The indices traded poorly on Monday and closed below the lows of the prior week. The action deteriorated steadily throughout the day but the selling was orderly and not panicky. The 50-day simple moving average has not been tested yet and that remains key support at this time.
After the close on Monday, news hit that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin had continued talks on a fiscal stimulus bill and continued to narrow their differences. There is hope that by the end of the day on Tuesday there will be some clarity about the outline of a bill.
The market is optimistic about this news but the hurdles remain substantial. One of the big issues is that Senate Republicans have exhibited little appetite for a big bill and may not be easily persuaded by President Trump as they deal with their own election pressures.
While the action was quite poor on Monday, it was not bad enough to change the character of the market action. It looked like some fairly routine profit-taking and consolidation as we head into earnings season. IBM (IBM) is seeing a negative response to its report but Logitech (LOGI) had a blow-out earnings report of $1.87 a share versus consensus estimates of just $0.57. This illustrates how some recent themes such as stay at home and gaming may not yet be fully discounted by the market. Netflix (NFLX) , which reports Tuesday after the close, will be another illustration of how the stay-at-home trade is evolving.
Overall the market action has been weakening lately and the potential for a test of support levels is building. Stock picking is turning narrower and we have to be more selective but it is still working. It is more important to stay with positive price action and better technical patterns as the broad market will not bail you out of mistakes as easily.
I suspect the market will remain skeptical about the potential for a fiscal deal and that it will be dangerous to chase momentum right now, but when there are reports such as LOGI it helps to keep speculative interest strong. Earnings season should offer some good opportunities but the broad market is looking choppy, has some technical issues and could easily reverse if the fiscal stimulus negotiations fall apart once again.