Overbought Market Stymies Positive Trade Deal Update
Many stocks anticipated the latest between the U.S. and EU and market action was surprisingly anemic.
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The U.S.-EU trade deal was widely regarded as a significant positive, averting a trade war and providing greater economic certainty for all parties involved. Unfortunately, most of the good news was already anticipated, and with the indices and many stocks already extended, it failed to deliver positive price action.
Although the point loss was minor, all the major indices trended lower for most of the day, and breadth was abysmal at nearly two-to-one negative. There were nearly 800 new 12-month highs before the selling gained ground, but it was one of the few recent days where there wasn’t intraday buying and a strong finish.
Market participants have been looking for a "sell the news" reaction since earnings season started, but hopes of trade deals have helped to prevent that from happening. Ironically, it is the consummation of a trade deal that finally delivered some "sell the news" action.
Given how extended the indices have become, the selling was extremely mild, but we’ll have to wait and see how interested the dip buyers might be after this anemic action.
There is a slew of earnings reports coming up, with the most important being Meta META and Microsoft MSFT on Wednesday night and then Apple AAPL and Amazon AMZN on Thursday night. There is also the Federal Open Market Committee interest rate decision on Wednesday afternoon that should generate a market reaction.
The question now is whether that news flow will produce a further "sell the news" reaction, or will this minor pullback be sufficient to make buyers a little more aggressive if good news does hit.
Ideally, the market will spend more time consolidating recent gains, and some new sectors will start outperforming the grossly extended Magnificent Seven MAGS stocks, but the market is likely to do whatever frustrates the most investors.
We are at a very tricky juncture right now, and the best course of action is to wait and see how things develop after more news starts to hit.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre was long META.
