from the trade negotiations between China and the U.S. The talks enter their second day, and there are some hopeful signs from high-level Chinese officials. In addition, President Trump is scheduled to speak tonight about the border issue, but it would not be a surprise if he made comments about progress on trade as well.
There is some negative news out there also, as Samsung warns that its earnings will be well below anticipated levels on weak chip demand. The problems that Samsung faces are not unlike those recently announced by Apple (AAPL) .
These economic concerns are being pushed aside in the short term, as market players are hesitant to be caught in the wrong side of a positive headline on trade. On Monday, there were signs that traders were starting to anticipate a pullback, but, as is so often the case, they are too quick to anticipate the end of this bounce.
There has been much commentary recently about how the big bounces occur in bear markets, but there are still plenty of traders trying to anticipate when this one will come to an end. It is understandable, but trying to time the exact bottom recently shows how difficult it can be to time the major turns in this market.
Currently, the less-hawkish Fed and hope for progress on trade are driving the bounce. The bounce has also has created some fear of missing out and that is helping to keep things running. As I discussed Monday, we have a shift to individual stock picking taking place, and as market players look for individual opportunities, they are less sensitive to the overbought conditions of the indices.
We have a very strong open on the way and that is being propelled by a squeeze of overly anticipatory bears and shorts. It is logical to expect a pullback after this sizable bounce, but with the potential for some positive news on trade, it is very dangerous to be too negative.
Conditions are developing for a "sell the news" reaction to headlines on trade with China. If you are looking for a downside trade, stay patient and wait for the news.