Casual market observers often make the mistake of thinking that headline news drives what is happening to the stock market. Quite often it is exactly the opposite: It is the technical condition of the market that determines what news is important rather than vice versa.
We have a good illustration of this concept today. Currently the indexes are extended and badly in need of consolidation or a pullback. Even the most bullish bulls would be relieved if there was some downside action. This sets up pressure to find some good reason to justify selling and it came along Tuesday in the form of the deadly Wuhan coronavirus.
The indexes gapped lower on the news in the morning, but the very well-trained dip buyers jumped in and briefly had the S&P 500 in positive territory. Later in the day, there was news of one case of the virus in the U.S. and that led to another bought of selling.
If this market had already corrected, news of this sort would likely have had a different impact, but since sellers are looking for an excuse, it was very easy to use this news -- even if the headlines may have overstated the danger.
While it was a sloppy day for the indexes, it still was not much of a correction. Breadth was 2,650 gainers to 4,850 decliners, but there were over 700 stocks hitting new 12-month highs and less than 100 at 12-month lows. This was not a big rush for the exits.
Attention is now shifting to earnings and a very strong response to IBM (IBM) will more than offset a weak response to Netflix (NFLX) . This is still a market that needs a good excuse for a correction and it doesn't look like these earnings will do the job for the bears.
The market can deal with overbought conditions by churning, which will greatly frustrate bears that are desperate for downside, but churning can create some good chart setups and that is what the bulls are looking for.
Have a good evening. I'll see you tomorrow.