On Tuesday, many market participants were looking for a speech by Donald Trump to the Economic Club of New York to provide a market catalyst. The speech was upbeat and would likely be used while campaigning. There was some brief mention of China trade but nothing that caused any major movement.
After the speech was over, a China media spokesman, made some negative remarks about "lying" that helped to trigger some selling, but the market had been looking for some excuse to dip and that was a convenient reason.
The S&P 500 ended up with a new all-time high on Tuesday, but over the last seven trading days the S&P 500 has barely moved and is up just 0.4%.
Arguably, this very limited advance is healthy consolidation and sets up a foundation for another push higher. Seven days ago, the indices were overbought, but that is no longer the case.
While the technical condition of the indices looks healthy, the primary problem is that the action under the surface is not nearly as healthy. I've been writing about this for a while now and it has not been improving. The issue is that the indices are staying aloft primarily due to a small group of bigger-cap stocks. Boeing (BA) , for example, helped to lift the DJIA strongly one day, and the money that keeps piling into Apple (AAPL) is offsetting weakness in hundreds, if not thousands, of smaller stocks.
Market strategist Tony Dwyer, of Dwyer Strategy, is looking for a pullback of 2%-5% before a rally to end the year. Tony has been correctly bullish for quite a while and his thinking seems logical to me.
While I avoid predictions and forecasting, I do embrace the idea of developing a market thesis and then looking for price action to confirm that it is on the correct path. Given the stalling in the indices and the poor underlying action in individual stocks, a pullback of 2%-5% seems like a logical thesis. However, it would be almost too easy and that makes me a little skeptical.
Since my cash levels are already quite high, I need to be careful that I'm not just hoping for a pullback because it would be convenient.
We have a soft open shaping up on Wednesday morning and we will see if there are some willing dip buyers in early trading. There are no major new catalysts on the horizon, but there will be comments on the progress of a China trade deal.
Overall, my game plan is to continue to be selective with new buys and not be in a rush to deploy my capital. I'm ready for a pullback but not convinced it is going to be that simple or easy.