Since the start of the year, the S&P 500 has made a couple of attempts at a breakout from the trading range that started in mid-December. We are seeing a third attempt today.
Small-cap action has improved and breadth is running very solid, with about 4300 gainers to 1900 decliners. The S&P 500 is hitting new all-time highs, which is triggering short covering and some performance anxiety among underinvested bulls.
There isn't any major news catalyst other than some comments that a Trump tax policy is expected in the last couple weeks. The dollar is bouncing, bonds are lower and overseas markets are acting well.
The most likely explanation for the strong action is that there is a favorable technical setup. Typically, it is the price action that drives the headlines and not the other way around.
Interestingly, it is not the big cap FANG names that are the main drivers today. Growth Seeker portfolio name Amazon (AMZN) , Action Alerts PLUS charity portfolio holding Facebook (FB) and several others have been holding up the indices lately, but today they are lagging, as the small caps come back to life. The theme of the market has been constant rotation and we are seeing it play out again today.
There is plenty of green on the screens, but the challenge is entry points. I started a position in Cliffs Natural Resources (CLF) following an extremely strong earnings report. This is one I want to average into gradually as it develops from here.
Another name I'm watching is Keane Group (FRAC) , which provides sand for fracking. It is a recent IPO at $19 and should have initial analyst coverage in a week or so.
The big problem with the market is that breakout action like we are seeing today has not led to follow-through. We had similar moves on Jan. 25 and Feb. 3, and both days were followed by pullbacks. Technically, this a good looking pattern for the S&P 500, but whether momentum can build is the issue.
