The action on Tuesday was unusually quiet, with S&P 500 ETF (SPY) volume dropping to the lowest level since last August. The bears try to spin this dull trading as disinterest that suggests that the market may lose its energy, but in the context of the breakout move in the indices that occurred on Monday, this is positive action.
Healthy markets have a nature ebb and flow, as some market players take profits into strength and new, more optimistic buyers take their place. While the action on Tuesday was very slow, what was most positive was that there was some selective stock picking. The action on Monday was largely index driven, but buyers were more focused on stock selection on Tuesday, which is exactly what the bulls want to see as another rally develops.
From a news standpoint, the narrative that the world-wide economy is slowing has quickly shifted. All the talk about inverted yield curves and how they indicate economic problems has been set aside following better-than-expected data out of China. The bears are not going to give up in this topic, but it is a tough fight when central banks around the world are dovish and there are few, if any, signs of inflation.
This morning the indices are indicated higher on stories that China and the U.S. have resolved many of the issues in the ongoing trade negotiations, but still have some key sticking points such as an enforcement mechanism. It appears that progress is being made -- and that is giving the market a boost.
Earnings season is also fast approaching, which will provide some additional catalysts for individual stocks. Most stocks are in a blackout period, where buybacks are not allowed and there won't be any news until earnings reports are issued.
The biggest negative right now is that there isn't any obvious negative. The Wall of Worry that the market has climbed for so long is not very high right now and some complacency has set in. That can be dangerous, but the extremely low volume makes it tough for the bears to generate any negative emotion.
Indications are for a solid start. Watch for headlines on China trade and focus on picking individual stocks rather than trying to time the indices.
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