MarketSmith powers the charts in this video.
Inflation continues to come down. Stocks keep going up. The Nasdaq 100 just had one of its best quarters in history. A.I. and falling inflation have truly changed the market sentiment and the way companies spend. I don’t know if the current move has fundamental merits or if it is rational. I don’t know how long it is going to last. No one knows. Two things make sense in this tape:
- Don’t fight uptrends. More money has been lost anticipating corrections than during the corrections themselves.
- Don’t chase extended stocks. Find a low-risk entry point to participate. How to find one. Every time a rising stock has a pullback to its 10, 20, or 50-day moving average, it offers a low-risk opportunity where we can risk $1 to make $3-10. We don’t know in advance which ones are going to work but this is not the important part. What matters is quickly closing the positions that hit our stops, holding the ones that work, and even adding to the winners. It’s a very simple concept but it takes time and deliberate effort to train our mind to behave in a way that makes us money in financial markets. Setups and indicators have never been the solution in trading. You can have the best setups and the most sophisticated indicators and analysis and still underperform the S&P 500.
So what can stop this bull market? This is probably not the right question to ask. There is always something to worry about. If there aren’t, there wouldn’t be any buyers left. The Fed might decide that inflation is not coming down fast enough or it might perk up again and keep raising rates. Corporate earnings might not reflect the cheerful projections that the market has priced in. There are always many reasons but knowing about them is not going to make you money. There will matter when they matter and we will see it in the price action. No reason to guess when. The biggest risk for a money manager during a bull market is not participating in it properly – being underinvested or underperforming. This is why the dips in strong stocks tend to get bought.
Bull markets often correct through sector rotation. There was a glimpse of it last week. On the day tech stocks were under pressure, financials and energy stocks stepped up. Those rotations are bullish because they reveal that capital is not leaving the market but merely moving into better opportunities.
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