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By Jani Ziedins | End of Day Analysis
Free After Hours-Analysis:
Find my Trading Plan at the end of this post.
Federal Reserve Chairman Jerome Powell testified in front of congress Wednesday, suggesting the Fed is ready to cut interest rates later this month in order to protect the U.S. economy against the risks of slower global growth and trade-policy uncertainty. His dovish testimony put traders in a buying mood and the S&P500 briefly poked its head above the psychologically significant 3,000 milestone. While that was great for the record books, as I’ve written previously, we are still stuck in the slower summer months and that means we don’t have the firepower necessary to fuel an explosive move higher. Instead, expect prices to move more methodically. But as long as there is more up than down, all is good.
All of the negativity that hung over the market last year has disappeared. But this is no surprise, in early June I wrote the following when traders were scrambling for cover after the S&P 500 challenged 2,800 support:
“We trade the market we are giving and so far this one keeps acting like it wants to go higher. As long as we hold 2,800 support, then we should continue giving it the benefit of doubt. Follow the market’s lead. If it doesn’t want to be bothered by the trade war, then neither should we. If prices continue recovering next week and remain above 2,800 support, Monday’s dip to 2,750 was just another buyable dip on our way higher.”
And here we are, nearly 7% higher since I wrote that.
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The Fed stopped raising rates. We got a truce in the trade war. The Fed is even contemplating rate cuts. And most importantly, despite all the worry, the economy is still holding up remarkably well. Of all of the things that could have gone wrong, we avoided the worst. In fact, things actually turned out pretty well. As usual, the traders overreacted to “what ifs” and that triggered to last fall’s stock crash. But for those of us that recognize the buying opportunity, those repressed stock prices gave the opportunity to profit from the inevitable “less bad than feared”. Avoiding the worst is all it took to get us back to the highs.
Now that we’re making new highs, there isn’t any reason to stop. At least over the near-term. The headline storms are parting and this market rallied every time tensions cooled off. There is no reason to think it won’t happen this time too. That said, temper your expectations. Big money is still on vacation and that means a bigger directional move won’t happen until their deep pockets return in the fall. Until then, enjoy this gentile glide higher.
Market Mentor
It feels like I’ve said this a million times this year, but the best plan is always sticking with what is working. If this market wants to go higher, there is no reason to argue with it. The previous three days of early weakness was met with indifference. In fact, most traders were more inclined to buy the opening dip than jump aboard the selling.
Conventional wisdom tells us complacent markets are dangerous, but the thing conventional wisdom always forgets to mention is how long markets can remain complacent before they fail. This bull market will die like all of the others that came before it. But this is not that time. Until further notice, keep doing what has been working.
Trading Plan
Most Likely Next Move: The slow glide higher continues. Down days are inevitable, but as long as there is more up than down, all is good.
Trading Plan: Stick with what is working and that is buying any dip and every breakout.
If I’m Wrong: Headline fear-mongering comes roaring back. The most likely culprits are either a return of trade war escalations or the Fed disappointing by not cutting rates at their next meeting. Either of these events are still weeks away, so we don’t need to worry too much about them right now.
Highfliers
FB and AMZN are breaking above their recent highs and look great technically. NFLX is close behind but hasn’t exceeded recent highs yet. But if the broad market keeps trading well, expect NFLX to follow suit. AAPL is a little further back, but it is still performing well given the trade risks the company is faced with. GOOGL is the biggest laggard of the bunch, but that also means it has the most room to improve. It is well off its lows and seems like traders are growing immune to the anti-trust issues facing the company.
Bitcoin flirted with $13k again this morning. We’ve come a long way from the $3k lows of only a few months ago. While anything is possible with something as volatile and speculative as BTC, a little cooling off and consolidation above $10k would go a long way to refreshing the market and building a solid platform for the next move higher. $10k continues to be the line in the sand. As long as we stay above it, everything looks good. But it could be a while before we see the next explosive move higher. There is nothing to prevent a buying frenzy from pushing us through $15k tomorrow, but it is prudent to prepare for a longer wait before the next big move higher.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM $AAPL $AMZN $AAPL $NFLX $GOOGL $BTC.X