Phone Call Rally?

The bulls ran hard the first hour of the day Monday (on optimism stemming from hope on the trade war front and merger news).  After 10:30 am, markets drifted sideways the rest of the day.  The indices closed near their highs for the day.  The end result was another all-time high close in the SPY, DIA, and QQQ.  Even the IWM had a very strong day, breaking out of its range going all the way back to March and (unlike the other indices) it did so on heavy volume. 

If there was anything bad on the day, it was that the bullish surge took the T2122 indicator back up well into the overbought area at 88.  (T2122 is a 4-week New High to New Low Ratio that has a 0-100 range with over 80 meaning over-bought.)  Likewise, all the indices remain extended from their 50-day SMA.

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On the news front, overnight China’s top trade negotiator had a phone call with Sec. of Treasury Mnuchin to “address the core issues” last night.  This is another signal of progress toward a trade deal and the market is quite likely to take this as bullish.  However, in reality, this proves nothing as far as an actual deal goes. 

In other news, Congressional Democrats say they expect to deliver their Impeachment report shortly after the Thanksgiving break.  However, the door was left open for more hearings and last night a Federal Judge ruled that former White House Counsel McGahn must testify (a decision sure to be appealed).  This all could lead to a House Impeachment vote (essentially indictment) before the Christmas break.  The process (actual trial) would then be in the hands of the Senate and presided over by Chief Justice Roberts at that point.

Major economic news for Tuesday is limited to Conf. Board Consumer Confidence and Oct. New Home Sales (both at 10 am).  In terms of earnings, ADI, BBY, DLTR, and HRL all report before the bell.  (BBY reported a beat and raised forecasts.) After the close, ADSK, HPQ, and KEYS all report.

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Overnight, Asian markets were mixed but mostly green.  In contrast, European markets are mixed but mostly red at this point.  As of 7:30 am, U.S. futures are all just on the green side of flat.   

With the holiday coming and the most important economic news coming later in the week, it is quite possible Tuesday is a low-volume blah day in markets.   Still, bulls have been hearing only what they want to hear lately.  So, that phone call report may set off another rally.  Regardless, be careful, as low volume is likely to magnify market over-reactions.  Just remember that in the longer-term the market trend is bullish.  Continue to take profits, move stops, and trade your plan.  Keep in mind that a Trader’s job is to consistently make gains, not to hit home runs every once in a while.

Ed

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