Both bulls and bears were caught by surprise Friday morning when much stronger than expected jobs news was posted. What was a decent bounce after a three-day selloff become a V-shaped move as recent, all-time highs are now just a stone's throw away.
Many market players were relieved when the market finally pulled back after a two-month long run. The thinking was that there would now be an opportunity to put cash to work without chasing and catch market strength into the seasonal strength that usually kicks in to end the year.
The recovery has now occurred so fast that the bulls did not act quickly enough and are again struggling with Fear of Missing Out (FOMO). Not only are many bulls underinvested but they have great difficulty trying to keep pace with benchmark indexes. On top of FOMO and performance anxiety, there is an additional positive catalyst of overly anticipatory bears. The bears keep telling us that we should expect a major top to occur soon, but the timing of that event has been impossible.
The indexes are once again overbought, but this momentum and strong breadth paint an attractive technical pattern. What will be particularly interesting next week will be whether positive China trade news can cause a breakout to new highs. The technical pattern suggests that the market wants to focus on positives.
I'm holding a very high cash level and am trying to put more cash to work in a prudent way. I have no interest in trying to short the indices but that doesn't mean that it is easy to just throw cash at the market and hope it works. The focus is on stock picking rather than indices and that favors traders.