Today's late 'backing-off' of the S&P and DJIA is attributed to speculation on the U.S. threatening to sanction China over their 'national security law' that's intended to suppress freedom in Hong Kong by intimidation and more. That has become a bipartisan issue (support for Hong Kong); and President Xi in that respect is not doing himself any favors if he thinks he'll outsmart Trump in a political year by repressing Hong Kong under-cover of viral cooperation.

Executive summary:  

• 'Refraction' might be a term this week to describe the bending of light as Space-X Dragon's crew gazes at the sunset as they near the ISS, and it might reflect the bending of the curve as (so far) 're-opening' hasn't seen a rush of serious hospitalizations or deaths as the downtrend persists.

• At the same time 'refraction' might be an ability of S&P to reflect on the denials of a correction (so far), that skeptics have gunned for these two months (and as upside continues to deflect all bearish efforts).

• America's optimists still retain control which is terrific provided Covid somehow doesn't surge, although it's all risky, given no therapeutic drug exists, plus a number of vaccines at least months away from approval.

• While very early, there's a new combination therapy that an Israeli team claims kills almost any coronavirus, influenza or COVID-19 (see below), notably both individual drugs are available here in the USA if needed.

• Thus the hope for now has to be gradual reopening with a seasonal fade fairly common with viruses, but of course little is still known about that.

• By the way French Intelligence warned Paris that (we touched on their design of Wuhan Lab) China was hoodwinking their leaders and could use the facility to create bioweapon viruses. 

• Too many analysts continue to tie stock market behavior to the economy while the very same individuals often proclaim separate dynamics tend to affect the action.

• Since the March washout lows my view has been of S&P 'discounting' a recovery (essentially now) amidst constant skepticism from 'the Street', with periodic reluctant nibbling around the edges of 'super-cap' leaders.

• Those super-caps (FANG+ if you prefer) generally faded late Tuesday, but I suspect will revive once more (if temporarily), making it tough to get 'rotation' (another 'refraction or bending') needed to solidly advance.

• Earlier the 'nibbling' rotational efforts flailed and failed, either low liquidity or underlying fundamentals being roundly proclaimed as reasons why, at the same time 'triple pounding' resistance usually, if briefly, succeeds.

• Now you do have better 'demand' prospects for Oil (inventory slowly but surely whittled down), some hints of fewer defaults that would help bank stocks (I'd not be too confident about that; as nonperforming loans really are looming, with a herculean effort to avoid big bankruptcie,s; and some in the Oil Patch may be able to squeak by as has been my hope).

• Merck (MRK) announced 3 separate COVID-19 'avenues'; notably one is a 'pill' that would be either a treatment, a preventative as soon as symptoms start, or both, if successful.. that's another tidbit that spurred optimism today.

• Besides the space launch; Wednesday is the launch of HBO Max, as a part of the pattern that we suspect will eventually erode Netflix's (NFLX) role of preeminence in streaming.

• For millions of AT&T (T) customers (with more premium wireless or internet services), provide essentially huge Warner movie libraries (and more) without extra charge, which should give HBO Max a good start as well as contribute to reshaping the profile of AT&T as a media player (that could command a higher multiple not just dividend reliance long-term).

• Finally; the target for this push of S&P has been 3000 and maybe 3100; but even that latter number is going to be tough without broadening out.

(Launch Day is Wednesday; AT&T firmer and Netflix weaker in-advance. Also there's a MAC-OS update .. following last week's Apple-IOS update.)

We thought the S&P would press forward at the start of this shorter post-Holiday week and it sure is. During the day I suggested any late fade would just be the result of intraday selling and I think that's all we saw as it seems there was nothing about China that wasn't already assessed, other if that matters, the President saying we'll hear more by the end of the week.

What we will see is unknown. What we should see is pretty obvious. So thus is not a trap for Trump, but for Xi. In fact it might be Xi's last best chance not to have the 'Dragon' (theirs not Musk's space capsule) meander through the streets of Hong Kong and Kowloon, but rather take a higher road with more respect for the 'will' of the people of Hong Kong. A recent poll showed about 75% of the population supports the pro-democracy /basic law protestors. It should signal Xi that if he forcefully imposes police state tactics, that tends to anger and sour people (including his own) toward Beijing, not help China.

This market might be more about China now than Covid-19. In this situation it's a week or two from now that we'll see the cases (or worse) that may or may not exceed explosive thresholds. We're optimistic that they won't, and that the favorable trends will persist, at least for a bit. I can't even imagine the 'tone' of political openings (not 'just' the President's) if they didn't have any clue that things are less dire than the worst case expectations.

This would be a great time for Xi to show magnanimous regard for humanity (and save himself from years of occupying a Hong Kong that not only wants less, not more, Chinese central government involvement, plus preserve the bulk of corporate and institutional presence as an Asian financial center). In fact I ponder whether Xi knows this and has another angle entirely, given 'if' China moves heavy-handed on Hong Kong; the economics and connection to the outside world will 'change' (to say the least) if Beijing carries this on.

Stocks need to consolidate a bit, perhaps a morning dip then bounce and it's likely to struggle a bit around the highs made today (in the morning as really that was the move, up right away; lateral, and then slight fade).