It was another extremely strong day for the market, with small caps leading the charge. What was particularly impressive was breadth, which was around four-to-one positive.
The easy explanation for the strong market action is that there is renewed optimism about some sort of stimulus deal. No one knows what will happen, but it is widely believed that something will be passed sooner or later.
That is part of what is going on, but it is not just hope of stimulus that is driving the buying. There is a high level of liquidity combined with reasonably priced stocks and poorly positioned market players. We are climbing the wall of worry, while at the same time expecting some solid earnings reports.
The easiest way to navigate this market is to stay focused on the price action and not to try too hard to compose a narrative to explain it. You can easily come up with some great bullish arguments and some compelling bearish arguments, but the market seems much more focused on trying to put money to work. At some point, the news will matter more, but Wednesday was not the day.
I’m a bit concerned that some stocks are becoming extended and that entry points are harder, but I’m still quite bullish until I see a shift in the market action. I expect trying to get harder and not easier but that doesn’t mean that we should abandon ship.
I’ve been loud and strong for a while about how well stock picking has been working, and that continues to be the case. Just keep on digging and watch the charts. That is what it is all about.
Have a good evening. I’ll see you tomorrow.