"Your best work involves timing. If someone wrote the best hip hop song of all time in the Middle Ages, he had bad timing."
-- Scott Adams
The quick and complete dismissal of the market's selloff on Tuesday caught many bulls and bears by surprise. The bears always seem to overreact to minor weakness but even many hard-core bulls were hoping for some rest and consolidation as we head into earnings season. The indices were badly overbought and they remain that way.
Market players have been wrestling with the dilemma of respecting very strong momentum while there is a long list of arguments for why it can't continue. The easiest thing in the world to do is to predict that this trend will come to an ugly end. The hardest thing to do is to time it with any sort of precision.
A number of traders were quick to declare the intraday reversal on Tuesday a significant technical event but it turned out to be a trap for those that were quick to embrace that argument. It is likely that those pessimists helped to provide additional fuel for the indices yesterday.
While the price action reflects a lack of any worry or concern by market players, there is a little hesitancy this morning due to the potential for a government shutdown if a deal is not made in Washington, D.C. by Friday night.
These sort of political upsets tend to produce numerous rallies on each headline that a breakthrough has been made and a deal is near. We saw that process occur over and over again as the tax bill was being negotiated and voted on. The good news was never fully priced in, so each new headline produced a new high.
I'm looking for the situation to keep a bid under the market as we see headlines that announce that a deal is about to occur.
The other big issue impacting this market will be earnings. It has primarily been banks reporting so far but IBM (IBM) is on the schedule for tonight and will be interesting given some high expectations following a two-level upgrade yesterday.
The chip sector exploded higher Wednesday on good earnings news from Dutch chip maker ASML Holding (ASML) . This goes to show the great risk for the bears if they think that there will be a "sell the news" reaction because expectations are high. IBM may provide a little more insight into that manner.
I don't want to sound too sanguine about this market. There is choppiness and the cryptocurrency group is much more challenging now as it undergoes a substantial correction. It is still a very good market for stock-picking but there is rotation taking place and a shift to a focus on earnings reports.
Go ahead and predict a market top if you enjoy doing that sort of thing but don't act on it until there is some good technical reason to support your view.