Both bulls and bears were speculating about how the market would react today following the China Trade ‘deal’ on Friday. So far both sides have been wrong as the market does nothing. The major indices are almost dead flat but breadth is negative as small caps lag.
Flat action is probably a moral victory for the bulls as there were many market players predicting a ‘sell the news’ reaction to a lackluster and questionable ‘deal’. There is no big rush to exit this market but there isn’t much interest in adding long exposure either.
The longer the indices stay above their intraday lows the greater the chance there will be some short covering and more interest in adding long exposure. If the lows do not hold then the expectation will be that the gap created on Friday morning will be filled.
My view of the action is that it will help charts to develop better as we head into earnings season. After the action last week what is needed is some narrow range action to create new support levels. It remains a very tough market for stock pickers. The indices have covered up some atrocious action in individual stocks. There are around 120 stocks making new 12-month lows right now and a surprising number of them are recent IPOs.
There are only about 50 stocks at 12-month highs and there is no obvious theme or leadership. It is unusual to have a leading name like Apple (AAPL) at a new all-time high but virtually nothing else. That action makes Apple look like a defensive stock rather than a leading growth stock.
There is much choice but better to stay patient as the market action develops further. The China trade news didn’t turn out to be the big market mover that many predicted but it is the nature of the market beast to confound as many folks as possible.
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