As the S&P 500 heads into technical resistance at 2742, the pace of momentum is slowing. There is still very favorable price action, including the fact that the S&P 500 has traded up in the final 45 minutes of trading for 11 straight days, but volatility is picking up and there are quite a few individual stocks reversing after a spike higher.
Earnings season has been a very positive catalyst for this market recently even though reports haven't been particularly robust. It has been a case of "better than feared," but that has provided a steady tailwind. Most of the big-cap names have reported now, but there is still a slew of smaller caps to report. That can be favorable for stock pickers but has far less impact on overall market direction.
The issue at this point is whether there are some positive catalysts to keep this uptrend running. The one issue that is likely to prevent the bears from growling too loudly is the potential for a U.S.-China trade deal. Negotiations pick up again next week and there is sure to be some optimistic comments from the Trump administration about progress. It is going to be tough for bears to press to the downside with that possibility in the air.
The other big positive is the now-dovish Fed. This dovishness has been priced in to some extent in the last six weeks, but even former Fed Chairwoman Janet Yellen is saying that the likelihood of a rate cut is now fairly high.
The bears' biggest argument right now is that a China trade deal may give us a short-term pop but that it isn't really going to be the huge driver many have hoped. The pessimists also point to slowing economic growth.
Here on Thursday morning the European Commission cut its 2019 eurozone GDP growth estimate to 1.3% from the previous 1.9% and many experts think further reductions are justified. That is what is causing the weakness here on Thursday. U.S. economic news continues to be quite strong, but there are growing concerns that the Fed's dovishness isn't a sign of economic optimism.
There are good reasons for this market to pull back, but the potential of a deal on China trade and the dovish Fed will prevent the bears from pressing too much. There is softness due to the economic data out of Europe, but technically we need this sort of pullback. Don't look for this uptrend to suddenly collapse. It is going to take some sustained effort by the bears to push this market into a downtrend.
Twitter Inc. (TWTR) is seeing a negative reaction to what looks like some good numbers. Guidance is weak and that is the problem. Expectations are no longer as low as they were when Apple Inc. (AAPL) reported, which is helping to cause a change in market character.