With the Nasdaq at a new all-time closing high and the S&P 500 at its highest point since the Covid-19 crash started in February, many market players are wondering what can go wrong and cause the market to fall.
It is natural and normal to wonder how much longer the good times can last, but the better approach is to focus on what can go right. There are a number of things that are going right and carrying the market even higher.
While Covid-19 cases continue to rage, the death rate has lagged and there is news about a number of promising vaccines that could be available as soon as this fall. Worries about Covid-19 just aren't taking hold and concerns about the economic fallout are not being embraced.
One of the big reasons that economic worries are not taking hold is the push for more stimulus. Leaders in the European Union agreed overnight to a stimulus package equivalent to $2.1 trillion. European stocks jumped on the news and the German DAX turned positive for the year.
On the earnings front, IBM (IBM) put up a solid report Monday night and the stock is indicated to open up around 5%. Earnings reports will continue to roll in over the next few weeks and so far there are few signs of a "sell the news" response to them.
Not only is the news flow positive but also sentiment among traders is robust as they continue to find plenty of stocks that are acting well. FAANG names regained their momentum after a rest of about a week and the rotational action out of growth stocks and into value reversed and put the leaders back in their place.
Precious metals continue to hit new recent highs with silver miners leading the way.
While it is quite easy to craft compelling bearish arguments they simply do not matter at this time. The price action is very positive and those who are fighting it hope that there will be a sudden recognition of the folly of current valuations. That just isn't the way that the market works.
My game plan here is simple. I'm going to continue to trade the action with a bullish bias until I start losing money. For me, the ultimate warning sign will be that the character of the market action shifts and trades start to fail. When that happens then I will embrace a more bearish view.
The longer I trade the less I respect the art of market prediction. What works best is having a strategy that reacts to whatever conditions might develop. There is no way to know what the market will do next week, so rather than try to guess it is better to react quickly to changing conditions.
Keep your eyes open for intraday reversals but for now, the market is running on positive sentiment and pure momentum. There is no reason to fight the rampaging bulls.