As major earnings reports rolled in last week, many market players were anticipating that the news would trigger some selling. Stocks have been steadily moving higher lately and were a little technically extended, and some of the reports were not that impressive. Texas Instruments (TXN) and Amazon (AMZN) both posted disappointing numbers and suffered sharp pullbacks, but the major indices remained unscathed.
A solid report from Intel (INTC) , good news from Tesla (TSLA) and continued speculative interest in individual stocks and small-caps kept a bid under the market most of the week. The Brexit mess was mostly ignored and there continued to be hope that maybe all the bluster about a China trade deal would resolve itself in a positive way.
Reports are due this week from Facebook (FB) , Apple (AAPL) and Alphabet (GOOGL) as well as the bulk of the remaining S&P 500 names.
In addition to earnings reports, the Federal Open Market Committee issues its interest rate policy decision on Wednesday afternoon at 2 p.m. ET.
This substantial news flow occurs with the S&P 500 on the brink of breaking through the July 26 all-time high of 3027.98. Buyers stopped just under that level on Friday, but a strong open this morning should produce the technical breakout.
The obvious question is whether the S&P 500 is set up for a failed breakout. The technical setup is almost too perfect and is going to invite some strong computer-driven algorithm action to trap bulls that are too anxious to chase. The news catalysts are also very obvious, which increases the potential for a "sell the news" scenario.
One major issue that plays in the bulls' favor is that despite the recent positive price action, this is not a euphoric market. It has been climbing a wall of worry driven by doubts about a China trade deal and a potential recession.
This week, Barron's Big Money poll had the lowest number of bulls in 20 years. This is highly unusual for a market with the indices so close to all-time highs.
The biggest positive that I've seen in the past couple of weeks is the improvement in individual charts. After the tedious focus on China trade, there has been a shift back to stock picking and away from macro matters. The Fed decision may shift us back to more macro focus again this week, but there are much better charts now than there were previously.
Despite the improved market action, I still have quite a bit of idle cash as I've been selective with my buying. I will continue to manage positions closely and don't plan on making any major 'bets' on earnings. I'll be looking for opportunities in stocks after they announce their earnings.
We have a solid start on the way, but chasing a strong open Monday morning is never easy.
