After two days of weak action, the indexes exploded higher on headlines that President Donald Trump has delayed some of the tariffs on imports from China and that negotiations are ongoing.
Conditions were good for a bounce and this news added some extra energy as the computer algorithms that buy news headlines triggered some substantial buy programs.
While there is plenty of skepticism about a deal with China coming anytime soon, the indexes did a fairly good job of holding on. Breadth was solid with about 5,200 gainers to 2,100 decliners. FAANG stocks traded strongly, which tends to be the case when there is computer-driven buying.
The question now is whether the market can build on this bounce. Technically the S&P 500 exchange-traded fund (SPY) stopped almost exactly at the 50-day simple moving average, which is the obvious short-term resistance level, but bounces of this type have a tendency to follow through more than many market players think they will.
This is part of the way that computerized trading works as it squeezes shorts and creates fear of missing out.
The bigger technical picture remains negative at this point as the bulls still have to prove they can follow through. It takes follow through to produce a shift in trend and we just have to wait to see if the bulls have the energy to produce. We are still in the middle of weak seasonality, which makes it tougher to follow through.
This market action is primarily index and news-driven, which makes individual stock picking difficult. Stocks are moving on big-picture headlines and not their individual merits. That can produce some mispricing, but it is much tougher to carry positions when they are subject to random volatility.
I'm looking for more upside in the near term, but expect that there is a short trade setting up in the indexes.
Have a good evening. I'll see you tomorrow.