"The bad news is nothing lasts forever,
The good news is nothing lasts forever."
-- J. Cole
If this extended market is going to experience a "sell the news" reaction this is the week for it to happen. There is slew of significant news events occurring that have the potential to act as a turning point.
The highlight this week is likely to be earnings. There are reports from Facebook (FB) , Microsoft (MSFT) , Amazon (AMZN) , Alibaba (BABA) , Alphabet (GOOGL) , Apple (AAPL) and many other key names. Apple is already having an impact this morning on news it is cutting iPhone X production.
In addition to earnings we have Janet Yellen's last interest rate decision as Fed Chair. Expectations have been that that there will not be any significant policy shift at this time but bond yields continue to move higher.
On Tuesday night President Trump gives the State of the Union address. This may have some effect on the dollar as he discusses trade and also on infrastructure names as that policy initiative gains steam. The market continues to be unperturbed by political issues, focusing instead on the boom in economic optimism.
On Friday there is the jobs report, which may have some influence on bond yields if good news continues to pile up. So far the pressure on bonds has not had any significant impact, although it may start to provide support for the dollar if they continue to strength and attract foreign investors.
All this news occurs against the backdrop of very extended indices. Anyone that looks at the major indices has to agree that they are all overbought. That hasn't mattered because momentum has been so strong but market players will be watching for a catalyst to put some pressure on the rally.
While there is little debate that the indices are in nosebleed territory the technical conditions of many individual stocks are still quite strong. I have a long list of individual names that still have very attractive patterns. There are quite a few that are extended, which is what happens when there are more than 1,000 stocks hitting new 12-month highs like there were on Friday.
The other positive for individual stocks is that good earnings can keep them moving along. Strong reports from the likes of Netflix (NFLX) and Intel (INTC) is keeping things running while others such as Starbucks (SBUX) and Colgate-Palmolive (CL) have been an issue.
My approach for a while has been to stay focused on the individual stocks that are acting well and let them be my guide to the market. The big risk is that the indices will correct and drag down everything else with them. When the markets correct, it tends to be very broad and without much selectivity. That is what we will have to watch for when corrective action does occur.
Stay reactive and don't try to predict how all this news will play out. The price action will be our guide to what to do. Right now the indices are a little soft but with all the news flow we have coming we are likely to see some volatility.
Facebook, Microsoft, Alphabet and Apple are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells FB, MSFT, GOOGL and AAPL? Learn more now