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Stocks Pull Back, Want More Details On US-China Trade Truce
Stocks gave back all of their U.S.-China trade truce gains and then some with all of the major indexes down by more than 3% yesterday (and the Russell 2000 Index down over 4%).
Whether it be confusion over the tariff truce, skepticism, or cynicism (and President Trump's tweet yesterday where he called himself the 'Tariff Man' didn't help), it's clear that traders want and need more details on this truce. Would also be nice to hear from China as well, as they have been pretty tight-lipped on it.
But the administration remains very upbeat about the truce and believes a real and long-lasting deal is coming.
Quite frankly, I think yesterday's sell-off was much ado about nothing. And I was actually glad to see it. That's because it looks like we'll finally go back and close all of those gaps left on the chart as a result of the recent run-up.
You'll recall a couple of weeks ago I commented that we needed a pullback due to all of the common gaps left on the chart from late October/early November's rally. Those gaps indeed were filled in and then the market proceeded to rally higher (which we saw last week and Monday). But in doing so, they left another 3 gaps in their wake. One of them was filled yesterday. But there are still two more just below the market (S&P) – one at 2,682.53 from 11/27 and 2,647.55 from 11/23.
As I've said before, common chart gaps act as magnets, preventing the market from getting too far ahead of itself before it has to backtrack and fill those in. Because of this, plenty of technicians are reluctant to build new positions until those gaps are closed. But once they are, stocks typically take off.
And that's all I think is going on here – again.
Doesn't make the pullback any less painful. But once those gaps are gotten, I would imagine we'll see lots of new buyers emerge and I'll be one of them.
Anxieties were also probably running a little high given the trade talk uncertainty and the market being closed today in honor and observance of President George H.W. Bush's funeral.
Markets will be open as normal on Thursday and Friday.
But as I alluded to above, I would love to see a little more backfilling to close up those remaining gaps once and for all.
In the meantime, do not be deterred.
The economy looks great. And the market looks poised for a strong end of year rally and a big 2019!
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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Stocks gave back all of their U.S.-China trade truce gains and then some with all of the major indexes down by more than 3% yesterday (and the Russell 2000 Index down over 4%). 
