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Stock Market Outlook Weakens After US-China Meeting Delayed

Stock Market Outlook Weakens After US-China Meeting Delayed

2019-11-06 19:30:00
Peter Hanks, Junior Analyst
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Stock Market Outlook:

  • A Reuters report said the meeting could be delayed until December
  • Switzerland and Sweden are among the potential locations to host trade deal signing
  • The delay works to undermine investor optimism regarding the deal and undercut US stocks

Stock Market Outlook Weakens After US-China Meeting Delayed

In my weekly equity webinar, I noted the US-China trade deal was anything but concrete. As history has shown, the two sides have frequently displayed an unwillingness or inability to make notable progress on trade – despite what the stock market’s valuation might suggest. Evidently, my concerns were vindicated on Wednesday when Reuters released a report that stated the US and China may not meet until December to discuss trade.

S&P 500 Price Chart: 5 - Minute Time Frame (November 6) (Chart 1)

S&P500 Price Chart

The announcement resulted in a quick, but modest, selloff in the stock market. Now, traders will have to reassess the likelihood of the phase one trade deal reaching completion and recent optimism that has helped push stocks to all-time highs may fade in turn. Still, it is important to keep in mind that while the fundamental drivers for a bullish continuation have weakened, the Fed’s willingness to ease has created a constant tailwind for the longer-term outlook. To this point, the Fed’s position has seemingly overpowered the headwinds from the ongoing economic conflict and global growth slowdown.

Stock Market Outlook Weakens After US-China Meeting Delayed

That being said, IG Client Sentiment Data reveals a modest pullback in short exposure on the S&P 500 which could hint that the index is soon due for a reversal lower. Retail trader data shows 21.98% of traders are net-long with the ratio of traders short to long at 3.55 to 1. The number of traders net-long is 5.16% higher than Tuesday and 2.52% higher from last week, while the number of traders net-short is 0.74% higher than Tuesday and 0.39% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests the S&P 500 may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current US 500 price trend may soon reverse lower despite the fact traders remain net-short, but further changes in positioning may be warranted.

Regardless, such a reversal would align with the fundamental deterioration brought about by the trade war news and the potential for volatility in November. Thus, if a deeper retracement does materialize, it would allow for a period of consolidation that could create a staging ground for another attack higher when conditions improve and the market has adjusted to the news.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Stock Market November Forecast: History Suggests Volatility is Overdue

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