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There have been the occasional dips that shake people out but for the most part, the rally has remained very strong as the market has decided to brush aside any bad news and focus on the good news. Is it sustainable? Is it just another bear market rally or is this the beginning of a new powerful uptrend? Nobody knows. What we know is that the vast majority of the biggest short-term movers have come from stocks trading near their 52-week lows and around their 200-day moving average; not from the stocks trading near their 52-week highs. This is normal for both a bear market rally and the beginning stages of a new bull. At the lows of the last big bear market in March 2009, there are only a few stocks that made new 52-week highs and then outperformed. We had Autozone, Netflix, and Green Mountain Coffee Roasters. All of them went nowhere in the following 4-5 months while the stocks that bounced from their 52-week lows doubled, tripled, and quadrupled. It took about six months after the March 2009 lows to see proper setups near the 52-week high list which started to outperform from there.
Apple, Amazon, Google, Meta, AMD, and hundreds more are reporting next week but the real market-moving event is the FOMC meeting and press conference on Wednesday – Feb 1st. The current market consensus is that the Fed will acknowledge that inflation is slowing down, it will probably only raise the benchmark interest rate by only 25bps and send the message that further changes will be based on inflation and employment data. The market has priced in a less hawkish Fed just like the last few times. One of these days it will get it right.
Financial markets tend to move in a direction that will surprise the majority in the short-term. I don’t know what would be more surprising next week. There are still plenty of people that don’t believe this rally and are underinvested, over-hedged, or short. There’s definitely fuel to prop up the rocket higher. It is also true that the indexes have had a very robust January so far and even some elements of FOMO and chasing silly prices. A quick shakeout would not be out of the question either. Even the strongest bull markets are filled with many shakeouts. I am not sure we are in one. Holding winners is never easy. This is why I prefer to trade around them.
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