Morning Market Thoughts

Good morning. The Nasdaq futures are up another 10 handles, with the S&P futures up about 3.

The overseas markets were strong last night, moving higher in response to the dovish comments that Ms. Yellen made yesterday about the Fed’s relatively benign stance on the economy. The balance sheet reduction will happen…but it will happen slowly. And rates may go up…or not…depending on whether “inflation” becomes a factor. So you know, in Fedspeak, “Inflation” = “economy”. There is no difference. It just sounds more interesting and complex when you say inflation.

So if the economy isn’t growing too fast, the Fed won’t act too fast. But they are watching! Always watching…because they just don’t know whether their prognostications are too high or too low.

In a nutshell, that’s what she said. Now, while it seems that the Fed is confused (not a new phenomenon), this is good for the markets because the Fed moves slowly. Very tentative, so as not to offend anyone. But they are trying to gently raise the Fed funds rate so that, when the economy (er, inflation) cools off, they can drop rates to boost it back up. It’s kind of like taking a birthday gift back so you can re-gift it on the next birthday.

The Asian and European markets picked up on that, and they rallied. And their strength is leading to our strength. It’s a loop of confirmation. The bulls see other bulls running, so they run too, which gets other bulls running….etc. Lather, rinse, repeat.

We also got a Dow confirmation yesterday when both the Transports and the Industrials hit new all-time highs. Combine this technical signal with all of the uncertainty surrounding POTUS, et al, the Krazy Korean, rampant terrorism, Megyn Kelly’s poor ratings, health care, tax cuts (or increases)…and you’ve got a ton of uncertainty about the future. Put the Dow Theory confirmation together with the rampant uncertainty and you’ve got a perfect plan for a “Wall of Worry”. People stay out because of concern. The market moves higher, they put money to work. The next news bite comes out and people pull their money out. The market again moves higher and they put it back to work…which drives the market ever higher. Always higher.

The worries are still there…but stocks are ignoring it because people want to make money, and fear (while this is the strongest emotion) gives way to another type of fear — the fear of missing out.

That’s where we are right now, and I like it. We’ve been getting the occasional sell signal, but it hasn’t amounted to much. Just focus on managing your positions and don’t be afraid to sell SOME into strength that looks like it’s at an extreme, and put fractional stops beneath your positions so that any big decline in a stock will automatically cause you to get smaller, and reduce your risk of losing more if the stock continues to fall.

That’s all I got for today! Don’t forget about tonight’s training session. We’ll be looking at the roboadvisor industry. You’re going to be surprised at the things you’ll learn, and I’ll show you how to “Beat the Bots”. When you understand how the bots work, you’ll understand how to get the alpha that they can only lie about in their marketing.

See you in the forum.

–Dan

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