Why bulls still have the advantage

Free After-Hours Analysis: 

The S&P 500 started the week off on the right foot, adding 0.6% Monday.

Headlines didn’t say much, and the lack of bad news allowed this market to continue trading within a few percent of 52-week highs.

Monday’s resilience won’t surprise readers. As I wrote last week:

[T]he index’s wedging price action lower can actually be bullish. After countless attempts, the best bears can do is knock a few points off of the market at a time. If there was real downside potential here, these five and ten-point violations would spiral into 50 and 100-point losses within hours. The fact so few owners are interested in selling each day’s successive new low suggests we are on the verge of running out of supply and bouncing.

As much as people want to hate this too-high, too-far, too-fast market, it continues holding up amazingly well. Elevated inflation, multi-decade high interest rates, deflation in China, a lingering regional banking crisis, and everything else the critics are throwing at this market, but none of it is sticking.

Quite simply, if this market was going to break down because of any of these well-known problems, it would have happened by now.

Say what you want about the market’s stubbornly optimistic mood, but nothing the critics say is changing it. Rather than fight the tide, smart money is along for the ride.

Without a doubt, the index slipped 150 points from recent highs. But that’s a good thing! A) Everyone knows the market moves in waves. And B) a little cooling off is good for the long-term sustainability of a bull market.

We can argue over whether 150 points and a couple of weeks is enough to reset a multi-month rally. But at this point, anyone claiming we are on the verge of the next big crash is simply not paying attention. If this market was going to crash on well-known headlines, it would have happened many months ago.

If the market is ignoring these things, smart money is ignoring them too. To do anything else means giving money away, and only stubborn fools do that.

Monday’s bounce was buyable with a stop near Friday’s lows. Start small, get in early, keep a nearby stop, and only add to a trade that’s working. If the selling resumes later this week, no big deal, pull the plug at our stops and try again next time. It really is that simple.

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