In recent weeks both bulls and bears were relieved to see the indexes finally pull back. The Wuhan coronavirus provided a very convenient reason for some much-anticipated profit taking in a market that has become highly technically extended.
Once the correction started, even some of the most bullish pundits started to think that a deeper correction was in the cards. The news sounded ominous and there appeared to be no escaping some economic damage -- although it would be limited mainly to China and have some domino effect.
Instead of downside follow-through, the indexes found support quickly. Many market players attributed that recovery to efforts by the People's Bank of China to flood the nation's economy with many billions in liquidity. The intent was to stop the free fall in equities and commodities.
Not only did the selling come to a quick end, but stocks have reversed completely. Indexes have recovered almost all their losses and that is creating quite a bit of consternation for some market players who don't believe that the coronavirus won't have any negative consequences for U.S. equities.
There is absolutely no way there isn't some economic cost associated with the coronavirus, but stocks are acting like they are still undervalued and that the economy is booming.
Ironically, the strong price action tends to impact the view of the coronavirus more than any actual facts about its spread. If the market is strong, then the virus must not be much of a concern is the logic that is employed.
The question for traders is this: To what extent do they try to anticipate when the market might embrace worries about the coronavirus again? Will the whole issue be totally ignored or are there some consequences that will become more reality apparent in the fullness of time?
I don't know the answer to that question. All I can do right now is to respect the fact that there is an uptrend and not fight it, but stay watchful for another shift in sentiment. A weak close will be the first sign that the momentum is slowing, but overall this market is full of folks more fearful of missing out than being caught in a downtrend.