The old adage, "If it sounds too good to be true, it probably is" isn't always correct. In fact, the suspicion, cynicism, and doubt that are inherent in this belief can and do keep people from taking advantage of excellent opportunities.
-- Richard Carlson
The DJIA is at all-time highs, the Nasdaq bounced back from its pounding last week, the Italian constitutional vote didn't cause any major trauma and oil is consolidating after a big run. Overall, the market is in good shape with positive momentum -- but can it keep on running?
The only thing that is negative about this market right now is that quite a few stocks are extended. There was some technical damage done to the Nasdaq 100 (QQQ) names like Facebook (FB) , Microsoft (MSFT) , Apple (AAPL) and Alphabet (GOOGL) , but most of them found some support and acted better on Monday. The semiconductor sector (SMH) bounced back over its 50-day simple moving average and the biotechnology group (IBB) had a slight bounce as well.
There are some economic reports due and there will continue to be plenty of talk about how Donald Trump will impact the economy, but the next big news event is the Federal Open Market Committee at 2 pm ET next Wednesday, Dec. 14.
It is widely anticipated that the Fed will raise rates, but that has been a near certainty for a while and is already well anticipated by the market. Once the deed is done, we will start the process over again of anticipating the next hike, and that is what could cause the market some issues.
After the vote in Italy this past weekend, there is talk about how Mario Draghi and the European Central Bank now has further reason to extend its program of quantitative easing. That is one of the main reasons the markets seem untroubled by the "no" vote that was supposedly a market negative.
The main thing that continues to drive this market is that every bearish argument recently has been greeted by more buying. It seems as though the market is programmed to buy news that is supposed to be negative. This causes major mis-positioning, which results in short squeezes and chases as market players try to stay a step ahead of the action. All news has been good news lately, and that makes it extremely difficult to outperform the benchmark indices unless you are fully invested and saying that way.
The great challenge of markets that move straight up like this one has since the election is that the only way to keep pace is to have as much money at work as possible. It isn't possible to outperform by timing the ups and downs, because there aren't any downs. You have to work to catch the stocks with the best sustained momentum, such as those in the steel sector like AK Steel (AKS) and Steel Dynamics (STLD) .
The technical picture is positive, the news flow benign and the DJIA is at all-time highs. That will cause a number of pundits to predict that doom awaits, but until there is some change in conditions the trend remains our best friend.