"The constant assertion of belief is an indication of fear."
For over a week now, the indices have been struggling to make progress. Trump's speech before a joint session of congress pushed the indices to new all-time highs, but it has been downhill since as the pattern of strong technical support has slipped.
So far, the pullback has been contained and the bulls believe that it is nothing more than healthy consolidation after the massive run since the election last November. The bears see this is as the long-awaited "beginning of the end". They have been anticipating the end of the "Trump Trade", and with the Fed ready to begin a series of rate hikes, there is an obvious catalyst for a market turn.
Unquestionably, there has been a number of negatives lately. Breadth has been very weak and the average stock is acting much worse than the indices. The FANG names -- Action Alerts PLUS holding Facebook (FB) , Growth Seeker name Amazon.com (AMZN) , Netflix (NFLX) and Alphabet (GOOGL) -- have helped to cover up quite a bit of weakness, especially in the Nasdaq 100 ETF (QQQ) . But the Russell 2000 ETF (IWM) is a better indicator of what is going on in general. It looks quite different than the QQQ and better reflects overall market health
What is rather remarkable about the market right now is that while the S&P 500 is just barely off all-time highs, the percentage of stocks that are above their 200-day simple moving average of price has fallen from around 72% on Feb. 21 to around 59% on Friday.
It is a stealth correction that is not at all evident if you simply watch the major indices. In addition to the problems with breadth, we also have a dearth of leadership. The FANG names are holding up the indices, but they aren't making any real progress. The one group that has been providing some speculative trading is biotechnology. Outside of that, there has been a mix of a few stocks of interest, but if you aren't long some biotechnology you haven't had much upside opportunity recently. Stocks like Global Blood (GBT) , Kite Pharmaceuticals (KITE) and Aurinia Pharmaceuticals (AUPH) .
An additional problem that started at the end of last week is weakness in oil. Over the past couple of years, pressure on oil has been a headwind for the indices and it now looks like the OPEC supply agreement has lost its bite. Oil has already corrected substantially, and some traders are looking for a bounce, but it will be an important issue for the indices this week.
While the market is faced with a number of issues, we really won't know if a change in character is taking place until we see the reaction to the Fed interest rate decision on Wednesday. The market believes it is a near certainty that Janet Yellen and her crew will raise rates a quarter point, but the focus will be on the pace of future hikes. Will there be two or three more hikes, and how quickly will they come?
The bears believe that a hawkish Fed combined with disappointment over the Trump fiscal policy will be what finally causes the corrective action they have been waiting for so long time. The problem is that the bears haven't been able to time anything correctly for years. They may have some good logic and strong arguments, but without proper timing it is just a bunch of hot air.
What counts is the price action. It has weakened lately and there are some areas of concern, but the overall trend has not changed and this may simply be a rest that refreshes, rather than something of major consequence.
Market players are sluggish this morning, as they adjust with the daylight savings time change. Early indications are soft on a weaker dollar, which is helping precious metals to continue their bounce from Friday.