There has seldom been a more perfect ‘wall of worry’ for markets to climb.
The U.S. stock market continues to remain stable at the open of the week.
That trend of being “sticky to the upside” is a good sign of market health, and that should take some uncertainty away from traders, according to Real Money Columnist James “Rev Shark” Deporre.
“Despite headlines about inflation, supply chain issues, the war in Ukraine, the potential for a recession, and a variety of other negatives, the indexes continue to hold up extremely well and remain overbought,” Deporre wrote recently on Real Money. “The bears are unable to dig their claws into the market despite grumbling about the stupidity of such strength in view of the macro environment.”
It may appear unreasonable the market is holding up so well given the convergence of negatives that are hitting.
“Few folks would guess that a combination of war and the highest inflation in 40 years would be ignored by the market, but it is a good example of how the market discounts news and looks ahead,” Rev Shark noted.
According to Deporre, none of the negative news out there is unknown at this point.
“It’s very well known, and a hawkish Fed has been anticipated for many months,” he said. “Some bears would argue that the market’s view of what lies ahead is too optimistic, but the price action is extremely strong, and it is difficult to fight no matter what narrative you might embrace.”
The fact that the negative arguments are so obvious is one of the main reasons the market is acting so well. There’s a huge wall of worry, and as stocks climb higher, the folks sitting on the sidelines grow worried they are missing out. Few forces in the market are more powerful than FOMO, and there is plenty of that.
“Fear of missing out also creates a very strong dip-buying,” Deporre added. “Many market players don’t like to chase strength, but they do want to jump on pullbacks. In the last couple of weeks, they have been very limited.”
“Don’t expect this market to suddenly fall apart with this sort of underlying support.”
Get more trading strategies and investing insights from the contributors on Real Money.
Please note: It is important to remember that you should not buy or sell a stock based on reading one article. Investors should do their homework. For more research and information, consider TheStreet Quant Ratings for a quantitative approach to stock selection. Or, get a daily dose of TheStreet’s smartest insights from its smartest analysts, delivered to your inbox daily via TheStreet Smarts.
