So far in 2019 the easiest market mistake to make is to focus on a bearish or pessimistic narrative rather than positive price action. The bears have been grumbling all year about slowing growth, trade wars, political issues and a variety of other things but they have been largely ignored until this past week when the indices stumbled on a breakdown in trade negotiations with China.
The trade news led to a significant technical breach on Monday. Still, stocks bounced back a fair amount on Tuesday albeit on lighter volume. That presents us with the question of whether this market is ready to shrug off those negative arguments again and resume its upward trek or will the negative narrative that the bears have been pushing finally take hold and exert steady pressure?
At the moment, the bears deserve the benefit of the doubt. There are a number of issues lurking that can trip up this market. There is the advent of negative seasonality and, despite the bounce Tuesday, it is very clear that the trade issue is going to drag out for months. There will be some negotiations that will provide hope but the earliest any deal would be likely is the end of June at the G20 meeting. Even that is a long shot, though.
The bears can provide plenty of other arguments why this market is doomed. While the lack of positive catalysts in the near term worries me it is the price action that will tell the tale.
Tuesday's rebound wasn't too surprising given how the indices had become oversold and how anxious President Trump was to paint a positive picture. The president sounded rather desperate with all his tweeting but it did give market participants some comfort that he is concerned about the market reaction.
Most of the action Tuesday was due to technicals and computer algorithms, although it shows that there is still a positive bias for big amounts of capital. The machines are still programmed to push to the upside very hard when the right setups occur.
I have doubts about how easily the bulls can regain control of this market and even if they do, I don't expect them to be able to generate sustained positive momentum. There isn't much leadership right now and there has been quite a bit of technical damage to individual stocks. The action has pushed me to my highest level of cash this year and I see very little that I'm in a rush to buy.
My goal is to stay objective and react to market conditions as they develop. The bulls are making an effort now to right the ship and we'll see what they can do. However, the bears have the advantage technically and from a news standpoint. I will respect positive price action when I see it but so far there isn't enough to be convincing.
Early indications are for a flat opening Wednesday on rather quiet news flow. Stay open-minded and be ready to react as conditions develop.