It was an eventful week for the stock market and creates an interesting setup as market players anticipate where the economy is headed and what the Fed is going to do about it.
The week started on a negative note as the rhetoric in the trade war between China and the U.S. intensified and then a much weaker-than-expected ISM Manufacturing number hit. The gloom was thick as market players contemplated both a slowing economy and a drawn-out trade squabble.
Fortunately, the mood was already so negative that it didn't take much good news to cause a reversal. On Wednesday losses were reversed on better-than-expected economic news and then stocks broke out of a month-long trading range on Thursday with news that trade negotiations would resume at some point in October.
This was a classic breakout from a trading range but was a bit lacking in oomph. Bears were forced to cover and bulls looked for some ways to add long exposure. However, they were unable to add much to the upside on Friday.
The Friday jobs report failed to confirm the jobs news from earlier in the week but there were some mixed elements that allowed the bulls to find a positive spin. Later in the day, Fed Chair Jerome Powell spoke as part of a seminar in Switzerland. He stated that he thought a recession was unlikely and that the U.S. economy was in a good place but confirmed the willingness of the Fed to act should there be any signs of economic weakness.
The indices sold off a little in the last few minutes of trading Friday as some traders felt it prudent to reduce exposure in case of surprise news events.
When all was said and done, however, the indices had broken out of a very long trading range and were in position to test the July highs. The bears remain extremely cranky and are convinced that a recession is on the horizon and the central bankers aren't going to be able to stop it. That negativity is going to help provide underlying support.
We are still in the middle of the weakest month of the year and there aren't any major news events on the agenda next week. As long as the S&P 500 stays above the 50-day simple moving average around 2945, the bulls should be content.
Have a good evening. I'll see you on Monday.