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Wall of Overhead Resistance
It looks like the correction in the U.S. stock market, and by correction I am referring to the rally, the first correction in what I believe is a new bear market – but it’s looking like that correction may have finally run its course as the stock market has run into a wall of overhead resistance. In fact, the technical action on Monday was quite telling, because early in the morning we opened quite a bit higher – 100 points or so higher, and then had a 350-point reversal to the downside. The catalyst for the initial rally was yet another rumor of an impending trade deal with China. And it seems to me that we’ve basically run out of the ability to continue to rally the market by regurgitating the same news story over and over again.
Now They’ve Sold the Last Rumor
Remember I was saying that, when we actually have a trade deal, with China, my thinking would be it would be a “buy the rumor, sell the fact”? Well the problem is, traders have already bought that rumor over and over again and that they may have already sold the last rumor. They can’t wait for the fact. They’ve just had so many rumors, that now they’ve sold the last rumor, and it doesn’t even matter if we get a deal – the market is going to sell off. Of course, if we get no deal at all, then the market could sell off even more, because a great deal has already been priced in to the market. But there isn’t going to be a great deal. There will be a deal, there will be nothing great about it; there will probably be nothing substantive about it. Expectations have been raised so high, which is another reason that I don’t think Trump is as good a negotiator as he pretends.