The market continues to dance to the never-ending headlines about a China Trade deal. After several negative reports that caused very short-lived dips, futures are indicated higher this morning following comments last night by Larry Kudlow that there has been "very good progress" and that an agreement was near. He added that while President Trump is pleased with what he sees, he is "not ready to make a commitment" to roll back planned tariffs.
The positive open is also being aided by earnings reports from heavy hitters in the semiconductor sector, Nvidia (NVDA) and Applied Materials (AMAT) . Both names are seeing positive opens following solid numbers and guidance.
The question now is whether the good news will be sufficient to push the market out of a very tight trading range. The S&P 500 has been consolidating near its all-time highs for six days now and should open at a new high if early gains hold. The problem has been that the buyers have not been able to produce sufficient power to generate momentum.
Statistical studies show that a market basing at its highs like this will almost always close higher within the next few weeks. However, while there is a clear upside bias, that doesn't mean that there will be a lasting trend. Many technicians have been looking for a pullback that will set up another surge into the end of the year, which is seasonally strong. That sounds like an ideal technical setup, but may be too simple and easy to work as expected.
While the indices have been in a clear uptrend since October 8, many market players probably do not recognize how lopsided the trending action has been. During that timeframe, there hasn't been a pullback that has lasted longer than an hour. There has been plenty of flat action at times and the upside has been limited for long periods, but there has been no sustained selling at all.
The reason that the action can be so lopsided for so long is that computer domination of the stock market eliminates the normal ebb and flow of action. Rather than waves of action of various magnitudes that reflect normal human emotions, there are computer programs designed to immediately buy any and all dips. The programs work so fast and so consistently that selling is never allowed to take hold.
This lopsided action obviously is a huge problem for bears trying to predict a market top, but it is also very difficult for bulls that are never given good entry points. The methodology of many big funds is to buy their favorite stocks on minor weakness but they never have the opportunity in this sort of action.
We'll see how well the indices hold onto the early strength this morning, but even if it does fade, the underlying support is likely to remain very strong. China trade news will continue to cause some short-term movement, but the big mystery is what will it take to finally cause some selling to last longer than an hour.