Could a market correction be underway soon? Perhaps, but I'm not going to predict when it will occur. During the World Economic Forum in Davos I heard a normally cautious hedge fund manager Ray Dalio (Bridgewater Associates) tell viewers, investors will feel really stupid being in cash. After hearing this, I thought for sure the markets would crumble (my contrarian nature). Yet, the opposite occurred, and buyers went on a binge.
The amazing returns during the month of January are certainly for the record books. Several new highs have been made during the month, a stark contrast to how the year finished in 2017. In fact, many threw in the towel on the Santa Claus rally, markets having dropped sharply during the first five days.
But alas, the bulls woke up and have been carrying this market to new heights, with good technicals along the way. Strong breadth, heavy call option buying and strong volume have buoyed markets, as well as rotation into leading sectors.
Action like this has been called feverish, parabolic and unsustainable. Other superlatives have been used to describe the market rise, but generally speaking most are stunned. Frankly, we are certainly surprised when looking back on the month to see some extraordinary gains, but truly there is no reason to rationalize or explain it. End of the day, it doesn't serve well and sets up for guessing rather than using high probability strategies for success.
Look, at some point the markets will pullback, correct and the dips won't be bought. That is out there in the future -- near or far it makes no difference. But for those who try and guess at it they are simply going to be wrong so often. Sure some day they will be right, but a broken clock is also right twice a day.
For now, the markets are well overbought and any pullback may seem like the end of the world (only a 2% move lower on SPX would be 58 points, something that would seem painful at the time). The trend is still up, and indicators continue to point in that direction.