Now Playing: The Slow Grind

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The State of the Market

For the past two weeks or so, the stock market (as defined by the S&P 500) has been grinding higher on a daily basis. Even when there is disappointing data on the economy, stocks find a way to advance by the time the closing bell rings - just a little.

The bulls argue that the market's slow walk is a good thing. We're told this means there isn't any real selling pressure or signs of speculation. We're told that the advance has broadened considerably and that the FANMAG winners aren't dominating the action these days. We're told that cash is coming off the sidelines now that the major indices have started making new highs again. We're told that the market is continuing to look ahead to better days. And we're told that corporate buybacks, which fell off a cliff in response to the COVID shutdown, are about to return. Party on, Wayne.

On the other side of the aisle, our furry friends are not as sanguine. They point to the recent speculation in call buying by the public (I.E., all those millennials that have discovered trading from their apartments) and the action in Tesla (TSLA) as signs that the market is getting more than a little frothy. They point to the slowing economic data. And the spike in COVID cases, hospitalizations, and deaths during the latest virus surge. And they point to the valuation charts, which have clearly reached extreme levels. As such, the folks in the bear camp say the current march higher is sure to end badly - as in, very badly.

Of course, this is what makes a market. And with one team's argument apparently being a little stronger/popular than the other, the result is a slow grind higher.

We've seen this movie before - lots and lots of times. And so far at least, Ms. Market looks to be following the script. Let's review.

First, stocks break out of an obvious range and move to new highs - by the skinniest of margins. Then they waffle. In the next scene, the indices move up enough for the technicians to validate the breakout. Then the good news starts to flow. In the process, stocks become overbought. Sentiment becomes overly optimistic. Complacency sets in as it becomes clear that trading stocks is great way to make money. Cue the "Happy Days are Here Again" music.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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