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Stocks are looking to cap off another impressive week, and register their highest weekly closes in history. Of course, we’ll see how we shape up into the closing bell, but the recent price action really is a testament to the idea that sentiment follows price, not the other way around.

Here we have stocks within a spitting distance of all-time highs, yet various sentiment surveys are filled with loud and convinced bears.

I’m not going to lie to you, this is music to my ears. New all-time highs are imminent, and most are completely unprepared. 

But we’ve been singing a bullish tune for a while now - here’s why… 

Perception Matters More than Reality

One of the most important skills to cultivate as a trader is to hold two conflicting, and even contradictory ideas in your mind at the same time. I am a big believer in not getting bogged down on one particular outlook, and always being prepared to pivot when the price action says so.

So, if price reflects reality, how can perception matter more? Well, it’s the interpretation of the price action that is key. We can’t argue that SPY closed at 609.73 yesterday, but some will take that close as bullish while others consider it the end of the road for bulls.

But this is literally what makes a market. I’m not here to argue with the bears, and neither should you.

It's not really my problem that they refuse to acknowledge that the top-3 performing sectors since the start of Q4 are communications, financials, and consumer discretionary. These are hardly bearish signals.

Now, if we were seeing utilities, consumer staples, and healthcare acting as the top-performers, I’d be singing a different tune.

But I’m just here to place trades with solid risk-reward setups. It helps to make that your primary focus if you want to last in this business.

I’ll be back on Tuesday with Theo’s Tale of the Tape. Markets are closed on Monday for President’s Day.

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