The S&P 500 ETF (SPY) is set to gap-up at the open for the fifth day in a row. There isn't any major positive headline that is driving this action but there is a positive mood that is keeping a constant bid under the market.
The major driving forces right now are as follows:
- A high level of cash. Morgan Stanley (MS) reports that there is $4.7 trillion in money-market funds, bank deposits are higher and the U.S. Treasury has expanded its cash levels as well. The trillions in stimulus are creating liquidity and where else is it going to go but into stocks.
- While there is still much debate over the safety of reopening the economy, plans are proceeding and it is helping to create a feeling that people have greater degree of control over their lives again. It is still very early and there are sure to be some more outbreaks but, for now, the progress is helping the mood.
- Earnings season becomes the main focus tonight with a report from Alphabet (GOOGL) . That is followed by reports from nearly every major Nasdaq 100 stock in the next few days. The current mood seems to be that even if there are short term issues, these companies will make it clear that long term prospects are solid.
- Pressure on oil is not having any major impact on the market at this point. Perhaps it is already fully discounted but there isn't any spillover to the broader market.
- The Fed announced that it is extending its bond buying program to states and municipalities, and the Bank of Japan has also extended its bond-buying.
Those are the main catalyst for the continued strength right now but another factor is that so many market players are puzzled by the action and have such a hard time embracing it. There is an illogical to the idea that the market can so easily overcome the worst financial crisis since the Great Depression in a matter of weeks.
While the buy-and-holders and those that tend to stay fully invested have no problem with this market, it is much more difficult for those that are trying to navigate it with some sense of logic. It seems impossible that this can continue in this manner for much longer.
My best advice for dealing with this is to forego trying to time when it might shift and, instead, focus on trading individual stocks. I see no logical way to navigate the indices right now but I do see ways to trade individual stocks in a disciplined way.
The easiest way to dig a hole is to keep anticipating a shift in the indices. When a shift does come we can react quickly and significantly but trying to fight the current trend is a recipe for frustration.
Many market players are shaking their heads at the fifth straight gap-up open in a row. Our job is to try to embrace the price action as best we can even if we don't see the logic behind it.