The gloom was thick enough to be cut with a knife Thursday morning as the market grappled with the breakdown in the China trade negotiations again. Stocks gapped down and breadth was very poor before some support kicked in, almost to the penny, when the S&P 500 filled the gap on its chart that was created on the morning of April 1.
Ironically the gap that April morning was created by positive comments from the White House and Treasury Secretary Mnuchin about progress on a China trade deal.
The tone of trading improved during the day on hopes that there would still be some progress on a trade deal even if there was no final agreement. President Trump made some vague positive comments and shorts were a little concerned about being caught by something positive.
Tariffs go into effect at midnight and we should hear something about the tone of the trade negotiations Thursday afternoon. While traders are trying to catch a bounce, they are not likely to stick around for long. The action this week has created some technical problems and there will be a greater inclination to sell into strength rather than chase momentum unless there is a very major change in the trade issue.
There was some decent action in individual stocks Thursday as bargain hunters looked for opportunities. While it is premature to believe that the selling is coming to an end, if you have raised substantial cash this past week it is hard to resist the temptation to pick at some bargains.
The Uber (UBER) IPO was priced Thursday night at the low end of expectations at $45. The IPO Friday will soak up a fair amount of liquidity and give us some feel for how much of a speculative appetite there still is out there. If Uber fails to hold its pricing like Lyft (LYFT) did it will be a negative for the broader market.
There is good reason to proceed with a high level of caution as the market continues to sort out the trade issue and looks for positive catalysts. The technical conditions have deteriorated and there are few pockets of strength. There will be some movement on trade, but the path of least resistance is now to the downside.
Have a good evening. I'll see you Friday.