There never is any shortage of predictions about what the market might do next. There are upbeat and somewhat goofy bulls who expect positive action to persist and the dour and pessimistic bears who believe that disaster is just around the corner.
The market typically does a good job of frustrating both groups, as traders and investors try to guess where things are heading. Recently, the bulls have been more correct about the market action, but they have not anticipated that the action would be so flat for so long. A period of consolidation was very logical after a good run, but the poor action under the surface, the narrow leadership and the lack of better progress is starting to confuse the bulls.
On Wednesday, night Cisco (CSCO) reported earnings that beat estimates slightly, but its poor guidance confirmed a number of the bearish arguments about the economy. The company is seeing "broad-based demand weakness," which bodes poorly for the electronics manufacturing sector and companies like Sanmina (SANM) and Flex (FLEX) .
Despite some warning signs like this recently, the market remains very sanguine about the prospects of economic weakness. The talk of a recession has disappeared to such a degree that the bears now consider it to be a contrary indicator. China trade news continues to produce short-term movement, but even negative headlines are forgotten within a few hours.
The churning action of the indices recently is a technical positive, as it helps to build a foundation for a move higher. But if it goes on too long it starts to become a negative, as buyers grow tired of the lack of progress and start to act in a more defensive way. Flat action usually resolves itself in the direction of the primary trend, but that doesn't relieve us of the need to be vigilant and reactive.
My main complaint about the market lately has been that stock picking has been very challenging while the indices are held aloft by a few big-cap stocks like Disney (DIS) and Apple (AAPL) . I saw a little better stock picking action yesterday, which made me more positive, but my cash levels are still very high and I will stay selective.
Ideally, a pullback would create a better "wall of worry" for the market to climb into the end of the year, but that seems almost too easy. I suspect that the market will do a few things that surprise both bulls and bears before it begins to trend again.