President Trump was uncharacteristically quiet after his G20 meeting with Xi. As I wrote in the weekend newsletter, I think China won this round. Trump immediately moved to generate some positive headlines with the visit to North Korea. Investors are glad he did because the market rallied on hopes the China trade war was moving to the back burner to simmer for several months. There was a monster short squeeze at the open and the Dow rallied 299 points. Unfortunately, sellers appeared, and the Dow fell back to only +25 in late afternoon. There was some buying at the close to end at +117.

I wrote on Sunday that Monday morning was NOT a buying opportunity or an entry point for longs. The almost immediate selling at the highs proved that point. This does not mean that the market is not going higher, only that headline short squeezes rarely last. Too many experienced investors understand that fact and use the spike in prices to lighten up on their positions.

Today was still a good day in the market. The Nasdaq gained 85 and the S&P gained 22 points. Unfortunately, the Russell 2000, which had a big day on reconstitution buying on Friday, gained only 3 points today. Reality is returning.

The S&P closed at a new high by 10 points. That is never a bad day. It did close 13 points off its highs. I would take that trade every day if it was offered. We do not have to move straight up to have a rally. Three steps forward and two steps back will work just fine because it will take a long time to reach overbought levels. That gives investors opportunities to swap positions without switching to panic mode.

That round number resistance at 3,000 is drawing nearer and that should be a major hurdle to cross. That is the year-end target for many analysts and a level where some fund managers could begin taking some chips off the table to protect their gains for the year.

The Dow components were mostly positive with Boeing the major drag on the discovery of a new problem in the chip that controls the autopilot. Boeing erased 50 points from the Dow. The index traded very close to 28,900 but could not hold the gains. The easing of tariff worries allowed Apple to lead the pack. The Dow is still struggling, and it could take another catalyst to create a real breakout.

The tech sector was strong today thanks to the chip stocks and the news on Huawei. Only one of the big cap tech stocks posted a loss for the day. The Nasdaq pulled to within 75 points of a new high. One more good day like Monday and we could see some real price chasing by retail traders. Nothing brings them back into the market like a new Nasdaq high.

The Russell 2000 recoiled from the touch of downtrend resistance and traded back below 1,566 and the 10% correction level in the afternoon. Some late day buying, probably some leftover reconstitution adjustments, lifted it over that level by 3 points. Now that the reconstitution is over, the Russell will be a key market sentiment indicator.

The remaining economic reports are crammed into the next two days with the Nonfarm Payrolls being the exception. This is a lot happening for a low volume holiday week. The next two days will see significantly lower volume and Friday should be a holiday because volume will be nonexistent.

Now that the short squeeze is over and the morning excess has been burned off, we could see a positive market for the rest of the week. I would not expect any major moves on low volume, but we could see some increase in volatility. Sometimes these days have a big volatility spike at the open then go dormant for the rest of the day. I do not see a specific negative for the market but there are some lingering headlines. Since the market likes to climb a wall of worry those headlines could give them some steppingstones.

Enter passively and exit aggressively!

Jim Brown

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