The S&P 500 surged to the highest levels in history on Tuesday. This completed the final chapter in 2018’s sharp, but brief correction and it is officially in the history books. The upside is we can start talking about something else……starting tomorrow.
As is often the case, the market is attracted to levels the crowd is fixated on. This occurs on both the low and high side. Obvious support levels get breached while obvious resistance levels are broken through. That’s why it is no surprise we got here. But the lingering question remains, what happens next?
Recent strength came from corporate earnings being less bad than feared. As often is the case, reality ends up being better than the naysayers predict. And while there is no end in sight for Trump’s trade wars, these headlines are ancient news. If they haven’t affected us yet, they are not going to start anytime soon.
Over a month ago I wrote the following after the market crashed through 2,800 support.
“Last week’s dip was the perfect setup to trigger a bigger selloff if that is what this market was inclined to do. We’ve come a long way since the December lows and a pullback is a normal and healthy thing to do following such a strong move. But rather than use the excuse to lock-in profits, most owners stood their ground and refused to sell.”
Conventional wisdom tells us complacent markets are vulnerable to collapse. What it fails to mention is how long complacency lasts before the collapse. And as we are finding out, complacency can last a long, long time.
The thing we have to remember about complacent traders is they are not afraid of anything. The obvious problem is if complacent traders don’t sell spooky headlines, where does the supply come from that fuels the big dips?
As this market is proving, that lack of supply nips every dip in the bud. This year’s biggest pullbacks barely lasted more than a few days. This bull market will die like all the others that came before it. I have no idea when that will happen, but it is acting well enough at the moment to continue giving it the benefit of doubt.
As I wrote last week, this remains a buy-and-hold market:
“This continues to be a buy-and-hold market. Those with the patience to stick with their favorite long-term investments have been rewarded as the profits came to them. Unfortunately, the environment has been less good for swing-traders since the dips and bounces have been so fleeting. Sometimes the best trade is to not trade. And that has been the case here. Profiting from these small gyrations takes impeccable timing and is all too easy to get wrong.”
Nothing has changed since then. Stick with what has been working and that is buy-and-hold. That said, keep a little cash available for the next trading opportunity. We cannot buy a dip if we don’t have any money.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.