Poorly Positioned Investors Are Fueling Positive Market Action

A positive reaction to the war between Israel and Iran caught many market participants by surprise and sucked in some buyers who were fearful of missing out on further upside. 

Stocks moved up nicely in the first few hours of trading and then drifted lower the rest of the day. At the closing bell, breadth was excellent at 6,800 advancers to 3,000 decliners and more than 450 new 12-month highs. The S&P500 added 1%, while the Magnificent Seven MAGS jumped 1.5%.

The most significant positive was the vigorous speculative activity. My list of stocks jumping more than 10% was the longest that I’ve seen in a while, and a solid percentage closed near the highs of the day despite the weaker indices.

The biggest positive that the bulls have going for them is continued skepticism and a pack of bears who are convinced that the economy is on the cusp of an uptick in inflation and slower growth. That has been their hope for a while, but they have been stubborn about capitulation. This is not a frothy bull market but rather an uncertain and tentative one, and that leads to steady inflows due to fear of missing out.

The toughest issue for most investors currently is trying to put money to work when charts are becoming more extended and do not have solid underlying support. Many market timers are looking for a top and find themselves underinvested and having to chase to put more cash to work.

My best advice right now is to focus on the price action and not pay too much attention to the intellectual bears who always have a great argument for why the market is about to fall apart. Stay with the momentum as long as possible, but be ready to hit the eject button when there is a shift in the character of the action.

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

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