Investors Shrug Off Extended Market Ahead of 2 Big Market Catalysts
Here's why the tepid reaction to the EU trade news was actually a positive.
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Market action was mixed on Monday following news of a major trade deal between the U.S. and the European Union. The deal was generally viewed as positive as it averted a trade war and eliminated a great deal of uncertainty. However, there are still numerous details to hammer out, and there is some unhappiness in Germany and France with the terms. Still, it is further evidence that Trump's trade policies are not the disaster many "experts" and pundits predicted.
Market reaction to the trade news was tempered primarily because of the extended technical conditions of the indexes and many key stocks. The indexes have made numerous new all-time highs in the past month and are in need of some consolidation.
Bears keep anticipating a pullback, but there hasn’t been any negative news to scare investors, and the "sell the news" reaction to good news has been very limited. Market players are more focused on what may go right than they are concerned about what may go wrong.
The tepid reaction on Monday to the trade news was positive, as it did help, to some degree, with the extended technical conditions. There is still very strong underlying support and a herd of buyers that would love to jump in on a dip. It is going to take something much more severe than overbought technical conditions to scare away these potential buyers.
There are two big market catalysts coming up later this week. The first is the onslaught of earnings reports. The most notable will be Meta META and Microsoft MSFT on Wednesday and Apple AAPL and Amazon AMZN on Thursday. These stocks will present another potential sell the news opportunity, but it is so obvious that it has recently been very ineffective.
The other big event will be the Fed interest rate decision on Wednesday afternoon. It is very unlikely the Fed is going to cut rates at this meeting, but the market will be weighing every word from Fed Chair Powell after the intense pressure that President Trump has been exerting on him to lower rates. If Powell signals a greater likelihood of cutting at the next meeting in September, it will likely generate a positive market reaction.
On Tuesday, market players will be focused on positioning in front of these big events. I will continue to look for favorable chart patterns and be aggressive about protecting sizable recent gains.
At the time of publication, Rev Shark was long META.
