Gap-up opens, like we have Monday morning, present traders with difficult choices.
The prudent move is to take some profits into this sort of strength especially in extended stocks. On the other hand, fighting strong momentum has not been a productive approach in a market dominated by computer algorithms.
So far Monday morning, the bulls haven't been able to push beyond the opening highs but there is strong underlying support preventing stocks from pulling back too much. There is a new intraday low as I write and we'll see if that gathers strength.
Breadth is strong, with 5,150 gainers to 1,925 decliners and new 12-month highs have expanded to over 450.
The leading group is semiconductors (VanEck Vectors Semiconductor ETF (SMH) ) but small-caps (iShares Russell 2000 ETF (IWM) ) are lagging badly. Small caps benefited from the Russell rebalancing on Friday so there is some overhang there.
This action is largely futures driven rather than driven by individual stocks. The buying is primarily in indices and key large-cap names rather than a hunt for individual stocks that may produce relatively better returns.
I've made a couple of sales into this strength but don't see much new to do right now. My Stock of the Week is Sunrun Inc. (RUN) and is acting well. Another recent pick that is developing well is Great Lakes Dredge & Dock Corp. (GLDD) .
This action simply does not create any great entry points so we will have to be patient and let things develop.