After the market suffered the worst hit of the year on Monday, it wasn't too surprising that there was a sizable bounce Tuesday. The weak finish hinted that there were still problems and the weak open Wednesday morning, following poor retail sales numbers, helped to confirm the bearish argument.
The bears, ready to press their bets, were caught by surprise when President Trump announced that there will be a six-month delay in imposing tariffs on European vehicles. In addition there were several headlines about progress on trade with Mexico and Canada. Instead of trade wars on several fronts around the world, it looked like China is now the only major hurdle left.
Market players were caught leaning too negative when this news hit and that produced steady upside all day. Breadth was better than two to one negative and new 12-month highs expanded but there was plenty of distrust out there.
Like many other traders, I felt out of step with the action Wednesday. I wasn't short the indices but I had built a very large cash position and could not bring myself to do much new buying. My confidence that this bounce will continue is low. It is understandable why it is occurring -- there are too many market players being cautious -- but that doesn't mean it will be sustained.
There is a very intense battle taking place between the bears that are convinced that negatives are building and the bulls that are tired of the endless predictions of doom. The bears had some bad news to work with but they are struggling to create the negativity they need for downside momentum to build and it ends up powering the market in the other direction.
I'm going to stay open minded and flexible and hopefully will be more in tune with the action Thursday.
Have a good evening. I'll see you Thursday morning.