"Sell crazy someplace else, we're all stocked up here."
--Jack Nicholson as Melvin Udall in "As Good as It Gets"
On Wednesday, the market celebrated a Fed interest rate decision that delivered the expected quarter-point cut and then thread the needle between optimism about the economy but the willingness to offer more rate cuts. The chances of a cut in December are now round zero but the door is open for cuts next year depending on trade issues, the economy and inflation.
Also on Wednesday, Apple (AAPL) and Facebook (FB) put up better-than-expected earnings reports and received a positive response. Other names, such as Starbucks (SBUX) , Lyft (LYFT) and Universal Display (OLED) , are also gapping up on their earnings news.
The positive action has the S&P 500 sitting at an all-time high as we enter the seasonally strongest time of the year. The billion-dollar question is whether the market can build on this strength and continue to trend higher. While the technical conditions are positive and there is a large Wall of Worry to climb, there are a number of obstacles to contend with.
The first problem is that the indices have been moving straight up since October 8 and are technically extended and in need of a rest. As I discussed yesterday, conditions were very good for a "sell the news" reaction, but the initial response was positive. We will see now if there is a delayed "sell the news" inclination today.
Headlines about China trade are already giving the bears some ammunition. On Wednesday, Secretary of State, Pompeo said "We accommodated China's rise, in the hope that they would become more free. In response, the CCP took advantage of our goodwill. Now 'President Trump' is facing the reality of CCP hostility ..." In response, China said that it doubts that a long-term trade deal is possible with Trump.
The market has been able to set aside this annoying China trade deal issue for the last couple of weeks as the details of the Phase One deal were ironed out, but the issue is going to flare up again as the anticipated deadline in November approaches.
With the Fed now on hold for a while and the end of earnings for most of the big-cap stocks, the focus may shift back to macro matters. We have had a very good stock-picking market for a while and many small-cap stocks have come to life. The small-cap reporting season has yet to really start, but over the next three weeks, there will be many interesting reports to trade.
The question now is, is this as good as gets? The Fed is supportive of the market, earnings season has been mostly positive, the indices are at all-time highs, sentiment is not wildly euphoric and worries about a recession have receded. The bears continue to grumble about the same things they have grumbled about for months and years and it is having no impact.
The market is due for a pause and may dance around again to China trade headlines, but what would be crazy is to expect the market to suddenly collapse. Stay with the price action, protect profits and don't buy what the bears keep trying to sell until the character of the market shifts.