Yes the Market Is Extended, But Shorting It Is a Bad Idea

The Nasdaq and Nasdaq 100 moved higher for the tenth straight trading session on Tuesday. The S&P 500 and Russell 2000 are up nine of the last ten sessions and all the major indexes are fast approaching the highs they hit earlier this year. All of the losses since the Iran war started have been recovered.

The AI Economy Reasserts Itself

It is an amazing performance given the difficult news flow over the last two months, but it illustrates the tremendous strength of an economy driven in large part by AI. The talk of an AI bubble that dominated the fourth-quarter earnings season has been forgotten as we head into the first-quarter earnings season.

The Roundhill Magnificent Seven ETF (MAGS) names led the charge on Tuesday, gaining 3%. These stocks fell out of favor after concerns about capital spending and return on investment hit when they reported earlier this year. Those worries have been set aside, and the money is pouring into this group once again.

Why Shorting This Is a Foolish Idea

The usual bears are talking about overbought technical conditions and overly positive sentiment. When stocks go straight up like this, the natural reaction is that it is too far too fast and it cannot continue.

Maybe that is the case, but the wrong move is to short this sort of action. The indexes will likely continue to hold up quite well as they work through extended technical conditions.

The big mistake bears always make is anticipating a sudden, deep correction. Markets like this don't crash from the highs unless there's unexpected negative news. Markets like this work off overbought conditions with mild pullbacks and churning.

A short is a high risk bet and is very difficult to time. A short may work as a quick trade but it is a lot of work to fight this sort of strength.

Iran and Oil

The big positive on Tuesday was lower oil prices despite the blockade. There is talk about a resumption of negotiations between the U.S. and Iran and the view is that both sides want a deal so we can move on. Investors have obviously embraced the positive narrative and are very likely to jump on any and all pullbacks.

My Game Plan

Not many folks anticipated these market developments and that is what is driving the straight-up action. There is no easy way to add exposure but to chase, and that is what the big buyers are doing. I joined them with my buy of Alphabet (GOOGL) today.

My game plan is to stay bullish but watch for buyable dips and pullbacks. I believe we have a new trend developing, and that means I want to be long and strong. The way to enter is to trade the volatility and watch for earnings news to create some new winners.

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

At the time of publication, Rev Shark was long GOOGL.