Overhead Resistance Looms and One Factor Will Determine What Happens Next

The market is at a key juncture on Wednesday morning as the recent rally runs into overhead resistance around the 200-day simple moving average. The question now is whether news about tariffs and the economy will provide fuel to overcome that resistance or if the bounce fails and causes a retest of recent lows.

Market participants have shrugged off some of the nervousness about tariffs, but they are still scheduled to go into effect next week, and there is very little certainty about what President Trump will do. The risk of a negative reaction to tariff headlines is extremely high.

Consumer confidence, which was reported on Tuesday, was softer than expected, and more economic news will be coming up. The PCE inflation report is due on Friday and will be particularly important as there have been concerns about sticky inflation.

The technical action has improved, with the Nasdaq closing near its session highs for the third straight day. The Magnificent Seven MAGS has regained some of its appeal to investors, with Tesla TSLA leading the charge.

However, on Tuesday, the market reverted to the behavior where a smaller group of big-caps led the market while the Russell 2000 IWM and small-caps lagged. Speculative action slowed, with only a very small number of stocks making large moves. Traders are very cautious, and most of the money flowing into the market is going into the relative safety of mega-cap names.

That sort of rotation into the Mag 7 names can continue for a while as we approach earnings season, but if they falter, there will likely be very quick exits as the group will not be trusted after the recent corrective action.

We have a flat-to-down start on Wednesday with durable goods and crude oil inventory numbers coming up. Watch for talk about the upcoming tariffs. That is what will determine the course of the market in the short term.

At the time of publication, Rev Shark had no positions in any securities mentioned.