Bulls Are Still in Control, But They Are on Shaky Ground

For the second day in a row, the market struggled with poor breadth and relative weakness in the Russell 2000 IWM. It wasn’t quite as weak as on Monday, but buyers didn’t exhibit much interest. 

There was some rotation into Magnificent Seven names and Microsoft MSFT in particular, but the Nasdaq 100 QQQ breadth was close to even, and the gains were minimal.

Bonds bounced a little, and yields fell for a while, which helped the mood a bit, but the best earnings report of the day from SAP SAP faded after a strong gap higher and closed with a small gain of around 1.3%.

The primary question right now is whether this price action is just healthy consolidation that will set up some additional upside next week when big-cap technology names report or is this stalling action that foreshadows more downside as worries about inflation and higher interest rates start to build?

One issue that is impacting the market is growing confidence that former President Trump will win the election. The Wall Street Journal posted an article entitled “Wall Street Pros Get Into Position to Profit From a Trump Win" on Tuesday afternoon. One school of thought is that Trump may boost the economy and use tools such as tariffs that will have an inflationary impact and strengthen the dollar, which is why we have seen weakness in bonds recently.

Speculation about the impact of the election will continue for the next two weeks, and there is also the risk that there will not be a clear decision on election night, which would be a major negative.

We have more earnings coming up, but the most interesting one will be on Wednesday when Tesla TSLA reports.

It is a tricky trading market, right? The bulls are still in control but are looking a bit shaky.

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

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