With small caps breaking to new highs, traders are watching to see if the S&P 500 and Nasdaq can also break into record territory before the Trump rally takes a breather.
The Russell 2000 closed up 0.6 percent at 1,309 in its 10th positive day in a row, the first run of that length since March 2013. The, which has been in record territory, regained some of Wednesday's losses, rising 35 to close at 18,903, just 30 points below its all-time high.
Now traders are watching to see if the will make it into record territory after holding above the key 2,181 level Thursday. The S&P 500 ended the day at 2,187, just 3 points below its closing high and six points below its intraday high. The Nasdaq rose 0.7 percent at 5,333, less than 10 points from its intraday high of 5,342.
"I'm waiting for confirmation there. It was a stunning reversal postelection. We really like the financials on any weakness. We like the airlines. There's a lot of money rotating now, trying to find the best sectors. Our odds of breaking down have diminished. We're going to wait for the Nasdaq and S&P to confirm their highs. On a near term basis, we're likely headed higher," said Paul LaRosa, chief market technician at Maxim Group.
But the market also is sending signals that it's overbought and LaRosa and others say there could be a brief period of reversal. "I would not be surprised in a pullback. I don't think you blindly buy all of the market," he said. He said he would buy tech, in addition to financials and airlines, on any dip.
Stocks have surged since Donald Trump's surprise victory in the presidential election, and bond yields have moved higher on expectations that his tax and fiscal stimulus programs will generate growth as well as inflation and higher interest rates. The 10-year yield rose to 2.30 percent Thursday.
"[The stock market is] reacting to what people think is going to be very pro-business legislation," said Steve Massocca, managing director with Wedbush Securities.
But Massocca too said the market is getting stretched.
"We are due for a correction. It's a pile of newspaper kindling and some logs. All we need is the match," he said. But Massocca said he expects a shallow pullback, and the Russell may need to only shed about 3 percent.
He said the relative strength indicators point to oversold conditions in a number of indexes. "The Russell is the one that's really gone haywire. Relative strength is 74, and in the last five years it's never been there before," he said. The relative strength was just 66.7 when it hit its June 2015 high. "The S&P is not as stretched as the Russell," he said.
There is a gaggle of Fed speakers Friday, after Fed Chair Janet Yellen's testimony Thursday before the Joint Economic Committee of Congress. Yellen, like many other Fed speakers, reaffirmed a rate hike is coming soon.
"Yellen pretty much put the stamp on a December rate hike," said Justin Lederer, rate strategist at Cantor Fitzgerald.
As for Friday, traders also will be watching how the market responds to rising yields.
"We have a few Fed speakers, but it's really going to be a reaction to how people are reacting to higher yields. Are people going to step in, or are we going to have to see higher yields before it attracts buyers?" said Lederer.
Fed speakers Friday include St. Louis Fed President James Bullard, who speaks at 5:30 a.m. ET in Germany on monetary policy. New York Fed President Bill Dudley holds a press briefing in New York at 9:30 a.m. ET.
Chicago Fed President Charles Evans makes opening remarks at the Chicago Fed 11th Annual Community Bankers Symposium at 9:45 a.m.
Kansas City Fed President Esther George speaks on oil and the economy at 9:30 a.m. ET in Houston at a joint conference of the Federal Reserve banks of Dallas and Kansas City. Dallas Fed President Rob Kaplan speaks there at 1:30 p.m.
Fed Gov. Jerome Powell speaks in San Francisco at 9:45 p.m. ET.