Rebound slows amid heavy news flow

The pace of progress slowed on Thursday, but the market continued to show positive momentum. A rate hike from the European Central Bank was taken in stride and a strong response to Tesla’s TSLA earnings helped sentiment. Stocks looked a little lackluster again in the morning, but shrugged off profit taking and closed on the day’s highs.

After the close, several earnings reports were weak, with the most notable Snap Inc. (SNAP) and Seagate Technologies (STX) in the tech sector performing quite poorly. Here on Friday morning, American Express (AXP) is firmly in place and we’ll see what Twitter (TWTR) and Verizon (VZ) have to say.

So far, the earnings season has unfolded quite differently than many market participants had expected. There were strong concerns that expectations were too high and that there would be misfires and reductions in guidance. The reports weren’t as strong, but the market reacted favorably on the grounds that the bad news has already been largely ignored.

The very sharp rise this week changes the momentum for next week when the top FATMAAN names are reported and the Fed raises rates again. Expectations are now even higher and the potential for a “sell the news” action is quite high.

Ironically, the high level of market skepticism that still exists is what is helping to keep this rally going. This may very well turn out to be just another bear market rally, but it’s persistent and strong, and it’s forcing the shorts to pull back and suck in some people who are increasingly concerned that they may have -be really missed the market lows.

The response to next week’s events will tell the story of this market. My plan is to remain patient and wait to see how things develop. I’m not going to try to guess the answer at this point. I’m not convinced the market can continue to rise at this rate, so I’m sitting on a high level of liquidity and will continue to look for technical setups as they develop.

My biggest worry about the market is that it’s fighting the Fed right now. The Fed is not our friend at the moment. It will continue to raise rates and quantitative tightening will absorb some of the liquidity. The bullish view is that the market is eyeing a less hawkish Fed, but there is no confirmation that they will change policy soon.

We have a flat open here Friday morning and I expect to see a random session as traders look to next week.

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