Market players were caught by surprise after President Trump tweeted on Sunday that he was looking to raise tariffs on Chinese goods because he was unhappy with the progress of negotiations. There were some very loud "I told you so's" from bears that have been consistently skeptical about a deal as well as a small amount of panic in the air as Chinese markets were pounded.
The doom and gloom didn't last long in U.S. markets, though. The low of the day occurred in the first few minutes of trading and it was pretty much straight up from there. Market players immediately bought the dip and then gained confidence as the day progressed. Breadth was about 5 to 1 negative at the open and 4 to 3 negative by the close.
The most interesting aspect of the trading Monday was the strong relative performance by small stocks. The Russell 2000 ETF (IWM) finished the day up 0.11% while all the other senior indices were in the red. When market players are fearful they don't buy the small-cap speculative names, but there were few signs of fear today.
What really drove the action was that many market players rejected the bearish narrative that Trump doesn't know what he is doing on trade and that a good deal will never be made. There are many market players with a political bias who are anxious for that scenario to play out. Much of their negative thesis is driven by their feelings about Trump rather than by the reality that some tough negotiations are taking place and progress is coming slowly.
This market just isn't buying the idea that a China trade deal is dead. It may take a while but the underlying support shows that there is a good level of optimism. Maybe the market is wrong but the price action is a pretty convincing argument.
Despite the ugly open there was no technical damage done to the indices. In fact we have a clear support level now at the opening lows. As long as that level holds we can remain positive.
Have a great evening. I'll see you Tuesday.