For the last couple of weeks many traders have been complaining about a variety of things. Whether it was lackluster price action, low volume, pockets of weakness in health care, biotechnology, cloud computing, etc., the potential for weak earnings or slowing international economic growth, market players were groaning about this market.
This all made for a good bearish argument. However, despite a few tries, the bears couldn't generate any decent downside traction. The buyers consistently showed up, although they didn't do much more than hold support and that produced some very dull and listless action.
In hindsight, it is clear that this is exactly what the market needed in order to make another push higher. Sentiment was downright skeptical and many bulls were concerned that the huge run from the December lows had run its course. They were worried that the tepid action was an indication that a major reversal was brewing.
That set the stage for a classic "never short a dull market" reaction. Good earnings from Twitter (TWTR) , Whirlpool (WHR) and a few others helped to get the ball rolling but this rally was primarily a product of poor positioning and too much anticipatory bearishness.
As the indices closed in on all-new highs for the year, the fear of missing out kicked in, which forced bears to cover and underinvested bulls to look for additional exposure.
With the indices breaking out Tuesday, the big question now is whether they can keep going. Yes, all the same bearish arguments still exist, but staying with the trend has been the winning approach for months and it continues to be the way to go.
After the close, Texas Instruments (TXN) put up a strong report that initially received a relatively favorable response. This could keep the chip sector going, which has been a leading group lately. Other big names are on the docket this week and so far there have not been any "sell the news" reactions.
Quite a few bears scoffed when Larry Fink of BlackRock (BLK) recently talked about a market melt-up driven by fear of missing out. They probably don't find that view quite as humorous after the action Tuesday.
Have a good evening. I'll see you Wednesday.
