Last week the indices struggled as concerns about a slowing economy took hold. Most notably a rapid decline in interest rates and a rally in bonds did nothing to ease the worries. It was a major change in character for a market that has consistently celebrated dovish central banks.
On Thursday the emotional reaction had cooled off and the indices started to bounce back. The bounce gained momentum on Friday and Monday as worries about the economy continued to recede.
The S&P 500 and Nasdaq are now back to resistance at their 50-day simple moving average, while the DJIA and the Russell 2000 ETF (IWM) are lagging. The question of the day is whether there is enough buying momentum to overcome the resistance and put the indices back in position to test the highs hit in late July.
While market players seem to have overcome some of the worries that were taking hold last week, the buying interest has been mild. This is due in part to the fact that we are in the middle of August vacation season and many market participants won't make major moves until after Labor Day.
In a market that is dominated by computer algorithms, clear technical overhead levels like we have now, often don't' work the way they have traditionally. The levels are used by computer programs as a way to frustrate technical traders that apply them in a simplistic manner. It is unusual for an obvious technical level to work as a simple reversal point but after several attempts the obvious technical levels do often have an impact on trading.
The biggest positive the bulls have going for them at this juncture is the inclination of the market to run over the bears that are convinced that their negative arguments are starting to matter. The bears are great at formulating very strong narratives but they are terrible at timing their impact. Last week the bears were convinced that the market had undergone a significant change in character when selling pressure accelerating as bond yields collapsed. That issue has been shuffled aside for now but if the resistance levels do come into play that talk will heat up quickly.
Keep in mind that Fed Chairman Jerome Powell speaks Friday at Jackson Hole. This speech will set the stage for what the Fed does next and will have an impact on the market. If the current resistance levels can be overcome then the all-time highs will come into play again.
We have a very slow and sleepy start this morning but there is limited selling pressure.