Let the Price Action Be Your Guide

The indices are in the red for the first time this week. It would be interesting to do a study to see how often the market has had four gap-up opens in a row and then some profit-taking on Friday. I suspect that this is not an indication of a top. Markets this strong typically do not suddenly fall apart. They will stall and bounce around for a while before a shift in character eventually occurs.

While the jobs news this morning was quite strong, it is seeing a negative spin because the number of people that couldn't work was about 180,000 which is typical during the month of January. The very warm weather during the month helped the numbers and some economists believe that the good news may be an aberration.

In China, there are now about 400 million people being contained to prevent the spread of the coronavirus. That is 50 million more than the entire population of the United States but the market still is seeing no major reaction. Perhaps it is the central bankers that are preventing a response but there will be some economic consequences eventually.

For months now the market has stubbornly refused to embrace any negative narrative. There have been plenty of issues that could easily serve as a convenient excuse but they have been rejected repeatedly. Some market players react by proclaiming the market irrational while others attribute it to liquidity caused by Repo action and the response to the coronavirus.

Whatever the reason for the market strength might be the important thing is to let the price action be your guide. Don't argue yourself into a contrary viewpoint simply because you want to do something different.

Next week there will be hundreds of earnings reports from small-cap stocks. There are always some new opportunities as well as landmines. Small caps are generally far less extended than the big caps but they seldom are a leadership group and that presents a challenge.

I'm finding little new to do right now as I wonder if the market can continue to ignore the coronavirus issue.

At the time of publication, James "Rev Shark" DePorre had no position in the securities mentioned.