There were perfect conditions for a market pullback today. The indices are so extended they are in nosebleed territory, both IBM (IBM) and American Express (AXP) had lousy earnings reports and there is endless drama over the possibility of a government shutdown. If you wanted some good reasons to lock in gains after a big run you couldn't ask for much more.
Despite the near perfect setup, the negative arguments were overwhelmed by market momentum once again. As I discussed in my opening post, you can't argue with momentum. It can be downright irrational, but it is a very powerful beast.
The primary issue I see right now is that there are still plenty of good-looking individual charts that are not extended but the indices are not nearly as attractive. There is no question they need a rest but there is enough rotation under the surface to prevent it. I am concerned that a correction in the indices will punish some individual stocks unfairly but that may be a source of new opportunities.
I have quite a long list of attractive stocks right now. If their charts looked like the SPDR S&P 500 ETF (SPY) I would not be buying them but they are not wildly extended like the indices. This creates uncertainty but that is part of the reason the momentum keeps running.
Earnings season picks up next week and that should help create some interesting trading. While IBM and American Express don't bode well for upcoming results, I don't believe they are representative of the theme that will emerge.
Have a great weekend. I'll see you on Monday.