"The real winners in life are the people who look at every situation with an expectation that they can make it work or make it better."
-- Barbara Pletcher
Strength in oil is receiving credit for a slight bounce in markets this morning, but lately oil has not been the driving force it once was. Earlier this year, the indices were moving in lockstep with oil, but over the past two weeks the indices have held up fairly well while oil has sold off.
This correlation between the indices and oil was always a bit suspect, but it is still impacting the market when there isn't much else going on. There was some Chinese economic news out, but with the central bankers quiet for a change there isn't much macro news driving things.
Two days of selling has created some headlines about the worldwide "profit recession". Weak demand, deflationary pressures, poor productivity and currency issues are being blamed for lackluster corporate earnings. That isn't a big surprise, and actually it was the basis for much of the recent central banker action, but it's a problem that is going to receive much more credit if the indices continue to stumble.
The good news is that expectations for the upcoming earnings season will be quite low; however, if there are more preannouncements like that made by Cree (CREE) last night, it is going to be a challenging period. The bears have plenty of fundamental arguments to make, and it is going to be tough going for the market if central bankers don't continue to offer up dovish support.
While it is simplistic and can be quite annoying to active traders, the only thing that really matters to the market right now is central bankers. This has been the case for seven years now, but weak earnings, lousy economic growth, deflation and stumbling economies simply aren't important, as long as we have the promise of endless central banker support.
In January and February, the market lost its confidence in the central bankers for a while, and that is what caused the corrective action. The bankers wasted no time putting together coordinated action and produced a furious rally.
The only real question for us now is whether the market will once again lose confidence in the central bankers. If that occurs, we are in for some real ugliness, but at the moment that isn't happening. All that has happened is a mild technical correction, which hasn't even taken us back to the lows of last week. If we take out the 200-day simple moving average of the S&P 500, which is at 2014, then there will be some real concern from the chartists, but at the moment 2025 is the key level, and that isn't in play right now.
The uptrend that began in mid-February is still in place. The bears have plenty of good reasons for why it should come to an end, but the technical picture is still positive and the market is still trusting of the central bankers for support.
We will have to stay vigilant, but the market action still favors the bulls.