Last week, many market players were anticipating a "sell the news" reaction to the vague China trade deal. There was some minor selling on Monday, but the character of the market action made a positive shift as the focus moved back to stock picking and away from major headlines and macro events.
Earnings from major banks received a positive response, Apple (AAPL) has been hitting new all-time highs, small-caps have been showing good relative strength and some sectors like biotechnology and retail have perked up. There continues to be some rotational action out of some of expensive technology names and the DJIA has underperformed -- mainly due to Boeing (BA) , IBM (IBM) and Johnson & Johnson (JNJ) -- but that has been more than offset by interest in individual stock picking.
On Monday, the S&P 500 moved steadily higher during the day, albeit on lower volume. It is a little technically extended at this point, but a flood of third-quarter earnings reports starts today and continues for the next several weeks. The great bulk of the S&P 500 stocks will report in the next two weeks.
The reaction to these reports will tell the story of the market. Expectations have risen as the market has moved higher over the past week and it is the technology sector that has been struggling with rotation lately, so there is a concern that there could be some "sell the news" reactions as stocks run up into their reports.
On Tuesday, we have reports from McDonald's (MCD) (Real Money's Stock of the Day), UPS (UPS) , Sherwin-Williams (SHW) before the open and then Chipotle Mexican Grill (CMG) , Texas Instruments (TXN) and Whirlpool (WHR) after the close. Some of the heavy weight technology names are later in the week, but the reaction to these reports will give us some insight into whether good news will be sold or whether there be interest in finding entry points.
The bears continue to believe that there will be a negative catalyst hitting soon, but with the Fed likely to cut rates next week and the hope of continued progress on China trade, it is extremely difficult to try to time a market reversal.
I've been staying focused on individual stock picking, but still have a very high level of cash as I've been buying incrementally and selectively. I will be traveling for a couple of days so it is more difficult to be short-term aggressive with new entries.
I'll be looking for continued momentum in individual stocks, but will keep stops tight and will protect profits.