Dramatic news flow in the last 24 hours created market volatility unlike anything that has been seen before. The S&P 500 futures hit a 10-day overnight as Iran fired missiles at U.S. troops in Iraq, but then hit a new high following a speech by President Donald Trump Wednesday morning declaring that no further military action was likely. According to SentimenTrader.com, this is the first time that there has been a swing of that magnitude at market highs.
Stocks climbed steadily higher most the day on breadth of 4,800 gainers to 2,650 decliners. New 12-month highs expanded to 630. The primary catalyst for the strength wasn't just the good news that the Iran conflict was unlikely to lead to a protracted war, but poor positioning by many market players who were expecting some corrective action.
Late in the day, news hit of explosions in the Green Zone in Baghdad, which wiped out the afternoon gains, but there has been no confirmation of what happened.
The action today left the indexes hovering at all-time highs, but technically extended and still in much need of a rest. Market players seemed to be panicked at their inability to keep pace with this strength. After massive underperformance in 2019, many money managers are cringing at lagging again just one week into the new year.
At this point, it is an extremely tough market to chase higher, but the folks that have tried to fight the momentum recently have had a very tough time. My approach is to stay focused on individual stocks and not to try too hard to time the indexes. The overbought conditions are just too severe to trust the indexes to trend higher without some pause or corrective action first.
Have a good evening. I'll see you tomorrow.
