Price Trumps Sentiment

S&P500 daily at end of day

End of Day Update:

Stocks traded in a tight, five-point range Monday, consolidating Friday’s breakout to new highs. While we spent all of the day in the red, such minor losses are constructive because it shows few owners are taking profits or selling defensively.

Bullish sentiment is ramping up and at the highest levels since December’s top. While rising sentiment gives us pause, 56% bullishness could easily give way to 65% or 70% in coming days. It is important to watch sentiment, but it is only a secondary indicator.

Price is the main driver of trading strategy and so far the price-action is strong. The most impressive thing is how well the market is weathering the storm of bearish headlines. On-again, off-again negotiations between Greece and Europe couldn’t dent this rebound. Neither could a failed truce in Ukraine. And it’s been a while since we had economic numbers exceeded expectations. All of these headlines should have sent us into a 200-point tail-spin, but when the market doesn’t do what it is supposed to, that is a very clear signal it wants to go the other direction. If we don’t selling off on negative headlines, what is going to happen when we finally get some good news?

Source: Stocktwits 2/23/2015

While I remain cautious of this market because of the rising bullishness, this strength cannot be ignored. Right or wrong, stock owners are not interested in selling. Without sellers, supply stays tight and prices continue creeping higher. Until we find something that finally cracks bulls’ resolve, the only direction to trade this market is higher.

Jani