Over the last couple of days the market action has been undergoing a change of character with a rotation out of the leading "growth" names and into the safer "value" names. The Dow Jones has been outpacing the Nasdaq 100 exchange-traded fund (QQQ) significantly as that rotation took place.
The change in market character continued Thursday. The day started with some reversal of the rotational action, which gave the market a frothy feeling. Quite often when it starts to feel like stocks are never going to go down again that is when trouble arises.
The trouble took the form of an announcement that President Donald Trump will hold a press conference on China on Friday. The main topic will be sanctions associated with Hong Kong and the treatment of ethnic minorities, but there is certain to be a discussion of the trade deal and responsibility for the Covid-19 crisis, as well. The market has been a little skittish about a sharper conflict with China, and, given Trump's inclination toward bluntness, the possibility of the problems escalating is quite high.
The indexes saw an intraday reversal and a weak close. This is the sort of technical action that patient bears have been waiting for. It is likely that there will now be more confident attempts at trying to call a short-term top. The China situation is an obvious catalyst and the technical action is now looking more supportive of some downside.
At this juncture, a pullback would be more bullish than bearish. Many stocks need rest and technical conditions are overbought. There is plenty of room to the downside, before any support levels would come into play. Many market players have been waiting for the second shoe to drop. They are hopeful this might be it, but it is far too early to believe that this huge counter-trend move is ending.
Have a good evening. I'll see you tomorrow.