Bull Market Leaves Traders Humbled as Great Humiliator Strikes Again

Wall Street trader blows a bubble

The current stock market action is a good example of why old-time traders sometimes refer to the market as the "Great Humiliator."

No matter how smart, logical and successful you have been in the past, there are times when the market refuses to do what you think it should do. If you aren't already humble, the Great Humiliator is happy to teach you a lesson.

Logic Need Not Apply

Quite a few folks are feeling humbled on Monday. The market has been chugging steadily higher all day after the failed Iran-U.S. negotiations and a spike in oil prices. A normal, logical person would think that is bad news and would put pressure on stocks. It didn't happen.

Buyers jumped in overnight and kept on coming. At the closing bell, the Russell 2000 tracked by the iShares Russell 2000 ETF (IWM) led the charge with a gain of 1.3% while the S&P 500 chugged 0.6% higher. Breadth was strong at around 66% positive.

A big part of the reason this sort of action happens is that so many people don't think it will. They are not positioned for the market to go up, so when it does, they have to scramble to cover shorts and add long exposure. The more negative they are, the more likely they are to be unprepared for this action.

Ironically, it is the great intellectual bears who are most likely to be the victims of the Great Humiliator. The Market Beast doesn't care about valuations, inflation or the long list of disasters we are told await us. The Market Beast feasts on price action and momentum, causing pain to those who think they can use the power of their logic to tell the market what to do.

Overbought But Sticky

The Nasdaq 100 tracked by the Invesco QQQ Trust (QQQ) is higher for the ninth straight day, and the S&P 500 and Russell 2000 are up eight of the last nine sessions. That is overbought territory, especially since it has occurred on below average volume.

Markets like this tend to stay sticky to the upside because they create a large pool of underinvested investors who missed the move and are anxious to buy any dip. Sometimes they are so anxious that they end up chasing strength instead. If you are looking for a sudden collapse you are likely to be disappointed unless there is negative news.

Iran and Earnings

There is some talk about a potential second in-person meeting between Washington and Tehran. The important issue is that there is optimism that both sides want a deal. The fact that it is difficult isn't particularly surprising.

My Game Plan

I have made a few buys recently, and my cash levels are now at 27%, down from about 40%. I'm staying selective, but there are some good charts out there. The technical action is impressive. Speculative action is strong, and with earnings starting to hit, there should be some big movers.

Have a good evening. I'll see you tomorrow.

At the time of publication, DePorre had no positions in any securities mentioned.