The index is back to making new highs, but for how long?

By Jani Ziedins | End of Day Analysis

Jul 26

Free After-Hours Analysis: 

Following last week’s brief bout of volatility, the S&P 500 slipped back into its more leisurely summer mood on Monday, adding a modest 0.24%. But that was good enough for yet another record close and last week’s second thoughts are quickly fading from memory.

More important than this almost imperceptible 0.24% gain is the index continues holding last week’s bounce. False bottoms fail quickly and they most definitely don’t keep making new highs. By those measures, last week’s selloff is clearly dead and this bounce is the real deal.

But as I wrote last week, I also don’t have high expectations for big gains over the near term. It’s been a good run over the last few months and the rally will likely stall and grind sideways into the fall. That said, this is just my opinion and the market is always willing to prove me wrong. At the moment, the rally is trading well enough to be worth sticking with, just come into this trade with measured expectations.

We are a few weeks into earnings season and while we still have a lot of important companies yet to report, if there was something structurally wrong with the economy, it would have shown up already in the first wave of earnings. While we will continue to see individual winners and losers, overall, the economy looks to be in pretty good shape.

Inflation, money printing, deficits, the Delta variant, and all of the other reasons stocks should tumble from these highs are still out there. But most investors don’t seem to care and when they don’t care, I don’t care.

Knowing what we know now, selling last week’s dip at our stops was not necessary, but there was no way to know that at the time. Smart money trades everything as if it is the real deal because you know what, it often turns out to be exactly that.

That said, we actually got lucky last week. Locking in some nice profits the previous week near the highs allowed us to jump in at lower prices during last Tuesday’s bounce. While that modest exchange isn’t making anyone rich, it is hard to beat protecting ourselves from a much larger selloff and getting paid to do it!

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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.