Weekly Update: Ignore the Bears and Stay LONG
Good evening, and welcome to this week’s edition of Stealth Trades!
Last Friday, the market tanked after Trump announced 100% tariffs on China. Three days later, we were right back up.
I have been seeing a lot of bearishness lately in the financial press calling for a top in the market.
Stocks have one bad day, and everyone says the rally is over. Gold drops 2% and people think it’s time to sell.
This market rally has been one of the strongest moves ever. The Nasdaq is up 45% in six months. That just doesn’t happen.
So, I get it. I understand the fear that things have gone too far too fast.
But one of the oddities of the stock market is that when prices appear too high, they tend to go much higher. And when things seem cheap, they usually get even cheaper.
By most traditional metrics, stocks are overvalued. But that doesn’t mean we are at the highs.
I track a handful of breadth metrics to track the strength of the market beneath the service. And, as long as things appear healthy, odds say we go higher.
The advance/decline line, which keeps a running tally of how many stocks went up or down each day, is holding near its highs.
If the indexes were being propped up by a small group of mega cap stocks, we would see weakness in the A/D line like we did at the end of 2021. But we are not.
The net new highs and lows indicator is also printing bullish.
We experienced a day with 65 net new lows last Friday but have quickly returned to new highs.
The percentage of Nasdaq stocks above their 50-day moving averages currently sits at 57.4%.
We have held in the 50-70% range for most of this rally, and I won’t worry unless we fall below 50%.
The high yield index is falling as well.
When economic conditions sour, banks tend to hike interest rates to their riskier borrowers. All things being equal, I like to see this rate steadily trending lower like it has been the last six months.
It kicked higher on Trump’s announcement last week but has now come back down to 6.58%.
There are no guarantees. Anything can happen. But right now, nothing says the bull market is over. It could take a break. We might see a shallow pullback or consolidation. But make no mistake… the bull market is still in full effect.
Best wishes for your trading,
