The uptrend that started on Dec. 24 paused last week, which excited the bears, but there are no indications yet that a major turn is about to occur. The market was badly in need of a rest after becoming oversold and running into resistance levels, but the tendency of the pessimists is to think that any signs of weakness are a harbinger of disaster.
While there continues to be talk about the potential that the economy will slow later this year, the main thing that is helping the market now is anticipation that there will be progress on China trade talks as negotiations start again this week. The potential for a positive headline will prevent the bears from pressing even if they are convinced that a significant deal will not happen quickly.
In addition to the potential for positive China news, we also have the backdrop of the dovish Fed. The combination of strong jobs numbers and a Fed that has backed off on any rate hikes for the year ahead is perfect fuel for the bulls.
The bears' main thesis now is that the dovish Fed is a product of the potential for slowing U.S. economic growth. If the economy was truly healthy and wages growing quickly, then there would be inflationary pressures and the market could handle a few interest rate hikes. We don't need a dovish Fed if the economy really is roaring like some claim, goes the bearish argument.
As this point there really is nothing concrete to support the argument that growth is going to slow. At least the market isn't buying that and it is confident the Fed will be ready to act quickly if there are signs of trouble. Even Janet Yellen mentioned the potential for rate cuts should things slow.
Currently the indices are undergoing some consolidation and there is still strong technical support. I discussed last week my belief that we are going to see a trading range as earnings season ends and the economic bears do battle with the bulls who are embracing a dovish Fed and potential for a China deal.
This should be a good environment for stock picking as some stocks pull back slightly and find support levels. We are seeing some of the bigger caps such as Tesla Inc. (TSLA) and Apple Inc. (AAPL) turn up after a pause last week.
The bears who are looking for a sudden collapse of this market are going to be disappointed. There are still too many positives that are keeping buyers busy.