Technical Support Is Holding Despite Negative News Flow
The market has been able to shrug off increased tensions in the Middle East, the dockworker’s strike, and inflationary pressures. Will looming econ reports and earnings change that?
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Despite negative news flow, the indexes have managed to bounce back from some aggressive selling and avoid significant technical damage, but they are weak again on Thursday morning and maybe making dip buyers less confident.
So far, the market has been able to shrug off the increased tensions in the Middle East, the dockworker’s strike, and some signs of inflationary pressures in the labor markets, but more news will be rolling in, and there is some pressure on the optimistic economic narrative.
On Thursday, weekly unemployment and ISM Services will be reported, and on Friday, the payroll numbers for September will be reported. A hotter-than-expected jobs report could have some influence on potential Fed rate cuts. Currently, the market is expected at least two more quarter-point cuts later this year, but Fed Chair Jerome Powell recently sent the message that the Fed is in no hurry and will have to consider incoming data.
On Thursday, weekly unemployment and ISM Services will be reported, and on Friday, the payroll numbers for September will be reported.
The bears have some ammunition, but so far have not been able to generate significant downside momentum. The indexes are showing signs of rolling over, but the dip buyers have shown up on both Tuesday and Wednesday and prevented panic from building.
One thing that has helped quite a bit is the strong rally in China-related names after the start of massive economic stimulus. Those stocks have made giant moves but are now showing some signs of consolidating. Alibaba BABA, for example, has gone from $85 to $115 in 10 trading sessions but is indicated down 3.7% on Thursday morning. Some weaknesses in this group could make it harder for dip buyers to keep providing support.
The market is currently in a lull period as it awaits the start of third-quarter earnings in about two weeks. The technical setup that develops during this period will be extremely important. The higher the market, the higher the expectations and the greater the potential for disappointment. A pullback now would create better technical conditions for a positive reaction to major reports.
We have some weakness again on Thursday morning as we await data at 8:30 am ET.
At the time of publication, DePorre had no position in any security mentioned.
