The Federal Open Market Committee decision on Wednesday was unremarkable but the market sold off on the news and elevated the hopes of the bears that were looking for a market turn. While there was some follow through selling Thursday, the sellers didn't seem to have much conviction.
That increased skepticism was the perfect setup for a better-than-expected jobs report to end the week. The bears had gained a little confidence and the bulls were slightly worried so both groups had to scramble to reposition when the good news hit. Suddenly the failure of the Fed to be even more dovish didn't seem that bad after much stronger-than-expected economic news.
The move on Friday didn't take the senior indices back to all-time highs but small-caps (Russell 2000 ETF (IWM) ) did particularly well, which is a reflection of a strong speculative appetite. Breadth was exceptionally strong with nearly 6,000 gainers to 1,300 decliners. The number of stocks at new 12-month highs is still surprisingly light at around 280 names but that will ramp up fast if this rally continues.
Once again the market demonstrates how difficult it is to try to call a top. With major earnings reports over, nothing newly dovish from the Fed and the start of negative seasonality it made good sense for the market to soften after a tremendous rally since the December lows.
While the logic of a reversal is simple and compelling, actually timing it is a nearly impossible task. The move on Friday was largely a product of market players being too quick to anticipate a top. They were leaning the wrong way and were caught by surprise. That has occurred several times in recent weeks and is a theme that may repeat as we await other news events like U.S.-China trade.
There was some very good momentum action Friday and many charts look appealing to trend followers. In addition, there is still a flood of small-cap earnings reports to come in the next couple weeks that will very likely contain a few surprises.
The easy thing to do is question the ability of this market to keep running higher and that is why it keeps doing it.
Have a great weekend. I'll see you on Monday.