Why it doesn’t matter if this bull market is built on a house of cards

By Jani Ziedins | Weekly Analysis

Apr 09

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The S&P 500 added 2.7% last week with all of those gains pushing the index even deeper into record territory.

As I’ve been saying for a while, this is a strong market and by nature, strong markets go up more than they go down. And in this case, a lot more up than down.

A little over a year ago the index bottomed at 2,190 as fear of a global lock-down climaxed. But as is usually the case, reality turned out less bad than feared. Stock prices recovered from those oversold levels and the index now finds itself 90% above those Covid lows. And not only did we bounce back, but the index is actually 22% above those pre-Covid highs!

As crazy as this sounds, Covid has been very bullish for stocks. Chalk it up to government stimulus and ridiculously low-interest rates. But as far as the economy goes, the Covid lockdowns were little more than a bump in the road, and in fact, many consumers are sitting on such large piles of money they are bidding up the prices of houses and draining auto dealer inventories. Most businesses are struggling to keep up with demand and their biggest problem is keeping inventory in stock!

Is this economy build on a house of cards? Will inflation come along and knock everything down? Maybe. But here’s the thing, as independent investors, we don’t need to predict the future. The greatest strength we have is the nimbleness of our size. We can jump in and out of the market with a few mouse clicks. What happens next week, next quarter, or even next year isn’t material to us. As soon as this bull market runs out of gas, we get out.

There will be the inevitable false alarms and we will get shaken out by a few whipsaws that undercut our stops. But as long as we are willing to get back in, no harm no foul.

I don’t need to predict what the market will do next because I am nimble enough to react to it in real-time. At this point, I’m holding for higher prices and lifting my stops to the lower 4k’s. If prices dip, I get out. If they keep going up, I continue hanging on. It really is that easy.

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About the Author

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.