The uptrend that began on December 24 has slowed over the past week, but the action looks more like healthy consolidation rather than the beginning of a major reversal. The biggest obstacle for the pessimism is that there is the potential for positive headlines.
Tuesday morning, one positive headline is hitting in the form of a tentative deal on border security that will end the threat of another government shutdown. Stock markets didn't care much about the first shutdown, but it still would be a relief to have this issue off the table. The market is using the progress as an excuse to jump higher.
There is also the potential for positive headlines on China trade, as negotiations continue in Beijing for a second day. While many market players are extremely skeptical about a substantive deal, the market is hypersensitive to any news on the topic. The bears risk being squeezed on any headlines about progress.
Positive headlines have the potential to move this market strongly because there is still a very high level of skepticism, despite -- or maybe because of -- the strong move over the past six weeks. According to Bank of America, investors are holding the highest level of cash since the 2009 financial crisis. Nearly 35% believe that the S&P 500 will not exceed the highs it hit in 2018. According to Bank of America strategists, "Bearish investor positioning remains first-quarter positive for asset prices."
That is a sizable Wall of Worry -- and is fuel to keep this market running on the slightest bit of positive news. While many stocks have become overbought into resistance levels after the big run, the churning and choppiness is helping charts to develop in a positive way. When positive news hits, there is some good technical action to be found as stocks move out of their consolidation ranges.
The bears have plenty of compelling arguments about the potential for slowing economic growth and the likelihood that a China deal may not be meaningful, but that is simply building the Wall of Worry. If there wasn't so much idle cash on the sidelines and so much skepticism, then those worries might weigh on the market. But instead, what happens is that the folks on the sidelines keep slowly putting cash to work as they worry about missing out.
As always, it is very easy to formulate a good argument for why the market should roll over and die, but those worries are positive fuel when there is a high level of cash on the sidelines. Positive news headlines will attract that cash and the market will use it to climb higher.
Stay focused on price arguments rather than the worries that the bears are promoting. Conditions are very good for more upside.