Logic Gets Tossed Out the Market Window During a Drama-Filled Week

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The indices ended the week with minor changes, but there was no shortage of drama.

Things started off with a bang when stocks gapped down sharply and gained momentum following tariff retaliation by the Chinese. The selling was the worst of the year, and pushed the indices into a technical downtrend.

However, rather than a rush for the exits to escape further downside, the buyers stepped up and suddenly all the folks that were unprepared for disaster on Monday had to reposition and become buyers on Tuesday.

The buying continued for the next two days, even though the Chinese situation continued to deteriorate. There was some positive news on negotiations on auto and steel tariffs with the EU, Mexico and Canada, but the rhetoric out of China intensified.

A couple of decent earnings report from Walmart Inc. (WMT) and others helped give buyers some excuses, but the market was a marvel of illogic as it seemed mostly unconcerned about the breakdown of China negotiations and the likelihood there would be no resolution for months.

There will clearly be some economic fallout from the failure to reach a deal, but the indices just didn’t react much to the news. All week long what dominated the action were computer algorithms that constantly caught market players by surprise.

There was also consistent buying of early weakness but selling into the close.

I’m concerned about the lack of positive catalysts in the near term and the choppy technical action. The bulls are providing stubborn support but, as we saw on Monday, the bouts of selling can be quite severe and come quickly. I’m still holding high levels of cash and staying cautious.

Have a great weekend. I’ll see you on Monday.

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2019-05-17 21:00:06

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