The gap-up open to start the week will be a good test to see if market players have forgotten some of their recent worries. During the last two weeks, there was a major change in market character as a collapse in bond yields was viewed as a negative for the first time in a very long while. Worries about an economic recession offset the positive view of the never-ending flow of cheap capital.
Sentiment reverted Monday morning as the market gapped up on anticipation of more dovishness around the world but traders have a wary eye on bonds and bond funds such as the 20+ Year Treasury Bond ETF (TLT) and are likely to become nervous if they bounce too quickly.
Breadth is running very strong with about 5,400 gainers to 1,600 decliners but there has been steady slippage in the indices since the open. While there was a solid gap higher so far it isn't creating euphoric chasing. The close will be the key as technicians will start to look for this gap to be filled.
I do not see a lot of great charts and continue to have a very high level of cash. My Stock of the Week, Smith Micro Software (SMSI) , has a good setup and I also like the response of Russian online payment processor Qiwi plc (QIWI) to strong numbers.
I am not worried about this market running away to the upside at this juncture and given the few number of setups that I find appealing, I'm in no rush to do a lot of buying. The best course of action is to stay flexible and wait for conditions to develop further.