Where did all the sellers go and what that means for where we’re headed next

Free After-Hours Analysis: 

Thursday’s session got off to a rocky start after MSFT issued a revenue warning. That was enough to push the S&P 500 into the red for the third day in a row.

But as I often write, how we finish is far more important than how we start. And by that measure, Thursday turned out to be a fantastic session. Over the next several hours, the index surged 100 points, not only pulling itself out of that early hole but also erasing all of Tuesday’s and Wednesday’s losses, leaving us at the highest levels in nearly a month.

While headlines continue to be overwhelmingly negative and suggest lower stock prices, after two months of living under these storm clouds, it seems like we finally ran out of fearful owners willing to sell a retelling of those same old headlines.

No matter what the headlines are, eventually we reach a point where we exhaust the supply of sellers and that’s when those headlines stop mattering, ie the bad news gets priced in. A spike in oil prices. The Fed promising two more half-point hikes this summer. Inflation weighing on corporate earnings. It’s all a slightly different version of what we’ve been hearing for months.

As bad as things seem on the surface, we always reach a point where the market goes too far and prices bounce back despite the headlines. It took a while, but it seems like we finally passed that near-term capitulation point.

At this point, 4,300 is still very much on the table. Maybe this ultimately turns out to be nothing more than a dead-cat bounce on our way lower. But the near-term trend is decisively higher and that makes this a very buyable bounce.

Follow the headlines and we’d never buy anything. But do this long enough and it becomes obvious that even the most dreadful bear markets have big bounces on their way lower.

I’m not convinced this will be a particularly bad bear market. But even if that’s where we are headed, this is still a great near-term buying opportunity.

If this rebound stalls and retreats Friday or early next week, no problem, I pull the plug at my trailing stops, collect some handy profits and run. But until that happens, this is acting like it still wants to go higher and that means riding this wave as far as it will take me.

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