The pace of the advance slowed on Thursday but the market continued to exhibit positive momentum. A rate hike from the European Central Bank was taken in stride and a strong response to Tesla's TSLA earnings helped sentiment. Stocks looked a little lackluster in the morning again but shrugged off the profit taking and closed at the highs of the day.
After the close, several earnings reports came in weak, most notable Snap Inc. (SNAP) and Seagate Technologies (STX) in the technology sector were quite poor. Here on Friday morning American Express (AXP) is up nicely and we will see what Twitter (TWTR) and Verizon (VZ) have to say.
So far, the earnings season has developed quite differently than many market participants had anticipated. There were strong concerns that expectations were too high and that there would be misses and guidance cuts. Reports have not been that strong, but the market has reacted favorably on the basis that the bad news has already been discounted to a great degree.
The very strong runup this week changes the dynamics for next week when the key FATMAAN names report and the Fed hikes rates again. Expectations are now even higher, and the potential for some "sell the news" action is quite high.
Ironically, the high level of skepticism that still exists about the market is what is helping to keep this rally going. It may very well turn out to be just another bear market rally, but it is persistent and strong, and that is forcing shorts to back off and sucking in some folks who are becoming increasingly worried that maybe they really did miss the market lows.
The response to news events next week is going to tell the story of this market. My plan is to just stay patient and wait to see how things develop. I'm not going to try to guess the response at this point. I don't have a high level of confidence that the market can continue to trend higher at this pace, so I am sitting on a high level of cash and will keep hunting for technical setups as they develop.
My biggest concern about the market is that it is fighting the Fed right now. The Fed is not our friend currently. It is going to continue to hike rates and quantitative tightening is going to soak up some liquidity. The bullish view is that the market is looking ahead to a less hawkish Fed, but there is nothing to confirm that they are shifting policy soon.
We have a flat open here on Friday morning and I expect to see a random session as traders look ahead to next week.