On Tuesday the S&P 500 surged above 2,800 support following better than expected earnings from Google. This market resisted every invitation to selloff and all it took was a little good news to put traders into a buying mood.
I wrote the following last week after Netflix bombed earnings and trade war fears sent a shiver through the market:
What people want to know is what comes next. If it isn’t obvious yet, this market wants to go higher and it isn’t going to let headlines get in its way. Either we jump aboard and enjoy the ride, or we get out of the way. But we most definitely don’t fight it. If this market was fragile and vulnerable, we would have crashed months ago. Bears can talk all they want about complacency, but they forget periods of complacency often last months and even years before ending in a top. Confident owners don’t sell and the resulting tight supply props up prices. Headlines don’t matter when no one sells them and that is the exactly what is happening here. Right or wrong, it doesn’t matter, I trade the market and this market wants to go up.
After flirting with dip under 2,800 support, we now find ourselves at the highest levels in nearly six-months. While I wouldn’t call Tuesday’s 0.5% gain huge, it was far larger than any down-day we’ve seen recently. As I’ve been saying for a while, a market that refuses to go down will eventually go up. This was finally that day. Google’s earnings are not that important in the big picture, but it is the one piece of good news we’ve been searching for. The thing that puts traders into a buying mood.
This is just another example of why we trade the market, not the headlines. Trade war headlines are a far bigger worry for the economy than Google’s earnings are a positive. Intuitively we would expect the trade war to send us tumbling and Google to barely register a bump. Yet the exact opposite happened. The trade war is little more than a speed bump and Google triggered one of the biggest up-days in weeks. Anyone trading what “is” happening is doing a lot better than those trading what “should be” happening.
Tuesday’s strength confirms my prior analysis and there is no reason to second guess ourselves now. We are still in the slower summer months and we should’t expect a large move higher, but the path of least resistance is higher. Stick with what has been working and look for prices to creep toward all-time highs over the next few weeks. If bad news was going to knocks us down, it would have happened by now. This is a strong market, not a weak one. Those that are patient and don’t overreact to these daily gyrations will be rewarded.
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