The pace of the market's advance has slowed in the last couple days as investors contemplate whether a deeper pullback is finally developing. The outbreak of a deadly virus in China has provided a good reason for some concern and is already weighing on Asian markets.
Earnings news is another potential catalyst for some profit taking, but so far the reactions have been mostly positive. Texas Instruments (TXN) reported upside to both EPS and revenue estimates and kept guidance in line. That stock had a spike to a new all-time high on Wednesday and will be instructive as a potential "sell the news" situation. It was a fine report, but the stock has run up substantially and it is going to take some sustained buying interest for it to generate momentum.
On Thursday night, Intel (INTC) reports and will present a similar sell the news issue. The stock moved up 3.6% on Wednesday and is at its highest point since 2000. Expectations are very high and it may take more than a solid report to keep the stock moving.
Not all stocks are as extended and at the same level of risk for a sell the news reaction as TXN and INTC. What has been helpful is that there are still many secondary stocks with favorable charts. When the market dips, there has been plenty of buying power to jump in and hold things up.
Another major positive is that big-cap names like Apple (AAPL) , Microsoft (MSFT) and even Tesla (TSLA) are still in very strong uptrends. They are not seeing much technical pressure and that is holding up the indices.
Many market timers have been anticipating some softness for a while and they are becoming increasingly confident. The virus in China and the potential sell the news reaction from key leaders is providing a good basis for increased caution. What is missing is the price action to confirm the caution -- but that can shift fairly fast.
There is an old stock market saying that a top is a process. What that means it that tops take time to develop. The indices don't typically reverse and go straight down after a big run. The initial dips are bought aggressively and the early bears are often squeezed. Tops form only after a series of failed bounces and a number of lower lows. If that is occurring now, we are still very early in the process but we do need to stay vigilant.
I continue to stay focused on stock picking. There have been some very good pockets of trading under the surface as the indices become choppier.
Increased caution and vigilance are required, but the market is still not in a rush to embrace some obvious negatives.
We have a slightly negative open as we await an update from the European Central Bank.
