Since we last spoke the market has reached new record highs. And withstood wave after wave of potential negative headlines on trade that had no ill effect on stock prices until today (Wednesday). And even this was a pretty mild reaction to news that the Phase 1 signing may be pushed off til 2020.

It occurred to me this is quite like the story of the Boy Who Cried Wolf. So I will spell out more on that below as well updates on our portfolio.

Market Commentary

Reity, how is the recent market saga similar to the fabled tale of the boy who cried wolf?

I am sure most of you remember this story. So I will just give an abbreviated version.

A village boy kept scaring the towns people that he saw a wolf that was going to wreak havoc. So everyone freaks out. And the twisted boy gets his jollies from the resulting panic he helped create.

Now the people are wise to his shenanigans. So the next time the boy cries wolf they rightfully ignore his wailing. Only this time…there really was a wolf and the stuff hits the fan.

OK, with the story in mind, think about all the headlines this past week pointing out that things are not all peachy keen for trade negotiations:

China says the trade war should be ended by removing tariffs

Which got followed by….Trump threatens higher tariffs if China doesn’t make a deal

China says US is interfering after Senate passes bills supporting HK protesters

Attorney General Barr says Chinese companies ‘Huawei and ZTE cannot be trusted’

None of the above moved the needle because investors think they were artificially thrown out of stocks in the past from this kind of news only for them to bounce back with gusto. So investors don’t want to sell out only to miss the next rally.

And yes, that interpretation of events seem to be true even with the more serious headline today that the Phase 1 deal may actually be delayed til the New Year. The initial reaction was for S&P to tumble 1% back under 3100 in a matter of minutes. And yes, smaller/riskier stocks saw much more painful losses.

Sure enough investors saw the dip as a buying opportunity because a delay in Phase 1 is the not the same as the deal falling apart. And that we have to appreciate some awkward moments is a natural byproduct of the “sausage making process” that goes with a big trade deal like this one.

So at the close tonight stocks were at 3,108…down only a modest -0.38% on the day. Not so scary after all. But don’t forget that one of these day it is possible that a real wolf emerges from the trade talks and stocks would see a steeper retreat. So we need to be prepared for that possibility (even though making a deal is more probable).

There is not much else to report on the economic front this week. Even the Fed Minutes today provided no fresh info.

So it just keeps us dialed into the China trade front with my earlier prediction that we would trade in consolidation mode around 3,100 for the foreseeable future. That seemed in question as we surged to as high as 3,127. However, today’s events will likely stay in the back of folks minds keeping a lid on much more upside.

I will share more insights on our trading strategy during this consolidation period in the next section.

Portfolio Update

The most recent wave of Consolidation and Sector Rotation trading was….

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SPY shares were trading at $310.24 per share on Thursday morning, down $0.53 (-0.17%). Year-to-date, SPY has gained 25.87%, versus a 25.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Steve Reitmeister

Steve is better known to the StockNews audience as “Reity”. Not only is he the CEO of the firm, but he also shares his 40 years of investment experience in the Reitmeister Total Return portfolio. Learn more about Reity’s background, along with links to his most recent articles and stock picks. More...

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