Last week was a particularly challenging one for traders who had to deal with big swings in both directions.
On Thursday the indexes bounced sharply after a worse-than-expected ISM Services report. This caught a number of bears by surprise but the indices were already down substantially following a surprisingly weak PMI-Manufacturing number. This "buy the bad news" bounce was justified in large part by hopes that bad economic news would make the Fed even more dovish.
Market players were skeptical about the ability of the market to build on that bounce on Friday, however, a mediocre jobs report helped to assure the market that the Fed was on track for two more rate cuts this year. There also were some optimistic comments about the upcoming trade negotiations from the Trump Administration which provided a further excuse for some buying.
The longer that bounce held up, the more it sucked in skeptics sitting on the sidelines and contemplating the narrative that the economy is undergoing a substantial slowdown. That narrative gave the market its worst two days of action since last December on Tuesday and Wednesday but the Fed and hopes on China trade staunched the bleeding. The bounce on Friday was fueled in part by a little too much negativity.
Still, the two-day bounce is not enough to offset the two-day selloff this week and there are still some substantial technical issues. Nevertheless it does create an interesting setup as we wait for the China trade news. There is still quite a bit of poor action in individual stocks and the bounce Friday was largely index-driven, but it shows how difficult it is for the bears to persist when there could be China trade headlines at any time.
Next week is going to be particularly difficult as it is likely to be driven by a series of rumors about the China trade talks before the big meeting between the principles on Friday. The odds of a substantial move on the headlines that emerge is very high and there really isn't anything, technical or fundamental, that can help us to predict what might occur.
Despite the challenges for traders this week, out of chaos comes opportunity and that is good news as we head into earnings and the seasonally best time of the year.
Have a great Sunday. I'll see you on Monday.