The S&P 500 and Nasdaq hit new all-time highs on Friday following better-than-expected jobs news and optimism about progress on a trade deal with China. Early indications on Monday morning are for a positive open.
It is good old-fashioned bull market action, but what is most notable about the recent action is that there is a strong undercurrent of skepticism and outright pessimism. Many of the bears have believed that the market was on the verge of a reversal or a strong "sell the news" reaction after a vague "phase one" China deal, major earnings reports and a Fed interest rate cut.
The negative narrative has been that the good news has been well anticipated and with the economy obviously slowing, the market will not be able to hold up for much longer.
The bearish arguments are not difficult to understand -- and hold great appeal for those that have grown weary of a market that doesn't seem to care about logic, but the arguments simply have not mattered. Perhaps the fact that the bearish arguments are so obvious and easy to understand has created a wall of worry, which is fueled by underinvested bulls and overly aggressive bears.
As we start the current week, the indices and many stocks are technically extended. Most of the key big-cap names have reported earnings and the focus shifts to small-cap stocks.
The Fed has cut rates and indicated that it is now on hold as it waits further developments. There will be speculation about its reaction to economic and trade news, but unless there are some obvious negatives, the likelihood is that the market will not be expecting another rate cut in December.
The most likely headline to cause market movement in the short term is China trade. It was indicated by China on Friday that there was an agreement in principle -- and that the parties were looking for a location to sign the formal agreement. Again this is a classic "sell the news" sort of event, but that has not worked well.
Technically, there are few things more bullish than the indices being at all-time highs. That doesn't mean that there won't be short-term pullbacks and consolidations, but the momentum that produces this sort of price action typically doesn't disappear without some surprise news developments.
The market continues to ignore the political battles in Washington, but if there is some market weakness, that will likely receive some blame.
After a very good run in small-caps, stock picking is now becoming more difficult as many charts need a rest. There is also the potential for landmines during the small-cap earnings season. It is particularly important to keep track of earnings dates in the next few weeks.
My game plan is to treat this as a bull market that is extended. That means taking some profits into strength, protecting gains and looking for entries on pullbacks. I see no reason to try to predict a major market top at this point.