It was another strong week for the market as stocks danced around to headline news about fiscal stimulus and were chased higher by market players suffering from fear of missing out.
Small-caps (IWM) were the leaders, which is primarily a function of a focus on stock-picking. I've been preaching about the benefits of stock-picking for a while now and it continues to work well. There is a strong likelihood that a focus on individual stocks will continue to be the best approach into the upcoming third-quarter earnings season.
What would make me much more cautious about this market is when there is very correlated selling without regard to the merits of individual stocks. That is what happens when there is a major trend change and we have not seen that in a while. There was one selloff this week when President Trump tweeted that he was stopping all negotiations until after the election. Stocks barely had an opportunity to drop before dip buyers rushed in and pushed them back up.
The rumors about a fiscal stimulus deal are likely to continue for some time. There still is much disagreement and there is no guarantee that Senate Republicans will approve a deal. While most everyone wants some form of stimulus the outline of a agreement is murky at best.
Overall this is a very healthy market that has been running on strong breadth and excellent relative strength. Volume has been light but not bad enough to cause any problems. The underlying support is very solid and the desire to buy any and all dips is strong.
The best course of action is to stay with the positive price action as long as possible.
Have a great weekend. I'll see you on Monday.