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Respect the Tape, Because the Bulls Are Not Going Down Without a Fight


Traders should respect the current action instead of wasting time predicting the future.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Consolidation Continues on Wall Street

The market has had every reason in the world to fall and it refuses to budge. As of this writing, the S&P 500 (INDEXSP:.INX) is actually positive on the week! 

That my friends is a definition of a bull market. For the past 2.5 weeks, stocks have paused to digest the recent April- July rally, which is very healthy and exactly what you want to see after a nice move. The S&P jumped nearly 10% from April's low (1814) through July's high (1985). Remember, in a normal environment where central banks are not printing billions of dollars everyday, a 10% rally in an entire year would be considered decent. So a 10% rally in under 3 months is very strong and the market has earned the right to take a breath up here. 

Bifurcated Market Continues

Separately, keep in mind the market has become somewhat bifurcated as the S&P 500 and Dow Jones Industrial Average (INDEXDJX:.DJI) continue to lead while the small-cap Russell 2000 (INDEXRUSSELL:RUT) continues to lag.

As previously mentioned, so far, this appears to be another normal and healthy shallow pullback in both size (% decline) and scope (short duration). Remember, shallow pullbacks are healthy as they give the market a chance to digest the recent move.

The Fed Put Remains Alive & Well

The good news for the bulls is that nothing has changed. From a fundamental point of view, the Fed Put is alive and well (The Fed Put refers to the notion that if either Main St or Wall St fall hard, the Fed will step in again and print more money) and the strong technical picture (price action) remains healthy. The market remains exceptionally strong in all three time frames: short, intermediate and long.

In the short-term, the major averages simply got extended in the short-term and were overdue for a nice pullback. The best way to interact with markets is to focus on what is happening right now (the known) and avoid the temptation to predict the future (which by definition, is unknown).

That said, right now we are in a very strong bull market and weakness should be bought until further notice.

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