The character of the market action made an important shift on Tuesday. Now the question is whether it can build on that positive trend.
The primary change that occurred was market players shifted their focus from endless speculation about a China trade deal to earnings and individual stock-picking. Some solid reports from money center banks helped to trigger the shift. Beaten-down sectors such as biotechnology and software saw solid bounces as optimism about earnings season increased and macro concerns subsided.
The shift in the price action was sufficient for Investors Business Daily to upgrade its market view to "uptrend" from "uptrend under pressure." The major indices are now in position to challenge recent highs as underlying support strengthens.
Early indications are slightly soft as worries that the China trade "deal" may fall apart, but this is a market that wants to focus on earnings, central banks, and other positive issues. Poor positioning by bears who were expecting a strong negative reaction to the China deal is helping the bulls at this point.
The main issue the market faces right now is whether the positive reaction to bank earnings will become a larger market theme. The negative narrative has been that earnings and guidance are going to confirm the fact that the economy is weakening and may even be headed for a recession. There is no indication of that from the banks, however, it will be technology and other sectors that will better tell the story.
Earnings Wednesday tonight from Netflix (NFLX) and IBM (IBM) will intensify the debate about earnings season. Expectations have been low but they jumped on the bank reports and -
It was refreshing to see better stock picking on Tuesday and hopefully, that will continue as market players focus again on the individual merits of stocks rather than macro concerns.
We have a little backing-and-filling in the early going, which is healthy after the recent runup. Also, the lingering China issue has the potential to provide some "climbing the wall of worry" impact.
I'll be looking to put more cash to work as individual charts develop but will be very incremental with my entries.
