Market players are once again exhibiting some hope for progress on a China trade deal. After some ridiculous swings in futures overnight the rumors continue but there is a higher level of skepticism.
There are several schools of thought at this point.
Some bears are convinced that there won't be any progress on a deal at all and that it is going to send the market sharply lower. That is certainly an understandable argument but the question is to what degree is the market already anticipating that result? In addition, it sets up the dynamic where hope of a future deal keeps a bid under the market.
Another view is that there is likely to be some small deal but that major issues remain unresolved. I believe this is most likely. The market will likely celebrate that there is progress but the question is whether it will create a "sell the news" reaction. Many market players are looking to sell into strength and if there is a reversal following a deal, it could feed on itself.
This market has a habit of doing the unexpected, so I'm not inclined to act on predictions like those that I just made. My preferred approach is to wait for the news and then react to the price action.
If I was inclined to short the market, I would only do so after the news is announced. The returns may not be as great if you make good predictions, but the risk is reduced and there are still plenty of opportunities to catch some volatility.
This action continues to prevent good stock-picking. Stocks are moving in tandem with the indices and the indices are moving solely on China trade. If you want to trade there is no choice but to try to predict what the next headline might be.
There continues to be some carnage in individual stocks, especially small-caps, that will create some opportunities. However, careful selection and timing are the key. It is too early to do much at this point.