The market is indicating a slightly positive open here on Friday morning, but many individual stocks are now extended and in need of some rest and consolidation. Breadth has been extremely strong, the number of new 12-month highs has been expanding, and small-caps have been leading, but the danger is that market players are looking harder for an excuse to do some selling and it won't take much.
The potential for a fiscal stimulus bill is dominating the headlines as President Trump has gone from cutting off negotiations to looking for a major deal. Even with both sides willing to participate there are still big obstacles, among them Senate Republicans, many of who believe there already has been enough stimulus.
Fortunately, the price action of the market seems to indicate that it is looking beyond an immediate deal. It is fairly certain there will be fiscal stimulus at some point but it may take the election to finally resolve the issue.
There are indications in the market that speculation of a strong Democratic showing is growing. There has been strength in both solar energy and cannabis stocks, both of which are seen as beneficiaries of Democratic control. Some of this action is simply momentum created by traders looking for positive technical action rather than a political prediction, but the two groups are doing well and that is likely to continue in the near term.
Speculation about tax ramifications still appears to be on the back burner, as at this point market participants seem more focused on finding positive action to buy rather than trying to speculate about political ramifications next year.
One group I'm watching today is gold and gold miners. These sectors move mostly with the dollar. The dollar has been slipping for a couple weeks now and is close to breaking below its 50-day simple moving average. With the likelihood of increased volatility into the election, this may be an area viewed as a safe haven.
We should continue to dance around to headlines about the chances of a stimulus deal, but the main issue at this point is that momentum is showing some signs of slowing as stocks need a rest. I expect individual stock picking to remain strong, but it will be narrower and will require us to be more selective. My game plan is to protect recent profits while digging for some good entry points.