As we kick off the last week of the May the big question is whether recent lows hit by the indices will hold.
The S&P 500 has been struggling for over a month now but is still holding the key 2800 level. The Nasdaq is in worse shape technically, having taken out the May 13 low, and the DJIA is in slightly better shape.
There is no question about what is bothering the market. The trade issue with China was supposedly close to resolution and now there is little clarity. While there are a few optimistic comments by President Trump, China is sending a message that they are not going to easily back down. It could be months before there is any progress.
In addition to trade, there is growing concern about economic growth. That is partially a function of the trade issue and there are other signs of weakness bubbling up, although the jobs picture remains extremely strong.
Negative seasonality is a third concern and that is reflected in the lackluster market leadership. There is nothing much that is attractive to momentum buyers and if you are looking for sector themes or pockets of momentum, you will find little.
The major positive right now is that the indices are still holding key technical levels. The price action is slow and dull but not negative enough to develop into a full-blown downtrend.
The market also still has the strong support of the Fed. Interest rates are hitting the lowest level since the fall of 2018 Tuesday morning. The iShares 20+ Year Treasury Bond Fund (TLT) is gapping higher as the dollar rebounds from two days of selling.
Bonds may be signaling that market players are looking for safe havens but they also indicate that there still is plenty of cheap capital out there and that has been the most important factor to the market for a very long time.
So we'll see now how well the market does at holding recent lows. Even if it does hold we will have a trading range at best. While that could eventually develop into a renewed uptrend, it will take time. That means that if we want to make progress we will need to focus on finding some shorter-term trades.
Stock-picking has been difficult with few pockets of strength but we should be able to find a few things of interest.
Overall this is a market struggling to find support and it requires a short-term and flexible approach in order to navigate. It may improve over time, however, we will need to be patient as we monitor the price action.