Further positive develops in the China trade war, a weaker dollar and a slowing in bond yields are giving the indices a further boost this morning.
China plans to cut import duties on cars, the US plans to lift a ban on sales by China technology giant ZTE (ZTCOY) and agricultural tariffs on US farm products are being removed. The threat of a disruptive trade 'war' has been removed and the bears have, once again, been robbed of an obvious negative catalyst.
While the indices managed good sized gains and are adding to them this morning, there hasn't been an explosion of buying and strong momentum. The indices made little, if any, progress intraday after the gap-up open and finding stocks that ended the day at their highs was difficult.
One of the missing elements of the rally was strength in the 'right' leadership stock. Oil-related names dominated the list of new 12-month highs and the Russell 2000 ETF (IWM) managed its fourth-straight new all-time high but the Nasdaq 100 (QQQ) - home of the FAANG names - lagged with a gain of 0.56% and a poor close. There was not a major rotation into the big cap technology names that looked likely after the recent small-cap outperformance.
This mixed action is partially a function of a rotation. Biotechnology has helped to drive smaller cap names lately but that group lagged and money flowed into a couple of big DJIA names such as Boeing (BA) and Caterpillar (CAT) .
In recent years the market has not needed a steady flow of positive catalysts to keep on running. It was enough that there not be any major negatives. In many situations the negatives turned into positives as they allowed for very aggressive dip buying.
Market conditions have shifted over the past few months as there has been much more hesitancy to ignore new flow and to find positives when there hasn't been one. The response to earnings this past quarter was the best illustration of how good news isn't producing the sort of momentum it had previously.
The big question is how much more can this market run on the China news. Yesterday I discussed how it is not a good move to rush to fade this sort of strength but that doesn't mean that we will see the sort of V-shaped action we have previously.
The technical action is good but it lacks the strong momentum that creates a 'fear of missing out' dynamic. There isn't a sense that the market is going to run away to the upside and we better pile in or we will miss the train. The longer the indices stay positive, the more worry there will be about underperformance but right now this is not a very impressive rally and if we have a poor close it is going to trigger some negative thinking.