Algos Provide Support to the Stock Market; Dip Buyers Have to Follow

 | Sep 11, 2017 | 10:44 AM EDT
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The big gap-up open caught many market players by surprise, and their efforts to reposition are helping to keep a strong bid under the market.

Many traders are inclined to try to fade action like this, but the computer algorithms tend to provide support. As it holds up, the dip buyers become fearful they are missing out, and are more inclined to pay up rather than wait for some weakness.

Breadth is very good, at better than 3 to 1 positive, and there are well over 500 new 12-month highs so far. The S&P 500 is trading at a new closing high, but hasn't yet taken out the intraday high that was hit on Aug. 8.

It is strong across the board, with insurers jumping big as storm damage in Florida was not nearly as bad as anticipated.

FAANG names -- Action Alerts PLUS holdings Facebook (FB) and Apple (AAPL) , Trifecta Stocks name Amazon (AMZN) , Netflix (NFLX) and Google parent Alphabet (GOOGL) -- are solid, and biotechnology and semiconductors are attracting interest.

Banks continue their bounce from Friday, due in part to a bounce in the dollar and a drop in bonds. Oil is steady, but precious metals are weak.

It is a tricky juncture for traders, as many are trained to sell into this sort of exuberant action, but they should know by now you have to move very slowly when trying to call a top in a market that favors V-shaped moves.

I've sold down a few long positions into this action, such as Winnebago WGO, my hurricane play, and a few other odds and ends, but I'm looking for buys in individual stocks.

If you are determined to short indices, you have to watch for a lower low. If the morning low is breached, that may give the bears some confidence, but right now the bulls have the momentum.

The downside trade has felt very obvious lately, which is probably the easiest explanation for why it hasn't worked.

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