The S&P 500 is up seven days in a row and is sitting near resistance at all-time highs. This is an obvious technical setup for a pullback or consolidation. There even is an obvious news catalyst in the form of poor reactions to earnings from Snap Inc. (SNAP) and Intel (INTC) that is creating some sympathetic pressure in a few other names such as Facebook (FB) and Google (GOOGL) .
Is it time to worry? Has the market become too frothy after a big run?
The likelihood at this juncture is that there will be more rotational action under the surface. Some big-cap names may impact the indices like IBM (IBM) did Thursday to the Dow Jones Industrial Average, but it is important to focus on the underlying action and not just the indices and the news coverage we see in the business media.
The strong move over the past week has created very good support and a supply of dip-buyers. Many market participants failed to put much money to work and they will be inclined to buy dips aggressively. One of the primary reasons that the market has gone straight up over the past week is that dip-buyers are too impatient to even wait for dips to develop. They fear missing out, and that is driving the trading.
Another favorable aspect of the market currently is the pockets of speculative action. There was a huge surge in Bitcoin and related stocks that created much retail interest, and then Thursday there was absolute craziness as the Trump SPAC play, Digital World Acquisition (DWAC) , jumped five-fold and raged more than 40 points higher in late trading.
This is the best special purpose acquisition company action in a long time, and it has renewed retail interest in trying to find the next name that may make a big move. Traders are already speculating about other stocks that have large short interests or thin floats.
While the technical conditions of the indices are problematic and sectors such as social media and chips are under pressure, the good news is that individual stock picking is not only healthy but picking up steam. When we combine that development with earnings season and positive fourth-quarter seasonality, it looks promising for active traders.
The indices are slightly soft here on Friday morning, but they are already shrugging off the negative news.
