The market mood has been particularly gloomy lately, which makes it susceptible to sharp spikes on any good news. That is occurring this morning as Hong Kong's leader, Carrie Lam, announced that an extradition law that has caused months of increasingly violent protests, has been withdrawn. Stocks in Hong Kong are up sharply and other markets are seeing a positive reaction as well.
This action is reversing the selloff yesterday that was caused by the weaker-than-expected Manufacturing PMI number, which showed a contraction in activity. Concern about lack of progress on a China trade deal also affected the market, but basically this is just trading-range action. The market is trapped between clear areas of support and resistance, with the various headlines causing swings within the range.
The most important thing to recognize right now is that this is a trendless market. There is just random volatility depending on the latest headline. The bears are convinced that a slowing economy will eventually lead to a breakdown, while the bulls are counting on surprise positive news and a dovish Fed to eventual restore the market uptrend.
While we wait for a resolution to this battle, individual stocks are languishing. Small-caps have been particularly weak while precious metals, utilities and defense stocks have outperformed. There isn't a rush to the exits with market players dumping stocks into bidless action but there isn't any sustained upside momentum either.
The biggest positive in this market is the high degree of negativity. The number of economists predicting a recession is at a record high and doubts about the potency of more Fed interest rate cuts is being broadcast daily. The bearish case is as clear as it has ever been, but that makes the potential for positive surprises even greater.
Unfortunately, this is not an easy market to trade unless you have extremely sort timeframes or multi-year ones. There isn't any intermediate-term, trending action and stock picking is very difficult. It is easy to force trades when there isn't any strong edge.
My game plan continues to be to maintain very high cash levels, a few directional index plays, and patience in buying some stocks that are developing as potential bargains. There simply is no reason to rush in right now and put precious capital to work.
It doesn't make for very interesting trading, but that is the nature of the market beast at times. This action is a prelude to the next set of opportunities that are developing.