The market succumbed to some profit-taking on Friday following four days of great trading.
Small-caps ( (IWM) ETF) have been on a rampage, and aggressive individual traders have been practically euphoric over some of the great trading action. Institutional Wall Street has been cringing as it watches the action, as their favorite big-cap S&P 500 names have been languishing for a while. Even the mighty FATMAAN names have lost their luster as money pours into speculative SPACs, electric vehicle names, and other hot sectors.
The action has been bubbly in places, and that was a good setup for a "sell the news" reaction to the long-awaited Covid relief proposed by President-elect Biden. It is unlikely that the bill will look much like what is being proposed by the time it passes, but the news offered an excuse for some selling and profit-taking.
Next week the focus will turn to earnings reports, while there will also be a little nervousness until Biden is sworn into office on Wednesday.
A weak day such as the market experienced Friday is often be viewed as the start of a major topping process. While that is possible, there isn't any compelling reason to believe that a major downtrend is about to begin. This action looked more like some extended stocks finally took a rest after a big run. It doesn't take much time for stocks with strong momentum to reset and continue on their way.
We have enjoyed one of the best stock-picking and trading markets in many years and there are plenty of traders hunting for the next great opportunity. I don't expect them to disappear until they have experienced more struggles than a single weak day in front of a long weekend.
Enjoy the holiday. I will see you on Tuesday.