The steady rise in the stock market continues this morning as protests and unrest in about 60 cities overnight was not as bad as feared. There was less rioting and destruction and that is providing some hope that more effective answers to the emotionally-charged issues are developing.
The reduction in the intensity of the civil unrest is coupled with a belief that more financial stimulus may be on the way. There is an even greater need to help state and local governments in the U.S. -- and there is also optimism that the European Central Bank may engage in more bond buying.
Lost in the recent news flow is that economies around the world continue to reopen at a brisk pace. Although COVID-19 is still flourishing in many places, the focus has shifted to reopening rather than further lock-downs. The protests have had the unintended consequence of forcing more human interaction and has undercut some of the worries about a resurgence in coronavirus cases.
While there is a positive spin helping to drive the indices higher this morning, what continues to be the most significant and unusual aspect of this market is how it has completely overlooked any and all negatives. Nothing seems capable of stopping this market recently. A pandemic, riots across the country and the worst economic conditions since the Great Depression have been shunted aside as market participants struggle to keep pace with the V-shaped action.
The great challenge of this market is navigating action that feels unnatural. Even when there are perfect conditions, uptrends are not this lopsided. There usually is some ebb and flow to the action. Normal behavior is to take some profits along the way and for stocks to stop occasionally to catch their breath.
Normal upside progress has been changed by two big factors, The first is the massive fiscal and monetary stimulus that continues to flow into the market and the second is underinvested investors that continue to deal with a huge wave of liquidity that they need to employ the best they can.
Ironically, the unnatural feel of the market is one of the reasons it continues to act in an unnatural manner. There is a huge wall of skepticism and uncertainty, which the market is scaling on a daily basis. When the market refuses to go down, the underinvested bulls have no choice but to continue to edge back into the market so they won't underperform.
The big problem for the bears is that the negative narrative just doesn't matter. There isn't anything that can stop the dynamics that are driving this market. If riots and a pandemics can't slow it down, then what will?
What we have to watch for is a shift in price action. When good news is not celebrated and there are some reversals, then we have to watch for some downside movement to build.
One very interesting stock to watch today will be Zoom Video (ZM) . This video conferencing stock has been a leader during this crisis and has nearly tripled in price this year. Last night it announced a blow-out quarter and great forward estimates, but it is seeing just a minor gain at the moment. The good news was well anticipated and there is some 'sell the news' reaction. If that can happen to a leading stock, it could also happen to the broad market.
I'm not betting on a top right now, but I'll be watching the price action carefully for a shift. Trying to predict a top has been deadly. The better approach is to wait for actual weakness to occur before becoming more pessimistic.