A Strong Market, Sure. But It Poses Two Big Challenges for Traders
This is the longest winning streak of the year. Let me tell you why that's not a good thing for everyone.
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The indexes are on their longest winning streak of the year as hope builds that Fed Chair Jerome Powell will embrace the "Goldilocks" economic narrative when he speaks on Friday at Jackson Hole.
The market has been chugging along on the view that inflation isn’t too hot and economic slowing isn’t too cold, which allows the Fed to offer a series of rate cuts. Just two weeks ago, the market had severe doubts about this economic balancing act, but those fears have totally disappeared, and now the view is that there is nothing to stop this uptrend.
It is painfully obvious that the market is overbought after eight-straight days of gains for the S&P 500, but it is important to understand that the market doesn’t care about what is logical. After a run like this, the logical thing to do is to take a rest, but the market is perverse and tends to do the thing that causes the most frustration. Continued strength would be the most annoying action, and it can’t be ruled out.
If you are looking for entry points so you can put more cash to work, the most important thing to keep in mind is that markets this strong stay sticky to the upside. Those who have missed out and are underinvested are inclined to buy very narrow pullbacks. They don’t want to chase the market even higher, but they will buy minor weakness. Sometimes, the dip buyers are so aggressive that they never allow stocks to go negative. They are happy just to buy a pause.
This is a great market for holding positions that have a strong trend, but there are two big challenges. The first is determining when to take some profits. If you are a trader, there is a time when you want to lock in some gains and look for the opportunity to buy lower.
The second challenge is putting money to work in technically attractive charts. The irony of a market like this is that the media and the pundits are celebrating its strength, but anyone trying to find good entry points is having a very tough time. Folks who talk about market conditions never address the difficulty of putting more cash to work when there is this much strength. Strong markets are not all positive.
The market looks great in many ways, but presents significant challenges for investors who want to make some moves. Stay patient, and don’t force it. Conditions will evolve over time.
We have a mild positive open on the way.
At the time of publication, DePorre had no position in any security mentioned.
