Rev's Forum: Can Merger Deals Give Market 'Mo' a Jolt?

 | Oct 24, 2016 | 8:07 AM EDT
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"If I must start somewhere, right here and now is the best place imaginable."

--Richelle E. Goodrich

Four large corporate deals have the market is a good mood to start a busy week. AT&T (T) plans to acquire Time Warner (TWX) , Rockwell Collins (COL) has agreed to buy B/E Aerospace (BEAV) , TD Ameritrade (AMTD) is combining with ScottTrade and a Chinese investment firm is buying Genworth Financial (GNW) .

It is good news for investment bankers that will rack up some hefty fees and it is positive that corporate executives still view many companies as good values, but you have to wonder if the rush to make these deals may be triggered in part by some concern that interest rates are soon to rise. Cheap capital is what makes these deals attractive, and there may be increased pressure to pursue deals sooner rather than later if rates start to inch higher.

For now, the push for corporate combinations is creating a positive mood. It also is helpful that we've had some solid reports from big names such as Microsoft (MSFT) and Netflix (NFLX) . Earnings news continues to roll in this week with plenty of big names to provide some headlines.

Oil is a bit softer and overseas markets aren't seeing big gains, but the indices are poised for a positive start. Whether they hold is the issue.

The million-dollar question once again is whether we finally will see sufficient momentum to break this market out of its long trading range. The indices have not made any significant progress since July, but there is stubborn underlying support even if there is a lack of positive momentum. The bulls may not have a lot of juice, but the bears are still incapable of seizing control of the action.

For years, I wrote extensively about the market's inclination toward V-shaped moves. Once the dip buyers started they just keep going. Weak, low-volume bounces just kept on running, squeezing shorts and forcing market players on the sidelines to chase. There were some remarkable straight-up moves as the bulls strung together a series of positive days.

That dynamic has changed for some reason. Instead of the V-shaped moves we see the nascent momentum fizzle out quickly. We've had few closes at the highs, and when we do have strong opens they have been inviting selling rather than more buying.

Perhaps it is just a change in the way the computer algorithms are programmed, but the price action now is different than it was for a very long time. On Friday, the indices had their strongest close so far in October and the gap-up open this morning is taking us above last week's highs, but the bulls need to prove that they have the buying power to keep things running.

The tight trading range action is especially challenge for market timers, but for stock pickers there are things working. Netflix and Facebook (FB) are good examples. However, it is necessary to stay highly selective and to manage trades carefully. It is easy to give back gains if you aren't careful.

The bulls have some ammunition to start the week and the flood of earnings reports holds some good potential. Can they finally break us out of this trading range?

The first big hurdle will be the 50-day simple moving average around 2160 of the S&P 500. If that level is tested, the chances of new all-time highs rise sharply. Momentum is the issue and it has been lacking for quite a while now.

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