The indices are unquestionably strong today, but the big question now is whether this is a breakout move that can be trusted. Typically a move of this magnitude and velocity suggests there is more upside to come, but the challenge of the market lately has been that upside momentum fizzles quickly and we tend to reverse strength in a day or two.
The action today is a bit different. It takes us above much of the recent trading range and pushes things above some key support at moving averages. The other positive is that the action is sufficiently strong to churn up some performance anxiety. As I noted in my prior post, the level of underinvestment among funds is quite high and there is concern that the trading range is resolving itself to the upside.
If I was to sum up the biggest challenge investors have faced in this market in recent years, it is "putting money to work." You can always buy index ETFs, but the individual stock picking has presented a big challenge. It is just too random at times to hold on to large, concentrated positions. As a result, there is chronic underinvestment and that fuels moves like we have today.
I'm holding things like Acacia Communications (ACIA), BioTelemetry (BEAT) and Evolent Health (EVH) that are working well, but I just don't have enough money at work on a day like this. There was no compelling reason yesterday to be aggressively long or short. Anyone making a big directional call was simply flipping a coin. That is part of the reason we end up with very lopsided action once we start off with a positive bias.
I'll be looking for buys into the close but "putting money to work" is the challenge.