The first full week of trading in January turned out to be quite interesting, but the most dramatic action isn't evident on the charts since it occurred after the close on Wednesday night.
Market players were a bit skittish about the possibility of Iran responding to the death of Qasem Soleimani, which caused some market weakness into the close on Tuesday. Later that evening reports that missiles had been fired at U.S. military installations in Iran started to come in and that drove futures down sharply.
There was talk about the possibility of World War III and incorrect reports about deaths but in a matter of a few hours it became clear that the event was quickly coming to an end and that there would be no loss of lives.
Futures turned up and momentum built as bears covered shorts and underinvested bulls put money to work. The uptrend continued on Thursday with the mighty Apple (AAPL) and several other big caps doing most of the heavy lifting.
The action was downright frothy. Finally, however, there was a little rest on Friday as indices reversed after a positive open. Breadth turned negative and both bears and bulls breathed a sigh of relief as things calmed down.
Some downside now is exactly what the market needs going into earnings season. Next week the phase-one China deal is scheduled to be signed and a dozen or so big banks will kick off the season with their quarterly reports. Currently, the technical conditions of the indices and many stocks are ripe for a "sell the news" reaction so it will be a healthier market if we have some downside now.
While the market needs rest that doesn't mean we should be looking for a major collapse. There is still plenty of buying power out there, which is evident in that there are still many willing buyers. While things are a little frothy and extended that can be corrected pretty fast.
The upcoming earnings season will present plenty of good opportunities, so rest up.
I'll see you on Monday.