Daily update 8/17

Upside follow through.

The bulls seem inspired over the U.S. and China meeting to discuss trade.  Breadth was +67%.  New highs were stable at 100.  New lows were also stable at 48.  SPX completely filled the 8/10 gap down.  It closed fractionally below yesterday's high, but essentially above the highs of the last five days.  This looks like it should test the recent highs and maybe more.

The futures sold off a bit early in the day continuing yesterday afternoon's move down.  When they got down to yesterday's open the buyers showed up.  Support showing up at a logical place is bullish in the short term at least.  At the end of the day the futures confirmed a break above the 20 SMA. 

The green count crossed above the red line.  This was a good day for bulls.

The bulls pretty much blew up the potential head and shoulders top.  SPX stopped when it got up near where recent resistance was.  The last two days look pretty strong.  SPX might push through that resistance this time.  That would set up a test of the Jan. high.  It is tough to analyze this situation.  I believe the rally is based on trade resolution with China which may or may not actually happen. 

These are the headlines that started this rally yesterday.

• White House economic advisor Larry Kudlow confirms that U.S. and Chinese officials will meet later this month to try to work out their trade differences.
• He says President Trump has a strong resolve to make sure the U.S. gets the best deal possible.
• Markets have been nervous that the U.S.-China fracas could spill over globally and halt the momentum the economy has seen during the Trump administration.

If talks go south so will the market.  How do investors handicap that?  They have already talked several times and nothing happened.  One thing might be different this time.  There has been talk of some discord within the Chinese government over trade.  If China bends a little will it be enough to satisfy Trump.  There are signs China is having problems with their economy which could make Trump press for more.  I don't know if China is really ready to bend enough to have truly free trade.  Maybe the talks bear fruit and it all works out and maybe not. 

For a few days it looked like investors were looking to take some money off the table.  The last two days look like investors are back in a buying mood.  Maybe the bulls got the news they were looking for to get SPX back to the highs.

Have a great weekend.

Bob