There are only two issues that matter to the market right now. The first is that the only news flow that has an impact is related to a potential China trade deal. The second is that there is that there is automatic buying of any dip created by negative news about a China trade deal.
That is it. If you focus on those two things and little else, then you will be in tune with 80% of the overall market action.
Our job as traders is to do our best to exploit patterns of this sort. We also need to watch closely for a change in the patterns. Yesterday, for example, the dip buying on negative China news worked again, and last night -- following news about Trump likely signing a bill dealing with the special trade status of Hong Kong -- was also a good opportunity to buy the dip. There was some slight hesitation but the overall pattern remained the same.
Thursday morning, there are some positive trade stories out of Beijing, which wiped out the overnight losses. Most notably, Geo Feng, China's Ministry of Commerce spokesman, said that "China is willing, on the basis of equal and mutual respect with the U.S., to work together to properly settle areas of common concern and strive for a phase-one trade agreement."
In addition, China's lead trade negotiator, Liu He, said that various reports about a trade deal are "confused" and that he is optimistic about a phase-one trade deal.
Traders are finding the market's response to every scrap of trade news to be rather tiresome, but there is no choice if you want to navigate the action in the near term. There simply is nothing else that matters and it is driving the technical action as well.
The biggest consequence of the focus on China trade is that it is preventing corrective action from developing in the indices. There is rotation action taking place under the surface, which is reflected in mediocre breadth and a low ratio of new highs to new lows, but the indices remain stubbornly sticky to the upside. Every minor dip of any sort has been bought for weeks.
The most logical bullish thesis is some sort of pullback at this point, creating a platform for an uptrend into the end of the year -- which is traditionally strong. Maybe that scenario is too simple and easy to work, but it is what many market players are looking for.
The most important thing you need to know about navigating the market is that it is not productive to keep trying to anticipate a market collapse. There has been a giant opportunity cost to taking that approach. There is still money to be made on the upside in individual stocks, even if the indices are mostly churning.
My game plan is to continue to watch the dip buyers and see if they are willing to relent. The reaction to news about China trade is likely to continue in the same manner and it may actually take the signing of a deal to clear the way for the correction that so many are looking for.
We have a flat start this morning which may be beneficial to some individual stock picking.