The market did a great job of building on the upbeat action that developed following the consumer price index numbers and Fed minutes on Wednesday. All the indexes gapped up to start the day and then barely pulled back. The buying did slow later in the day, but it was the first time the S&P 500 had a gap-up open and a close at the highs in a very long time.
Interestingly, the S&P 500 stopped right around its 50-day simple moving average at 4436. It would be natural to take a rest at this point, but this is the sort of action that creates a fear of missing out and helps to build up a supply of potential dip buyers. Dip buying becomes much more attractive when stocks are acting well.
Breadth was about three to one positive, but the pockets of momentum were narrow, volume was light, and not that many individual stocks closed at the highs of the day. The bears will have little problem finding negatives to complain about, but there was a shift, and now the bulls have the edge, and it is theirs to lose.
At this juncture, what I want to see is some consolidation and profit-taking. We need short-termers and nervous nellies to lock in their gains. These will be the folks who end up providing support. They will either do some quick dip-buying or will help us to climb a wall of worry higher.
I don't want to sound too positive, but the market has been developing in textbook fashion. The next logical step is to make sure folks don't become too bullish too quickly.
We are heading into some major earnings reports, and that will help to shift the focus away from macro worries and back to how well many companies have been operating. We will see lots of talk about the supply chain and labor shortages, but expectations are low, and there will be some positive reactions to these reports.
We had bullishness in the air on Wednesday night, but tonight those same bulls are feeling a little nervous, and that is a good thing.
Have a good evening. I'll see you tomorrow.