After it sold off every day last week, conditions are good for the S&P 500 to bounce. There are a couple unfilled gaps on the chart, it is option expiration week and it is technically oversold.
The S&P 500 is indicated higher in the early going, but that is being covered up by weakness in Boeing Co. (BA) after China grounded its fleet of Boeing 737 Max 8 planes after a second crash. A takeover of Mellanox Technologies Ltd. (MLNX) by Nvidia Corp. (NVDA) is helping the technology sector and positive analyst comments on Apple Inc. (AAPL) and Facebook Inc. (FB) are helping the FAANG names.
A bounce in the indices isn't a big surprise, but it doesn't help us much in concluding where the indices are heading in the intermediate term. The chart of the S&P 500 can resolve itself in a number of ways. Support can hold and the buying can resume, support can fail and another leg down can develop, or a trading range can develop.
The thing the charts don't tell us is the likelihood of any of those scenarios. We can develop arguments based on fundamental consideration such as economic growth, a trade deal with China and various economic statistics, but we must wait for further price action before we can make a determination.
Many market players are happy to proclaim with great confidence where the market is heading, but there is nothing in the indices right now that suggest anything other than a short term bounce. The poor action last week shifted the character of the action, but that doesn't mean that the action can't shift back to positive again.
Prudent traders had no choice but to take some defensive stops last week. If you did not raise cash or have some stops trigger then you have very long time frames or started out with very high levels of cash. Action like we saw last week requires some adjustment to cut risk simply because there is no way to know for sure whether it was just some healthy consolidation or the start of a major change in market action.
This morning the bulls are feeling more confident as Federal Reserve Chairman Jay Powell reiterated his "patience" stance, hope of meaningful progress on a China trade deal is still out there and dip buyers are regaining some confidence
The play here is to embrace the short-term bounce but watch for indications that recent overhead resistance is going to come into play. There is no way to be confident that recent lows will hold, but with the positive action here on Monday morning there will be some fear of missing out and that is the bulls' best friend
Despite Boeing the mood of the market is upbeat after the worst week of the year. That isn't a big surprise, but don't grow too comfortable with this bounce. The bulls have some hard work to do to take back control of the market.