The Market Mood Undergoes a Dramatic Shift. But Is This a Major Turning Point?
The bulls are back in town — for now — and there's one equity that looks particularly good to me.
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The extreme gloom and negativity that hit the market on Monday may have been just the medicine that was needed to produce a turning point. The market mood improved dramatically on Tuesday, and there is positive follow-through Wednesday morning. The technical action was good enough to produce a turn that puts the market back into a "confirmed uptrend" using the metrics developed by Investors Business Daily.
Although there still are no trade or tariff deals in place, President Trump said that he does not intend to play hardball with China and "We're going to be very nice with China if they don't make a deal, we will set the deal." In addition, Treasury Secretary Scott Bessent continued to talk about progress on deals and indicated that the current high tariffs with China are not sustainable.
It also helped that Trump indicated that he had "no intention" of firing Fed Chair Jerome Powell. On Monday investors used concerns about the independence of the Federal Reserve to panic sell. That was totally forgotten the next day amid these comments.
What was particularly notable about the action Tuesday was the extremely strong breadth. Every stock in the Nasdaq 100 was positive, and overall market breadth was in the top five in history. Broad-based buying like that is a function of investors piling into indexes and index ETFs. When investors buy the Nasdaq 100 QQQ, they are essentially buying every stock in the index as well.
The critical question now is whether this is a major turning point. The patterns in the indexes are favorable for a turn and more upside. I particularly like the look of the Russell 2000 ETF IWM here. However, there is still plenty of overhead resistance for all major indexes, and even with the historically strong breadth on Wednesday, there were only 135 new 12-month highs. There are not going to be many breakouts for a while, but that doesn't mean we won't see some uptrends.
The market has had other rally attempts recently, but they all failed because the trade and tariff news turned negative. If there are actually some deals soon, that may be enough to change the character of the market for a sustained run.
Tesla's TSLA earnings results were quite poor, but that was very well anticipated, and the stock is trading up 6.5% higher in the pre-open Wednesday. Elon Musk indicated he would be cutting the time he is allocating to DOGE starting in May, and that helped boost the stock.
We have more earnings coming up, and they will play a large role in views about the health of the economy. Even without the tariff turmoil, the economy is facing some severe issues, and it will be interesting to see how the management of companies such as Google GOOGL regard the future.
For now, the bulls are back in town, and it looks very upbeat.
At the time of publication, Rev Shark had no positions in any securities mentioned.
