Stocks tried to rally last week as investors digested a slew of incoming data and the latest round of political/economic headlines. Stepping back, the action remains weak as the market continues to struggle to find a sustainable bid. Remember, it’s not the news that matters but how the market reacts to the news. So far, the reaction is lackluster at best and that suggests more time is needed before a new trend (up or down) develops.

The Federal Reserve is expected to raise rates and then the market wants to see what they will do next. Meaning, will the Fed be dovish and signal a pause to future hikes or will they stay the course and continue to announce more rate hikes in 2019? The most likely outcome will be to see the Fed continue to hedge itself and go back to the language of saying they are data dependent. This way, if the data improves, they can raise. If not, they can hold off or even cut- if the data deteriorates substantially. Filtering out all the noise, the next level of resistance to watch for the major indices is the 50 and 200 DMA lines and the next level of support is February’s low. By definition, we have to expect this sloppy sideways action to continue until either support or resistance is breached.

Monday-Wednesday Action:

Stocks opened sharply lower but closed mostly higher on Monday after fear spread regarding the ongoing trade war and a slowing global economy. The market tried to recover after buyers showed up and defended key support. Shares of Apple fell after a Chinese court granted Qualcomm an injunction that stopped Apple from selling certain iPhones in China. Stocks also fell after UK Prime Minister Theresa May announced the delay of a key Brexit vote in the country’s parliament. It sent the Dow, S&P 500 and Russell 2000 all breaking below their October’s low. October’s low has served as important support in recent weeks. Separately, the small-cap Russell 2000 undercut February’s low before reversing.

Stocks opened higher on Tuesday but closed mostly lower as investors digested another busy day of news. President Trump met with Democratic leadership and threatened to shut down the government. In other news, Meng Wanzhou, Huawei’s CFO, was granted bail by a Canadian judge. Separately, China took some steps to address Trump’s economic concerns and reduced auto tariffs and pledged to buy more American goods. Stocks opened sharply higher on Wednesday after key support was defended on Monday and Michael Cohen, Trump’s personal lawyer, was sentenced to three years in prison. That was seen as a positive sign for the market because now that the Cohen case is closed, Trump will not get into legal trouble from Cohen’s case. Sellers showed up in the afternoon and erased some of the earlier gains.

Thursday & Friday Action:

Stocks were relatively quiet on Thursday as investors digested a busy week. Apple announced a new billion dollar campus in Austin, Texas which could create 15,000 new jobs. Separately, China detained two Canadian businessmen for national security reasons. The transportation index slid to a fresh low which bodes poorly for both Main Street and Wall Street. On Friday, China announced weaker than expected economic data which sent global stocks lower.

Market Outlook: Big Top Forming

Stocks are forming a big top as the major indices continue to go nowhere fast. Right now, the next big levels of support to watch are October’s low and then February’s low. Meanwhile resistance is the 200 and 50 DMA lines & then 2018’s high. If support is breached, odds favor we are heading into a bear market. As always, keep your losses small and never argue with the tape.