Stocks gapped higher to start the week, but failed to gain traction during the day. While there was not a continued celebration of the phase-one China deal, there was no "sell the news" response either. What there was the continuation of a healthy uptrend in a market that is technically extended.
Markets acting this way don't suddenly collapse and start a major downtrend. The strong action creates a supply of dip-buyers and fans the flames of FOMO (fear of missing out). Market players still want to put cash to work, but they want better entry points and don't want to chase stocks that are hitting new highs.
The bears continue to grumble about how the market refuses to embrace all the obvious negatives that they see so clearly. The pessimists view the China deal as largely meaningless, but fail to appreciate that it is good enough to satisfy the bulls that are happy with any progress.
The bears are now focusing more on sentiment as a possible contrary indicator. They are citing a number of market strategists that are predicting a melt-up and predicting that the market can go much higher from here.
The problem with contrary thinking is that it is dependent on the idea that the bulls are running out of buying power. When everyone is bullish and has already invested their cash, then stocks don't have any fuel to continue higher.
Unfortunately for the bears, this market is flooded with liquidity. The Fed has been providing a huge amount of quantitative easing, although Fed Chairman Powell does not call it quantitative easing. This cash comes into the market in various forms, but stock buybacks are one of the main vehicles.
One of the more confusing aspects of the market this year is that despite the huge gains, equity mutual funds and ETFs have lost over $135 billion in outflows, which is the largest amount since these flows have seen since tracking started back in 1992. That cash is largely in the hands of individual investors, so the argument that they don't have much buying power doesn't work very well.
Contrary sentiment has always been an extremely difficult way to try to time the market and that is even more true now when the Fed is offering so much cheap capital.
The best way to time the market continues to be to watch the price action and not be overly anticipatory. The technical action is positive and the overbought conditions can be easily remedied with some rest and consolidation.
With less than two weeks left in the year, there are many cross-currents created by tax planning and window dressing that may come into play, but overly bullish sentiment is not the issue. There is plenty of buying power out there and few places for it to go other than equities.