Autopilot Setting: Record Highs!

The opening of this year was like a dream come true! The bulls have had a perfect record, the market trading up the first 4 trading days of the year, continuing the mega-rally of 2017. It would seem that the market has been set on autopilot, with a series of historic highs on all of the large stock indexes, strongly breaking up new round numbers. The bulls have cornered the market, leaving the bears no place to hide. The S&P 500 traded up 2.45% last week, the NASDAQ soaring 3.16%.

One thing is true about life and that is that you can’t get everything you want! On Friday, the December employment report was disappointing, the American economy producing only 148 thousand new positions, beneath the 190 thousand consensus. The unemployment rate remained stable at 4.1%.

Despite Friday’s disappointing employment numbers, the stock indexes succeeded in climbing, and it doesn’t seem that the market sees employment numbers as important for the time being. It’s neither the Fed nor the economic figures that are driving the movement now. It’s price movement and momentum that are the main drivers.

It’s been a beautiful market for traders and investors ready to embrace the trend, despite the fact that even the most bullish players need to be a little bit worried about the overbought levels prompted by the recent movement. It feels like the market climbed too fast in too short of a time frame.

One of the consequences of movement like this is the difficulty money managers have in keeping pace. Their performance is evaluated against the major indexes, managers needing to keep up if they want to collect their bonuses. When indexes soar, like this past week, the movement creates bonafide performance anxiety among fund managers – who themselves look to ease the anxiety by injecting more funds into the market.

Are stocks cruising along, carefree, right before they go off the side of the cliff?

It’s hard to say. It feels that a decade has passed since we’ve seen the last real price correction. The market has risen and risen, volatility moving inversely, dropping lower and lower. Despite the fact that the pace of the latest movement is unstable and unpredictable, that doesn’t mean that it won’t keep up! There’s nothing as of now that points to momentum cooling down besides the fact that it’s not so reasonable for the rally to be so quick-paced. One seeking to trade the market in a strictly logical way, will quickly reveal that the market can continue to be much more irrational than the average investor would admit.

The good news for traders is that there are still beautiful trading opportunities in certain sectors and large market sections. Even though there are stocks that are stretched, you can still find attractive entry points in intraday trading. You can be certain that when the first wave of corrections comes, the correction will draw out and set into motion a lot of buyers who missed the boat and who are now underexposed to the market.

Have a great trading week!