China Stimulus Is Keeping Market Momentum Positive
Here's what traders need to watch Tuesday, even as bulls stay stubbornly strong.
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Aggressive economic stimulus in China is driving stocks higher on Tuesday morning. Oil, commodities, autos, luxury goods, and Chinese retailers such as Alibaba BABA and PPD Holdings PDD are moving higher and helping to push U.S. indexes into the green.
Following the Fed's half-point cut last week, U.S. indexes are staying sticky to the upside mainly due to increased confidence that the central bank has engineered an economic soft landing and will continue to cut rates aggressively to keep the economy healthy.
There was nervousness that the Fed’s rate cut move would trigger a sell-the-news reaction, but that has failed to materialize, creating trapped bears and increased FOMO. While the indexes and many stocks are technically extended, they are staying sticky to the upside. Still, there were signs of fatigue in small-caps on Monday, with the Russell 2000 exhibiting relative weakness and the biotechnology sector XBI getting clipped with a loss of 2.4%.
The market's dilemma right now is that most things are holding up quite well, but stocks are overbought, and additional upside momentum is difficult. China is helping to boost things on Tuesday morning, but it is very important to watch for an intraday reversal after a strong start.
The tipoff that some corrective action may be starting will be a weak close. There is still the danger of negative seasonality. That can become self-fulfilling once the selling pressure starts, but so far, the bulls are staying stubbornly strong, and the Magnificent Seven are providing an element of safety.
I’m frustrated that I can't find more charts with attractive entry points, but it is important to stay disciplined and wait for the right conditions before risking more precious capital.
China is the primary focus Tuesday morning and is helping boost oil and Tesla TSLA.
At the time of publication, Rev Shark had no positions in any securities mentioned.
