The indices have been stumbling around for the last seven trading days and not making any progress. There has been inconsistent rotational action and a series of weak closes but the selling has not been correlated enough or persistent enough to do any major damage.
The reaction to earnings have been mixed, with major reports from IBM (IBM) , Netflix (NFLX) and big banks getting a negative response and strong reactions to social media names, Align Technology (ALGN) , Tesla (TSLA) and a few others.
The market has largely been held hostage to a constant barrage of headlines about the progress of a fiscal stimulus deal. The question seems to be whether or not it can be done before the election and the market doesn't seem to know what to believe.
However, the big issue looming over the market right now isn't earnings or stimulus but whether the election is going to be as chaotic as many fear. The bearish narrative is that there will not be a clear winner and that a legal battle could play out for weeks. That certainly seems like a strong possibility but the possibility that the outcome won't be that close exists as well and that is keeping the bulls in place.
Election uncertainty is going to be the dominant issue over the next two weeks. However, there will also be some impact due to fiscal stimulus and earnings. It helps to create a very choppy and inconsistent trading environment and we will have to be especially careful in managing positions.
The price action has had a negative tone recently, which has required some stronger defense. On the other hand, many stocks still have solid fundamentals, a good chance of strong earnings reports, and healthy charts. Some corrective action is healthy at this point as we move into the next market phase.
My view here is that a higher level of caution is needed as we deal with the election uncertainty but there are still some positives that will provide support and should help prevent a market collapse. As always we need to stay vigilant and react to price action shifts, but it isn't all doom and gloom out there.
