The charts of all the major indices and most individual stocks look terrible. They have broken major support levels and have been trending down for weeks. Based on this dreary technical action, there is no reason to be bullish right now.
The good news about action like this is that it will eventual come to an end. The one great certainty about the market is that it is a never-ending cycle of ups and downs. Precisely timing those ups and downs is impossible, but we can compensate for that by being vigilant and ready to react as conditions change.
Presently the message of the market is to be very cautious. There has been a steady diet of bad news and the market is not shrugging it off like it did previously. Concerns about a hawkish Fed, a lingering trade war with China, political issues and the destruction of the FAANG names -- Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) and Alphabet/Google (GOOG) , (GOOGL) -- have been weighing on the market.
Much of the market has already undergone a substantial correction, and there are some signs that the first stocks to correct back in September are now finding some support. Small-caps, biotechnology, semiconductors and a few other groups have been exhibiting some relative strength, but it has been hidden by continued pressure on key big-cap names like Apple (AAPL) .
With seasonality strong into the end of the year, it is a good time to ask, what could go right? What is the bullish scenario for the next month or so.
There are two key issues that will drive the market. The first is China trade. President Trump is meeting with Chairman Xi in Argentina starting this coming Friday. The consensus view is that there will be no meaningful progress on trade. That is what the market has been discounting, so there is a shot at a positive reaction even if some minor progress is made. The situation will stay murky and uncertain for a long time, but if there is some appearance of a desire to move toward a deal, the market will gain some fuel.
The other issue is the Fed. There has been a belief that Jerome Powell is a hardcore hawk and is unlikely to soften, but he has hinted at the possibility of a pause in rate hikes, and when the Fed issues its policy statement later this month, there may be some hints of that. It is still widely expected that there will be a ¼ point hike this month, but the odds have been dropping. There is nothing the market loves more than a friendly Fed and the chances of that occurring are going up.
This morning oil is bouncing after some of the worst action in years. In addition, there is some progress on the budget dispute between Italy and the European Union and there is movement toward a final Brexit deal.
Seasonally, the Monday following Thanksgiving week is typically weak -- but positive seasonality didn't work like it was supposed to last week, so it isn't a big surprise that we are seeing that continue today.
There are plenty of problems with the price action, but there are good reasons to watch for a shift in the action into the end of the year. Be ready to react if some of the positives start to take hold.