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Despite Bears' Desires, Market Keeps Plodding Higher

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The market has been busy teaching those who want to argue with the pricing action a very harsh lesson.

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As I mentioned yesterday in Recent Market Action Means Consolidation Is Coming, the pattern lately has been for traders to book some quick gains into opening gaps to the upside, but for any early dip off opening highs to be eagerly bought by market players looking for the slightest opportunity to get in on a market that refuses to roll over. That's exactly what happened, and the resulting move higher carried the added benefit of the Dow finally joining both the S&P 500 and the Nasdaq above November highs. However, some signs of profit-taking crept in late in the session, leaving us with the first poor finish that we've seen in quite some time.

Given how stretched this market is to the upside and the number of stocks that have shot higher without any consolidation since the indices broke out of their lateral channels almost two weeks ago, it shouldn't come as any surprise to see some desire to book gains. The question we need to ask right now, however, is: Have we seen a very subtle hint that we've finally reached a point where this market is ready to take a much-needed rest?

One thing we need to keep in mind is that, when the pricing action is as remarkably persistent as it has been lately, it won't be until some convenient excuse or another comes along that investors will be more aggressive about booking gains. Lately, the news flow has been rather light, China didn't raise rates over this past weekend, and the bulls have had the added benefit of positive seasonality to act as a tailwind. All of the recent negatives -- including a very poor jobs report and the European debt problems -- have been shoved unceremoniously to the back burner, and an ugly earnings report this morning was quickly forgotten after a much-better-than-expected retail sales report hit the wires.

The point here is that, despite the bears' deepest desires, this market just keeps plodding higher. They've spent who knows how long arguing that it's a matter of time before another shoe drops, that the reality of the housing and jobs markets exact their revenge, and a contagion effect from European debt issues take hold. The market gods, however, have had some very different ideas, and they've been busy teaching those who want to argue with the pricing action a very harsh lesson.

Don't get me wrong; I don't want to sound too sanguine. I would very much like to see some backing-and-filling at this point. Too many stocks are too stretched to the upside to present proper entry points; I'm concerned with the fact that market-leading stocks like Netflix (NFLX) and Chipotle Mexican Grill (CMG) have shown signs of heavy distribution at highs; and the index short ETFs have been singing me their siren songs given the amount of room between the indices and even the shortest of short-term support levels.

Perhaps the FOMC's policy statement this afternoon will give traders the excuse they need to start locking in some gains. But until there's some actual proof that traders have shifted their focus, my plan is to pay attention to what the market is doing, not what I think it should be doing, or worse, what I want it to do.


No positions in stocks mentioned.
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