The Nasdaq is up 10 days in a row, and the S&P 500 is up 16 of the last 18 sessions. All the indexes are technically extended.
There is no question that the indexes are due for some sort of correction, but the big issue is how it will occur. Will the entire market drop in tandem? Will there be churning and choppiness? Or will there be rotational action into stocks that have been lagging?
The bears would have us believe that the likelihood is that the entire market succumbs to overbought and frothy action and suddenly collapses. However, that is the least likely scenario to occur at this point.
Markets as strong as this one don't just suddenly fall apart without some surprising news. They may dip sharply, but the recent action has created a big supply of dip buyers and those that are driven by Fear of Missing Out. Strong markets tend to stay sticky to the upside.
If you are watching for a shift in the indexes, it is most likely to occur intraday. It is a sharp turn during the trading day on no obvious news that typically causes the indexes to correct at least a little.
What the pundits and business media are not talking about are the technical differences between the indexes and some big-caps on the one hand and smaller and secondary stocks on the other hand. As I've been discussing for many months, this has been a two-tiered market, and it continues to be. There are many individual stocks that are not nearly as extended or as frothy as the indexes. Whether they can move independently of the indexes when there is a correction is a big question for traders to contemplate.
This week the focus will be small-cap earnings, cryptocurrencies, the Rivian IPO on Wednesday, electric vehicles, SPACs, and Tesla's (TSLA) reaction to Elon Musk's games. There is going to be plenty of trading action that isn't much related to the indexes.
My best advice is to not be too distracted by the indexes and stay focused on the trading action in individual stocks. When trades stop working, then it will be time to be more cautious.
Even with Tesla indicated down about 5% in the early going, the indexes are still indicated to open higher.