The market action Tuesday was a good illustration of how factors other than news tend to drive the trading.
Monday the market was hit hard after news that trade negotiations were on hold and the Chinese were putting retaliatory tariffs in place. President Trump issued a series of positive tweets that contained no, new or significant news. In fact, many observers felt that the tweets sounded rather desperate.
Nothing changed as far as the main issue that hit the market so hard on Monday, yet the indices rallied sharply higher Tuesday before stumbling in the last hour or so of trading. Breadth was good with 5,500 gainers to just 1,800 losers but volume was light and there were more new lows than new highs.
What drove the market wasn't headlines. It was the technical conditions and the price action. The indices were obviously oversold after Monday's pounding and when combined with buy programs that pressured aggressive shorts and underinvested longs, the conditions were ripe for a good bounce.
The difficulty with bounces of this sort is that there really is no way to gauge how far they will go. Sometimes they even turn into V-shaped recoveries that continue for days. There isn't much to do now but give them room to run and stay skeptical of their staying power.
The weak finish signaled that Monday's problems have not been forgotten. There is still significant technical damage as well as lingering concerns about trade. The likelihood is that the trade issue will remain unresolved for months.
After the reflexive bounce action Tuesday, the question we must ask is what positive catalysts are on the horizon. There isn't much to see and there also won't be the same conditions in place that drove the positive action.
Nothing that happened Tuesday to change the negative developments that occurred on Monday. Be ready for a bumpy ride going forward.
Have a good evening. I'll see you Wednesday.