Morning Market Thoughts

Good morning. Another flat open as the Dow and Nasdaq bump against record intraday highs set yesterday. At some point, stocks are going to break out. The post-election rally essentially peaked in mid-December, yet stocks have not corrected. Fast forward to late January and the S&P printed a higher high. This is not what happens when traders have become too enthusiastic and have pushed stocks to unsustainable levels. Such a scenario typically ends in a correction that hurts the late comers who bought only after the rally had run its course.

This is a different scenario. There just hasn’t been a correction that has shaken anyone out. Folks are just standing pat, happy with their investments. Meanwhile, what has happened on the technical front during this bout of sideways trading? A high base has been formed.

At the December highs, the S&P was 4.6% above the 50-day moving average, which is quite extended for a major index. Now, the 50-day moving average is just 1.5% below the S&P. So this key moving average has caught up with the market, which provides a level of support just slightly below current prices.

Meanwhile, the large cap stocks continue to lead the way. Look at Apple ($AAPL), Netflix ($NFLX), Amazon ($AMZN), Cisco ($CSCO), Microsoft ($MSFT), Facebook ($FB), and Google ($GOOGL). They are all trending higher in various conditions of volatility, and are all trading above their 50-day moving averages.

So the leaders are…still leading. As I’ve noted recently, the breadth of the market is narrowing a bit, which is a concern. This is certainly something to be aware of…but it is not a predictor of anything. Rather, it is a revealer of conditions. You can always profit in less-than-perfect conditions because there is no such thing as a market with perfect conditions.

I’ll be holding a training session today at 9 pm PST/12 noon EST. I’ll discuss the process of setting trailing stops, and will take any questions you have. So if you’ve got some trading questions, or wish to discuss any stocks of interest, please come on it.

Have a great day, and I’ll see you at noon.

–Dan

Market Update

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