Goldilocks Is a Force to Be Reckoned With
While the current market evironment is great for positions you are holding, finding new buys and putting cash to work is a real challenge.
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It was another solid day for the market as the S&P 500 advanced for the sixth straight day and regained all the losses from the past two weeks. Buying accelerated on very strong breadth of over 3 to 1 positive. Small-caps rebounded as well, with the Russell 2000 IWM gaining over 2.5%.
The primary catalyst for the move was better-than-expected retail sales numbers and a very good earnings report from Walmart WMT. A big Prime Day for Amazon AMZN helped to boost the July numbers, but the fears of a recession that had bubbled up two weeks ago now look rather foolish.
What is most remarkable about the economic situation is that two weeks ago, there was panic and cries for the Fed to hold an emergency meeting and cut rates by 0.5%. After the action Thursday, there is now only a 25% chance of a half-point cut at the meeting in September. There is a 75% chance of a quarter-point cut.
Instead of worrying about economic slowing, we have a Goldilocks scenario in which inflation is now under control, and the economy is still strong. It is an ideal situation, but is it realistic, and how long can it persist?
Although there is much celebration over the market strength, this is not an easy environment for many traders. It is great for positions you are holding, but if you are trying to find new buys and put more cash to work, it is very challenging. When the market goes straight up seven of the last eight days, it doesn’t create many good entry points. There are many extended charts and the fact that they cut through overhead resistance like a hot knife through butter doesn’t mean that there are prudent buys.
The business never makes the distinction between strong markets and markets that are good for new buying. That is a major issue for most market participants, but it receives very little attention.
This market needs a rest, but markets often do what causes the most frustration. In this case, that would be more straight-up movement. We have some housing data coming up on Friday, but right now, Goldilocks is the most powerful force in the market.
Have a good evening. I’ll see you Friday
At the time of publication, Rev Shark had no positions in any securities mentioned.
