Why I’m sticking with this complacent and overly bullish rally

By Jani Ziedins | Weekly Analysis

Jun 25

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Seven days ago the S&P 500 was in midst of a meltdown. The index shed nearly 2% that week and Friday finished at the weekly lows. And more than that, the index crashed through 4,200 support and undercut the 50dma to put a cherry on top. Could things go into the weekend any worse?

What was this week’s follow-up act? The biggest up week since February. Funny how that works.

One week down, the next week up. That’s been the tale of the tape all year and nothing changed this time. And more than just bounce back, the index finished this Friday at the highest levels in history.

Everyone knows markets cannot go up every single day, yet these same people overreact to every bump in the road. But here’s the thing, weak markets don’t keep setting record highs. Until further notice, this is a strong market and it deserves the benefit of the doubt. Every dip is buyable until the market tells us otherwise. If the selling continued Monday, then we would have taken that more seriously. But stocks popped 1.4% Monday and the rally was fully back on.

I firmly believe in stop losses, but these are not sell-and-forget triggers. As soon as we get out, we start looking for the next entry point. And this time, if the market dumped us out last week, it gave us the go-ahead signal Monday morning and the rally was back on.

As is often the case, high tends to get even higher and this market is not letting anything hold it back. Investors are in a half-full mood and they are not allowing negative headlines to weigh them down.

We are smack dab in the middle of the summer trading doldrums. But as I have been writing for a while, boring is almost always good for stocks. Something more interesting will come along, probably later this fall, but until then, high will most likely keep getting higher a few points at a time and the psychologically significant 4,300 level is next on the list.

While I wish I could come up with more thoughtful and insightful analysis, the truth is this is a simple market and it doesn’t require complex mental gymnastics to figure out what comes next. It won’t always be this easy, but until something changes, stay the course.

Without a doubt, complacency and bullishness are off the charts, but I trade the market and right now it keeps telling me it wants to go higher. So that’s what I’m sticking with.

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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.