Here's Why I’m Sticking With This Complacent And Overly Bullish Rally

Just over a week ago the S&P 500 was in midst of a meltdown. The index shed nearly 2% then and a week ago Friday finished at the weekly lows. And more than that, the index crashed through 4,200 support and undercut the 50dma to put a cherry on top. Could things go into the weekend any worse?

What was this week’s follow-up act? The biggest up week since February. Funny how that works.

One week down, the next week up. That’s been the tale of the tape all year and nothing changed this time. And more than just bounce back, the index finished this Friday at the highest levels in history.

Everyone knows markets cannot go up every single day, yet these same people overreact to every bump in the road. But here’s the thing, weak markets don’t keep setting record highs. Until further notice, this is a strong market and it deserves the benefit of the doubt. Every dip is buyable until the market tells us otherwise. If the selling continued this past Monday, then we would have taken that more seriously. But stocks popped 1.4% Monday and the rally was fully back on.

I firmly believe in stop losses, but these are not sell-and-forget triggers. As soon as we get out, we start looking for the next entry point. And this time, if the market dumped us out last week, it gave us the go-ahead signal Monday morning and the rally was back on.

As is often the case, high tends to get even higher and this market is not letting anything hold it back. Investors are in a half-full mood and they are not allowing negative headlines to weigh them down.

We are smack dab in the middle of the summer trading doldrums. But as I have been writing for a while, boring is almost always good for stocks. Something more interesting will come along, probably later this fall, but until then, high will most likely keep getting higher a few points at a time and the psychologically significant 4,300 level is next on the list.

While I wish I could come up with more thoughtful and insightful analysis, the truth is this is a simple market and it doesn’t require complex mental gymnastics to figure out what comes next. It won’t always be this easy, but until something changes, stay the course.

Without a doubt, complacency and bullishness are off the charts, but I trade the market and right now it keeps telling me it wants to go higher. So that’s what I’m sticking with.

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