Is it time to give up on this bull market?

The S&P500 treaded water Tuesday, the day after the biggest drop in a couple of months. Volume was average, but it was similar to Monday’s relatively benign volumes.

Trade tensions flared up over the weekend as Trump and China continue escalating their rhetoric. But even with Monday’s losses, we are still only a couple of percent from recent highs. As much noise as these trade war headlines create, they don’t seem to be affecting the market much.

And this won’t come as a surprise to anyone who has been reading this blog for a while. News gets priced in over time and we have been talking about Trump’s trade war for months. Anyone who feared these headlines bailed out months ago and was replaced by far more confident dip buyers. This turnover in ownership created a far more resilient market and explains this lack of a crash. If owners don’t sell a headline, it stops mattering. Since we trade the market and not the news, if the market doesn’t care, then neither should we.

Bears will say the crash is coming, we just need to wait for it. Unfortunately crashes don’t work that way. Significant stock market selloffs are breathtakingly fast; sell first and ask questions later affairs. They happen before most traders understand what is going on. Compare that to these trade war headlines that we’ve been talking about for months. Trump and China already threatened to tax all of the trade between the world’s two largest economies. While things could still get worse, it is hard to think of how much further it can go than it already has.

No doubt the market assumes we will avoid that worst-case scenario and that is only natural. Selling any negative headline over the last nine-years proved to be a costly mistake as regretful sellers watched the market bounce back even higher. These traders learned their lesson and now keep holding no matter what. While bears claim this complacency is signs of a top, what they don’t realize is periods of complacency can last for years. When confident owners refuse to sell, supply stays tight and it doesn’t take much dip-buying to prop prices back up. This bull market will die like every one before it, but the time is not now and these are not the headlines.

While we can safely take “crash” off the table, as regular readers of this blog already know, risk is a function of height and this month’s rally up to 2,800 resistance left us vulnerable to a normal and healthy pullback to support. The thing to realize is by rule every dip feels real. That’s because if it didn’t, no one would sell and we wouldn’t dip. Prices could slip a little further and undercut 2,700 support, but this is a buying opportunity, not a reason to bailout “before things get worse”. Bull markets rebound countless times through their life, but they can only die once. Looking strictly at the odds, what is more likely, this week’s dip is the thing that happens countless times, or we are watching the death that only occurs once? I know which one I am putting my money on.

AAPL rebounded nicely and recovered its 50dma. The stock has been weighed down because China is an important market for the company, both as a manufacturer and a buyer for its high-end phones. The other FAANG stocks have been less affected by these headlines because they don’t have the same level of Chinese exposure. But as a group, these stocks have been incredibly resilient and that won’t change anytime soon. The same reasons that propelled these high flying stocks to these heights in the first six months of the year will keep pushing them higher in the second half of the year.

Bitcoin is barely hanging on to $6k support and another failure is inevitable. $9k support failed. Then it was $8k. After that $7k couldn’t hold us up and now $6k is on the verge of going down. Lower-lows keep piling up and the chart look downright horrible. Most bursting bubbles make new lows for more than a year and BTC doesn’t look like the exception. I don’t expect us to find any relief until we fall under $5k. And even from there any bounce will be a short-term trade. It will take years for this to be investible again, if it ever is.

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Jani

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