Danger of a Technical Rollover Is Building as Market Deals With Major News Flow

Although the S&P 500 is just a few percentage points off its all-time highs, it hasn't made any significant progress in three weeks. All the other indexes are lagging to some extent, but the common factor is that the action has been very choppy, and there has not been any strong momentum.

This sort of technical action can be healthy as it serves as consolidation and helps to establish a foundation for a move higher. But it can also be a precursor to more negative action as holders grow tired of limited progress, move to the sidelines, and hope for better action.

The fact that the market did not see extensive negative seasonality in September, which many expected, created a bit of a bear trap and produced FOMO (fear of missing out). However, it never led to the sort of upside strength that poor positioning often produced.

The issue now is whether the indexes are in danger of a deeper rollover as investors await the start of earnings season.

The jobs report on Friday helped the bulls maintain their optimism, but the strength of that report is being questioned. Monday, Fed member Neel Kashkari commented that unemployment is becoming a more significant issue while the inflation problem is waning.

Another issue that had some impact Tuesday morning was China's stock market. Mainland China reopened after a long national holiday and rallied to catch up with Hong Kong, but Hong Kong stocks — which had been on fire — dropped sharply as skepticism about the level of stimulus started to take hold. Names like JD.com JD and Alibaba BABA are giving back some gains Tuesday morning and oil and commodities are also under pressure due to China concerns.

Banks will start to roll out earnings on Friday, but before then, we will have the CPI report to consider.

There are a number of news catalysts on the horizon, but the big question is technical: Will the indexes start to gain downside momentum as they roll over, or will the stubborn underlying support remain in place?

I don't know the answer, but I've been cautious for a while and am having a hard time finding new stocks to buy.

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