Stocks around the world are higher this morning, and U.S. indices are on track to gap higher at the open and set new all-time highs.
It is a roaring bull market, despite continued headlines about the spread of the coronavirus. There is a lack of data and many believe that China is not providing accurate information. There are indications that containment is working, but nothing is clear about the situation.
Typically, uncertainty of this sort would weigh on the stock markets but that is not the dynamic that is at work in this market. There is plenty of cheap capital and many winning buyers, and they are going to buy stocks regardless of the news headlines. Why shouldn't they? Buying stocks still works. The folks that are losing money are those that are embracing the negative narrative and expecting the worst.
This action has market players struggling to develop a coherent investing strategy. On one hand, this is amazingly strong momentum and there are few signs that it is slowing. The short-term opportunities are all bullish. On the other hand, the indices are extended, the potential for negative developments is high and logic supports the argument that the coronavirus will cause some economic slowing.
What is a trader or investor to do?
Some are arguing with this market and looking for price action to reverse. They are digging a deep hole for themselves as they wait, but the logic of a reversal seems compelling so they stick with it.
Other market players are trying to ride this wave. They are mostly distrustful, but they don't know how long it will last and have confidence that the power of liquidity will continue long enough to produce meaningful gains.
The best approach to this market depends on your style. If you are highly vigilant and prepared to react quickly, then the smart move is to stick with the momentum while it lasts. If you are not as aggressive and have a longer-term timeframe, then the smart move is to be patient and wait for some shift in the momentum before you start doing much.
You would not know it from the coverage, but this is an extremely difficult market to navigate for most market participants. Straight up, grossly extended markets that are ignoring major negative news do not make for simple decisions.
Liquidity is winning the war against the coronavirus right now, but no one really seems to know how strong the enemy might be.