Market Sees a ‘Hold-Your-Nose and Buy’ Rally

The S&P 500 gained 0.5% on Tuesday and moved to its highest close print since February. While that is quite bullish, many market players are not well positioned for this move and are struggling with the action. They keep waiting for the pullback that never seems to come and are afraid to chase the strength because they expect bad news to hit at any time.

The bad news that everyone seems to see coming is the economic fallout from tariffs. There is also another worry gaining traction, which is the growth of the federal budget deficit. The budget deficit isn’t a new problem, but there is more talk lately about how the situation is not sustainable. It also appears to be placing more pressure on the bond market, which was weak again today. Elon Musk added to the concern by posting, “I’m sorry, but I just can’t stand it anymore. This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination.”

So far, none of these negatives are having an impact on the price action of the indices. Breadth was more than two-to-one positive, and small caps IWM enjoyed a day of outperformance with a gain of 1.6%. If you want in, then you have to hold your nose and buy.

At some point, there will be a news event that will provide a convenient excuse for profit-taking, but there is no way to know what it will be or when it will occur. Some of the bulls are calling for a further "melt-up" move — not because of great fundamentals and valuation, but because of poor positioning, too much idle cash and overly confident shorts. This is a rally driven by market structure more than anything else.

My best advice is to stay focused on the price action and be ready to move quickly when the character of the action finally shifts.

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

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