Don’t Fight A Strong Market

The S&P500 ended Tuesday with nice gains, easily erasing opening losses.

Bears are left dumbstruck by this market’s resilience and no doubt they are crying foul. But it didn’t have to be this way if they had been paying attention. We trade the market, not the headlines. If a person kept this in mind, they would have embraced this strength, not challenged it.

That means buying weakness and selling strength. Stick with what is working until something changes. Did something change today? Nope. That means today’s weakness was a buying opportunity, not a chance to bailout “before things get worse”. Maybe we slip a little further, but that’s not a big deal. Remember, risk is a function of height. The lower prices go, the less risky it is to buy. If this market wanted to crash, it would have happened months ago. There have been more than enough excuses to send prices tumbling. Instead, every time we slip to the lows, supply dries up and prices rebound. This is a resilient market, not a weak one. And the only people losing money are the ones overreacting to these gyrations. They lose money buying when they feel confident (high) and sell when they are fearful (low). If we want to make money, do the opposite of most people. That means buying fear and selling confidence.

If this market ignored bad news in May and June, why would that change in July? Given yesterday’s resilient price-action, clearly it hasn’t.

But that was then and this is now. 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 propping 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.

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• Should S&P500 be afraid from Friday 13th what the statistics look like