The market had good reason to sell off on Monday, but held up reasonably well as it grappled with poor earnings news from Caterpillar (CAT) and Nvidia (NVDA) . Caterpillar was confirmation of the bearish narrative that global growth is slowing, and Nvidia confirmed Apple's (AAPL) recent warning about problems in China, but the market digest the bad news well and managed to finish near the highs of the day.
The major indices are lower than they were six days ago by a small amount and that consolidation has helped to work off the overbought conditions that were created after the big runup off the December 24 low. The bears have been hoping that the overbought readings would lead to a swift pullback, but the market has dealt with the issue by churning and moving sideways instead.
This has set up a healthier technical picture, with the S&P 500 sitting slightly above its 50-day moving average, but the market is waiting for news to determine where it is heading next.
The first news item on the agenda is the earnings report on Tuesday evening from Apple. Apple pre-announced poor earnings in December on slowness in China and the market will be looking to see how much of that news has already been built into the current price. Apple has been in a trading range under the $160 level and has some significant overhead resistance.
The market is likely to dither today as it awaits tonight's earnings. In addition market players will be looking ahead to the Fed's interest rate decision and news conference on Wednesday, followed by earnings from Facebook (FB) , Microsoft (MSFT) , Boeing (BA) and US Steel (X) on Wednesday night.
This is a very interesting gauntlet of news events -- and will be the key to where the market is headed next. Technically, the conditions are not at all definitive. While the indices are no longer severely overbought, they face plenty of technical overhead and have been stalling for the past week. A rollover and breach of the 50-day simple moving average would trigger some sell stops and create some worry about the potential for at least a partial retest of the lows of December.
We have a market that poised for a move and a slew of potential news catalysts in the next 48 hours. Stay vigilant and be ready to act. We don't know what is going to happen, but we can reduce risk by acting quickly as events unfold.