Anticipatory Bears Are Trapped by Trade and Tariff Optimism
When a play is so obvious, it only takes a spark of good news for a trap to develop.
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The S&P 500 produced its ninth straight day of gains on Friday, which is the longest winning streak since 2004. It is particularly interesting that this is happening after some of the most negative sentiment in years.
After a poor response to earnings from Amazon AMZN and Apple AAPL on Thursday night, market participants were looking for the overbought market to pull back. It has been a very strong run, and some mediocre reporting from a couple of Magnificent Seven MAGS names would be a good excuse to lock in some gains in front of the weekend.
It looked like a fairly obvious play, but when a play is obvious, it only takes a spark of good news to trap anticipator bears, squeeze the shorts, and create some fear of missing out. The spark of good news, in this case, were several headlines indicating that China was ready to start trade negotiations. There are few details, but with both sides now willing to start tackling the problem, the market has something to celebrate.
It didn’t hurt that the April jobs report was stronger than expected on Friday morning. Concerns about the impact of impending tariffs were not fulfilled, and that calls into question the entire narrative that trade and tariff turmoil is a sure path to an economic recession.
There are still plenty of skeptics out there who are convinced that substantial economic problems lie ahead, but market participants are optimistic that trade deals are coming and don’t want to be on the sidelines when they hit.
Technically, the air is getting a bit thin at these elevations, and we will need some consolidation to keep things running, but when you have a nine-day winning streak, it creates a large amount of FOMO, and that leads to strong support and aggressive dip buying. The folks who missed out may be unwilling to chase at this point, but they will be very happy to buy shallow pullbacks.
We have more earnings but nothing too major. The economic calendar is fairly quiet as well, except for the Fed interest-rate decision on Wednesday. The expectation is that the central bank will not make any major policy adjustments at this time, but the market will be looking for clues as to whether Fed Chair Powell will cut in June.
The market is technically strong, and investors have regained their optimism. We’ll see if they can keep it running with a little rest.
Have a great weekend. I’ll see you on Monday.
At the time of publictaion, Rev Shark had no positions in any securities mentioned.
