The stock market has had two major themes lately. The first is very strong underlying support that has prevented even a minor pullback from gaining momentum. The second theme is endless predictions that the market is on the brink of disaster.
Predictions of doom are nothing new, but they have become shrill lately as the bears battle a market that refused to undergo even a minor correction. The pessimistic arguments are very intelligent and compelling and they seem even more intelligent and compelling the longer the market ignores them.
At some point, the bearish narrative will matter, but the bears are too anticipatory and are unable to effectively time when all those fundamental negatives will suddenly matter. The lack of effective timing dooms us to constant repletion of the menu of negatives on a daily basis.
There are basically two positives holding up the market right now. A friendly Fed, which has helped to provide a flood of cheap capital, and hope that a China trade deal will eventually be announced. The bears have been helpless in dealing with those two issues.
A third issue that has helped to hold the market aloft is sentiment. There is tremendous underperformance by most money managers and they are anxious to make up ground before the end of the year. That pressure is accentuated by fear of missing out as the market refuses to pull back.
Ironically, the fear of missing out has many bulls rooting for a pullback just like their bearish friends. The easiest way to produce relative performance is to buy significant dips and then ride the buys back up to new highs. Some corrective action is exactly what most bulls are hoping for, so they can put money to work and outperform their benchmarks.
The market's response to these pressures is classic. It is frustrating both bulls and bears by doing very little. The S&P 500 is churning near all-time highs. It isn't producing any buyable dips and it isn't producing strong momentum to chase. Stock picking is poor and the action is downright boring at times since it is so flat.
That is the setup we start with this morning. Once again, there are headlines that hopes for a China-U.S. trade deal are bolstering the indices, but weak guidance from Home Depot (HD) has caught some market players by surprise and will be fodder for the bears looking for negatives to exploit.
My game plan remains the same. I will stay focused on closely managing existing positions and looking for some new buys. My cash levels are already quite high due to a few attractive stock picks but I see no reason to anticipate a sudden market collapse.