With a consistent slew of decent enough data releases (not too hot [to embolden the Fed] and not too cold [to worry about recession]), with a start to the earnings season that has thus far seen 72% of S&P 500 members beat bottom line expectations, with relatively (or perhaps ostensibly) positive headlines around ongoing U.S./China trade negotiations, with Brexit now on hold till the fall, and with a presidential impeachment seemingly off the table, one might think that the U.S. stock market would be barreling through last September’s all-time highs. 

Well, while 1.3% so far this month for the S&P 500 ain’t nothin to sneeze at, this week’s fractional loss — amid the factors mentioned above, and a pretty bullish setup going in — suggests, at least in the 
very near-term, something’s amiss.

Some observations:

1. We’ve seen an epic run off of the 12/24 low; a consolidation of those gains right here makes sense.

2. The September ’18 high actually looks more like a failed test of the August ’18 high; a level that may very well serve as stiff resistance for a bit going forward (the S&P stopped dead in its tracks right there on Wednesday). Note my red circles on the graph (top panel) below:   click to enlarge…

3. As regular readers know, my assessment of conditions has the present global trade environment as far and away the greatest hurdle between here and a sustainable move into all-time highs. Last week’s report suggesting that the U.S. is urging China to rotate its retaliatory tariffs on $50 billion worth of ag products to other U.S. industries utterly smacks of political motives. I.e., does not inspire a sense that the powers-that-be are approaching this in a thoughtful, holistic manner that addresses the legitimate issues and aims to allay the palpable uncertainty that the present tariff regime is inflicting onto the business community (see yesterday’s blog post #1 Corporate America Worry).

4. In the spirit of #3, recent negative rhetoric toward the world’s largest trading block (the EU) no doubt has traders on edge as well.

Now, my short-term observations notwithstanding, among other bullish developments, a look at sector performance, volume trends and breadth suggests that a move well into new highs is likely just around the corner. Of course, a policy misstep, which (per #s 3 and 4) is a possibility that traders are intimately aware of, could see the short-term setup fall apart in very short order. We’ll know soon enough…


Bottom line: We expect a notable pickup in volatility (in either, or both, directions) in the days/weeks to come. Which, as long as underlying conditions remain positive, will be volatility for the patient long-term investor (as opposed to the short-term trader) to simply ignore…


Have a nice weekend!
Marty