As we start the tenth trading day of 2020, market participants are still grappling with the question whether there is something that can upset the strong uptrend that has been in place since early October. Despite near universal agreement that the indices are extended and in need of a rest, the sellers are unable to generate any real pressure.
On Tuesday the indices were chugging steadily higher when headlines hit about the likelihood that tariffs on Chinese goods would stay in place through the Presidential election. There was some question whether this was new news or not but it was enough to cause a minor bout of profit taking. Apple (AAPL) also rested after some negative analysts comments and that was enough to produce a little pause in the indices.
Earnings reports from several banks yesterday were good and that is continuing so far this morning with strong numbers from UnitedHealth Group (UNH) , Bank of America (BAC) and BlackRock (BLK) . On the downside Target (TGT) issued weak guidance and that will impact the retail sector.
Phase One of the China trade deal is set to be signed today and, more importantly, many of the unknown details will finally be released. As we saw yesterday there is still quite a bit of nervousness over this issue and it could easily be used as an excuse for more corrective action.
Essentially what we have right now is a battle between the power of an uptrend and the potential for some news headlines that will justify a bout of profit taking in many extended stocks. The uptrend is powered by a wave of Fed-created liquidity and that seems to be the only force that matters. When there are dips the support has been quick and aggressive.
Until there are some cracks in this uptrend, there is little to do but to expect it to continue. We will see if the news flow today has any impact but even with the bad news from Target and the impact it is having on Walmart (WMT) and other retailers, the indices are still holding up.