The Bulls Are Large and in Charge With the Backing of the Fed
Markets this strong don't suddenly collapse, so mange your positions and avoid giving back any sizable gains.
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Numerous market and economic pundits were concerned that if the Fed cut rates by a half point, it would be negative because it would send the message that the Fed was behind the curve and was rushing to try to avoid a recession.
There was some nervousness about a sell-the-news situation at the close on Wednesday when the indices finished at the lows of the day, but it was completely forgotten overnight. Stocks exploded higher on Thursday morning and maintained large gains, but they saw some late selling that took them off the highs. Breadth was very good at more than three-to-one positive, and new highs were at a very hefty 1,625.
The overnight shift was just a change in thinking. The bulls decided to embrace the narrative that the big rate cut increased the likelihood of a soft landing. There is now widespread belief that Jerome Powell and his band of merry pranksters have gotten it right this time and are engineering a conquest on inflation without causing any significant economic slowing.
We will have to wait and see how things unfold as we deal with labor reports and CPI prior to the next Fed meeting, but the bulls are large and in charge with the backing of the Fed.
The primary market issue now is technical conditions. Many stocks and indices were already overbought and extended prior to the big Thursday move, and now they are entering nosebleed territory. That doesn’t mean that they won’t go higher, but if you are looking for lower-risk entry points, it won’t be easy.
The most important thing to keep in mind is that markets this strong don’t suddenly collapse unless there is some shocking news flow. Big jumps create a large supply of underinvested bulls that want to buy pullbacks and dips. They don’t want to chase the highs, but they are willing to buy very shallow pullbacks, which keeps things sticky to the upside.
My job now is to manage my positions and not give back any sizable gains while also hunting for some new place to put money to work. I’m not concerned about trying to time a top in the indices right now. I’m much more interested in stock picking than market timing in this environment.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
