Widespread Skepticism Provides Significant Market Support

A setback in negotiations between Iran and the U.S. is putting a little pressure on the market on Monday morning, but it is fairly mild so far, with the S&P 500 trading down about 0.5% several hours before the NY open. Bonds are steady, and the Magnificent Seven (MAGS) is lagging after outperforming last week.

Hormuz and Uranium Remain the Sticking Points

The market has already enjoyed a series of "War is Over" rallies. The move on Friday was particularly vigorous as optimism grew about a deal with Iran, but continued disputes over the Strait of Hormuz and enriched uranium have proven to be major stumbling blocks.

The U.S. is sending negotiators to Islamabad, and the Pakistani middlemen have indicated some narrowing in the disagreements, although Iran has signaled it may not participate in a new round of talks. The ceasefire agreement ends on Tuesday, and President Trump has warned, "No more Mr. Nice Guy!"

Skepticism Is Fueling the Rally

For several weeks now, investors have been trying to get in front of positive news about Iran. It has sparked a powerful rally, with the Nasdaq rising in 13 straight trading sessions and moving from oversold to overbought in record time.

A major reason for this move is the high level of skepticism. Many market participants believe that the move is unjustified, and they have been fighting the rally the whole time. They insist that overbought technical conditions, combined with rising inflation and slowing growth, will hit the market hard. Maybe it eventually will, but so far their timing has done more to add fuel to the rally than anything else.

There is a massive short squeeze combined with the FOMO of underinvested longs. While stocks are hitting new highs, consumer sentiment is hitting new lows which is a dynamic that is rarely seen.

Sell the News Is the Risk Ahead

The news flow since the close on Friday is creating some pressure, but ironically also creates conditions for another "War is Over" rally. The problem is that at some point, this move is going to create conditions for "sell-the-news" action.

I've written many times in the last few weeks that markets this strong tend to stay sticky to the upside because the folks who missed the big move are anxious to buy pullbacks. The likelihood that the market will reverse and go straight down is low. The money on the sidelines is afraid to chase strength, but it is willing to buy weakness.

Earnings Season Takes Over

To add to the market complexity, we are moving into the meat of earnings season this week. It will be particularly interesting to hear guidance from AI-related stocks and to see how sentiment has shifted since the first quarter.

Despite macro volatility, this is a stock picker's market, and I'll be focused on finding entries in individual names. There are quite a few good charts out there, and they will look even better with some pullbacks and consolidation.

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