Bulls Are Back in Charge, But for How Long?

The bulls and bears have been rotating control of the market each day this week, with the bulls back in charge on Thursday. The action looked quite dreary on Wednesday, but after a slow start, the bulls managed to make some nice gains on Thursday.

Breadth was very good at better than 3 to 1 positive, and the S&P 500 jumped over 2%. The Nasdaq 100 led the action, with the Magnificent Seven shrugging off recent concerns. The Russell 2000 IWM was quite energetic as well, but there were only 75 new 12-month highs and around 250 new 12-month lows.

Weaker-than-expected unemployment claims were the main catalyst for the strength. The market has been overconcerned about economic slowing, and there was relief that unemployment claims did not spike higher. Bonds have reversed sharply lower since a very big move on Monday. While interest-rate cuts are still very likely, there is no longer much of a chance of a cut before the next Fed meeting. The jobs report on Friday was not quite as bad as first believed.

Is that it? Is the corrective action over? Is the market ready to resume a rally like nothing happened?

Probably not. It is likely that volatility remains high and that we continue to see this every-other-day sort of pattern. There isn’t a lot of economic news coming right away, and most of the big earnings reports, except for Nvidia NVDA, have already been issued.

One of my major concerns is negative seasonality. Seasonality is a tendency and not a certainty, but conditions are strong enough for some substantial chop. The market is undergoing a shift in character, and it is not yet clear how it will evolve.

In this market, I’m focusing mainly on shorter-term trades until I have greater confidence that a trend can be trusted.

Have a good evening. I’ll see you Friday.

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