Typically, when the indices become overbought or extended, market participants start looking for an excuse to do some selling. The news may not be anything very significant, but it will trigger a shift in the action and provide a convenient reason to do what many investors want to do, which is lock in some gains.
The current market has had a number of good excuses for some selling in recent weeks, but minor dips have been bought and the upside momentum quickly resumes.
In the past month, there was the signing of phase one of a trade agreement with China, military attacks by the U.S. and Iran and a virus pandemic in China. All three events could have easily caused some technical damage, but the market barely paused before moving on to new all-time highs. Other events like impeachment of the President didn't even produce a pause. The market hasn't even paid attention to the endless news coverage.
The market's ability yesterday to shrug off the news of the spread of coronavirus in China was particularly impressive. China is moving quickly to contain the spread of the problem and has already shut down areas in the country with population the size of Florida. Those efforts continue and Asian markets have not bounced back after taking a hard hit yesterday.
Not only are U.S. markets not embracing an excuse to do some selling, but they seem to be finding even more reasons to keep buying. Intel (INTC) , which has run up sharply in the last three days, is gapping up about 6% Friday morning following a strong earnings report.
Analysts continue to ramp up price targets on stocks that have been running higher for months. On Friday morning, Wedbush increased its price target on Apple (AAPL) to $400 from $350 and on Thursday night, Keybanc substantially increased target prices on several of the FANG names, such as Alphabet (GOOGL) .
There are a number of reasons for this strong momentum, with Fed-injected liquidity receiving most of the credit. That, coupled with fear of missing out, has allowed the market to shrug off all the good excuses for some selling.
There is only one way to logically navigate this action -- and that is to wait for the price action to shift. At some point, the market will embrace a good reason for some selling, but we won't know when until there is actually a shift in the market action.
Many market players are making the mistake of trying to anticipate when conditions might shift, but it just isn't possible to time that with any precision right now. If a pandemic in China can't slow this market down, then why should we think we can predict what will happen next?
We have a positive open on the way after good earnings and strong economic news from Germany.