On Friday the DJIA hit the 29,000 level for the first time but then reversed and closed at 28,823. The monthly jobs news was weaker than expected but the intraday reversal was primarily a function of an extended market that needed some rest and profit taking at the end of the week.
Stocks are set to gap up at the open this morning, but the big question is whether the news flow will be used as an excuse for some further profit taking. Bears have consistently been frustrated when they anticipate a "sell the news" reaction but conditions are ripe for the uptrend to slow down after last week's celebration of the events with Iran.
Earnings season starts this week, with JP Morgan Chase (JPM) , Wells Fargo (WFC) and Citigroup (C) kicking off the festivities -- reporting on Tuesday morning. That is followed by a number of other financials over the rest of the week before technology names start to report next week.
Barrons noted in an article this weekend that "there is a bull case that the big banks are stronger than ever." Expectations for the financial sector are high as the inverted yield curve worries have dissipated and a friendly Fed continues to provide a bottomless pile of cheap capital.
Also this week, phase one of the China trade deal is scheduled to be signed on Wednesday. This is a classic "sell the news" event, but it appears to have already been discounted and forgotten by the market to a great degree. There will be much speculation about whether the Chinese will live up to their commitments to purchase billions in agricultural products -- and that issue could cause some pressure. President Trump has already said he will act quickly if there is non-compliance.
A third issue this week is that House Speaker Nancy Pelosi said she expects to send Articles of Impeachment to the Senate. There will be some debate about whether new witnesses will be called, but the market has had little interest in this event and will likely continue to treat it as unimportant.
The news flow will mostly just be a convenient headline for the big battle that is taking place over an overbought market continuing to trend even higher. It may sound trite, but the old saying about not fighting the trend is what is working. Markets that are trending like this one tend to stay stronger for longer than many anticipate. The current trend is already far more extended than many think is reasonable, but using arguments about "reasonable" just doesn't work.
We have a positive start as market players look ahead to earnings reports tomorrow and the China trade signing ceremony on Wednesday. What we have to watch for is "sell the news" responses and intraday reversals. Strong markets tend to stay sticky to the upside, so the key is to stay with it as long as possible but be ready to move when weakness starts to become evident.