"Some people think they are concentrating when they're merely worrying."
-- Bobby Jones
A weak finish to April has the bears thinking that their long-awaited correction is on the horizon. After all, most of the key earnings reports are now out, while seasonality is turning negative and the Bank of Japan demonstrated just how skittish the market is over central-banker support.
There's a long list of reasons to support the argument that the rally off of February's lows is just about played out. But the bears are ignoring the most important factor in the market: Price action. Although we had a selling squall to end last week, the S&P 500 is still holding above key support levels.
Of course, the bears are inclined to ignore the S&P 500 and focus on the Nasdaq Composite instead. After all, the Nasdaq has been underperforming the broader market, mainly due to weak action in Alphabet (GOOG, GOOGL) and Apple (AAPL). Strength in Amazon (AMZN) and Facebook (FB) hasn't been enough to offset tech stocks' general weakness.
What the bears are trying to ignore is the rotational action that has been holding up the S&P 500. Oil, mining, precious metals and commodity-related names have been offsetting weakness in other market areas. Although it would appear that the leadership is quite narrow, there's actually strong breadth. That's because speculative interest in small caps keeps bubbling up.
This action is largely the inverse of what happened during much of 2015, when the big-cap FANGs covered up underlying weakness in the great bulk of the market. These days, it's been the action under the surface in smaller stocks and less-common names that have outperformed the major indices.
While the bears have some good arguments to make, the biggest problem they face is the inclination of this market to continually attract dip buys and quickly find support just when it looks like it's in a precarious position. There just isn't a tendency toward any downside momentum.
Now, we all know that high-frequency trading and computer programs tend to produce upside momentum. But what's often overlooked is that this doesn't tend to work in reverse. For a number of reasons, the computer programs quickly revert to a bullish bias after a brief pullback.
But while I don't see sufficient evidence to declare that the market is topping out, I do see reason to be more cautious right now, as entry points are becoming increasingly difficult for stock pickers. We've had some great trading in oil, precious metals, mining and a few other groups, but now they're largely extended and mostly overbought. We need another group of stocks to take over the momentum leadership, but there doesn't seem to be much on the horizon.
In general, my market bias is primarily a function of the number of opportunities that I find in individual stocks. If I see lots of buys and good entry points, then I'm bullish. But if I have a hard time putting money to work, then I'm bearish. Right now, I'm having a harder time putting money to work, so I'm cautious. But that can change quickly if conditions shift.
We have gold moving above the $1,300-an-ounce level today, but some key markets are closed for a belated May Day holiday. Early indications are for a slightly positive but slow opening.