A Strange Brew Makes This Market Hard to Figure

The market had another euphoric open on Thursday due to giant stimulus spending in China and upbeat comments from Micron Technology MU, which sent chip stocks and AI names higher. The indexes hit their highs in the first few minutes of trading and then traded in mixed fashion for the remainder of the day. News of a DOJ investigation into Super Micro Computer SMCI slowed down some of the action in the chip sector.

At the closing bell, there were still good gains for all the indexes, and breadth was better than two to one positive. What was missing was strong momentum after the gap-up open.

The S&P 500 hit a new all-time high again, but the primary problem is that a huge number of stocks are slowly moving higher but lack convincing momentum. When a stock is up multiple days in a row and hitting new highs, it obviously has good relative strength, but can you trust it to keep running even more?

The skeptical bears have found out that stocks can easily become even more extended, but for prudent traders, this action presents a difficult conundrum. Do you chase extended names so that you are not left out or do you stand aside and hope that some corrective action will hit?

If I knew the answer to that question, I’d be on my yacht in St. Barts, but I’ve been staying cautious and am still waiting for better technical action to develop.

Friday, we will have the PCE inflation news in the morning, which should grab some attention. Inflation seems almost old-fashioned now, but if there is even a slight uptick, it could trigger a strong reaction.

We have a strange brew of market action right now, and if you are having some difficulty navigating it, you are not alone.

Have a good evening. I’ll see you in the morning.

At the time of publication, Rev Shark had no positions in any securities mentioned.