The key to effectively navigating the stock market is to understand its character. There are always various themes and trends at work and they often have little to do with the movement of the major indices.
The primary theme of the market lately has been resiliency of the major indices, as they hover very close to all-time highs while many individual stocks struggle and do little. A few big-cap names, such as Apple (AAPL) , Boeing (BA) and some large banks, have helped to keep the indices within a percentage point or two of their all-time highs.
Under the surface, about 45% of stocks are trading under their 200-day simple moving average, which indicates that they have not done much of significance in a very long time. The number of stocks hitting new 12-month highs is at unusually low levels for a market with indices so close to highs.
There is a marked difference between the action of the indices and the action in the average stock.
This has not been that unusual in recent years, as ETFs and computer algorithms that trade large baskets of stocks simultaneously tend to have more impact on bigger-cap names that dominate the indices. When market players take on additional risk, they tend to focus on the small group of stocks that dominate the indices.
At some point, the character of the market will shift again. Either the indices will correct, as many of the bears are forecasting, or the action in individual stocks will improve and the market will enjoy a more robust uptrend. Market strategists have a wide variety of theories about how the market will develop, but there is little that we can do but be patient and wait for the character of the market to shift and to become known.
Short-term movement of the indices has been highly sensitive to news about China trade lately. Optimism on Phase One of a deal is what has helped to push the indices to all-time highs. There have been some recent concerns about that deal, but so far the worries haven't had much impact on the indices.
On Tuesday at 12 p.m. ET, President Trump is speaking at the Economic Club of New York and will be addressing the trade issue. Trump has made endless comments about trade via Twitter and while they often generate a sharp market reaction, it is often short lived.
Trump's speech today will generate some sort of market action, but the more important question is whether it will be a catalyst for a shift in overall market character. What is needed is better action in individual stocks and it will take more than some vague platitudes about trade to cause a shift.
This has been a difficult trading market lately, as so many stocks are not doing much. They aren't falling apart, but they aren't making upside progress either.
The character of the market will soon shift and opportunities for good trades will develop, but for now, the best move is to stay vigilant, watch the reaction to the news flow and be patient as price action develops.
We have a slightly positive open on the way as market players hope for positive comments on trade from President Trump.