The greatest trick the market ever pulled was convincing investors that we're not in a bull market, exclaims JC Parets of AllStarCharts.com.
It's fascinating to watch grown adults make up reasons in their heads to justify all the trends they're fighting. Evolution is real. When more stocks are going up than going down, for a sustained period of time, it does not remind me of being in a bear market. "When your offense is on the field, you call your offensive plays", to quote homie Tony Dwyer. So that's what we've been doing. Why wouldn't we?
Now, remember, the market doesn't care how well you did this year. It will punch you right in the face when you least expect it. That's why we keep an open mind around here. These are lessons I've had to learn the hard way over a long period of time.
The S&P 500 (SPX) can double from here or it can get cut in half. My only interest is in being on the right side of the trend. I brought two charts today that tell an interesting story, particularly from a risk management perspective. The first one is the NYSE Composite. Remember the new lows list on this exchange peaked in June. That was six months ago. Also, notice how that Resistance from 2020 turned into support this year. This is classic polarity and perfectly normal supply and demand dynamics.
As much as things change, they really do stay exactly the same. This phenomenon has been taking place exactly like this for over a hundred years:
Keep in mind that the NYSE has been one of the strongest indexes out there because of its exposure to more value-oriented stocks vs the growth-heavy Nasdaq that's been crushed. The Nasdaq is not the stock market. The Nasdaq is a lot of Growth. And there's nothing wrong with an irresponsible amount of growth exposure if growth stocks are leading. When they're not, as they obviously have not been, then owning so much growth is stupid. There's a time and a place for everything.
Nevertheless, a crashing Nasdaq isn't historically consistent with strong bull markets in stocks. So here's the Nasdaq 100 QQQ finding support at exactly the 61.8% retracement of the entire rally off the 2020 lows. This is not a coincidence:
If markets respect these levels, why wouldn't we? To quote Jeff Degraaf, "If it's legal and can help us make money, I'm going to use it to my advantage." The bottom line is this, if the NYSE Composite is above those 2020 highs, then how are we not spending our time looking for stocks to buy?
If the Nasdaq 100, the worst index on planet earth, is above its key retracement, then how are we not spending our time looking for stocks to buy? Can the market crash from here? Yes. Can we be about to enter the worst recession in American history? Yes. Can our entire financial system be about to collapse? Yes.
Is that the bet we're making, however? No. Why would we? If price gives us enough evidence to change our approach, will we listen and adjust accordingly? You bet your we will.
To learn more about J.C. Parets, please visit AllStarCharts.com.
