Why smart money keeps betting on stocks

By Jani Ziedins | End of Day Analysis

May 03

Free After-Hours Analysis: 

The S&P 500 slipped 0.7% Wednesday after the Fed raised interest rates 0.25% and suggested future rate hikes might not be needed.

The market initially rallied on the news, but Powell went out of his way to remind investors a decision to pause has not been made and further hikes are still possible. And the biggest let-down is the Fed didn’t give any hints that rate cuts are possible by the end of the year.

As expected, we got some good and some not-so-good. In the end, the market’s modest 0.7% giveback still leaves the index well within the recent trading range just under 4,200 resistance.

Fortunately, readers were ready for Wednesday’s modest reaction because it ended up exactly how I described it in Tuesday evening’s post:

[T]he Fed is not going to surprise us and we will get exactly what most people are expecting. That won’t stop impulsive traders from mashing the buy/sell button in the minutes after the announcement, but after a flurry of impulsive trading, the market will settle down and go back to what it was doing previously, which is consolidating recent gains under 4,200 resistance…

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Corporate earnings have been good enough, first-quarter inflation was moving in the right direction, and the Fed didn’t crash the party. This continues to be a “less bad than feared” rebound and the lack of “worse” is allowing stocks to hold near 52-week highs. Not bad, all things considered.

We get the monthly employment report on Friday, and all indications are it will be more of the same. If something was going to break this market, it would have happened by now. This week’s Fed meeting didn’t change anything, and despite Wednesday’s modest givebacks, 4,200 is still the near-term target.

Keep buying bounces and collecting worthwhile profits when we have them. Volatility remains elevated, but as long as we keep getting more up than down, smart money is betting on this market, not against 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.