The S&P 500 bulls don’t want to give up control. Each time the S&P 500 looks like it is weakening the bulls juice up the demand to rise prices to new highs. Many people I talk to are worried about the current level of prices. Some say it is unsustainable, some say it has gone on for too long, and some say the fundamentals don’t warrant current prices. All are valid concerns and two other things seem to consistently come to mind when I hear about the worry of high prices in the stock market.
The first is that “worry” is a human condition. Many investors can find a reason for worry regardless of the market. The market is too high, I’m up and worried and about losing the unrealized gains. The market is flat, I’m worried that it is topping out and gearing up for a turn to the downside. The market is going down, I’m worried about it going down further. I’m losing money…I’m worried…I’m making money…I’m worried. Worrying is part of life (and a big part of investing). So what to do about it? Easier said than done…BUT!!!! Don’t worry. Worrying doesn’t do any good, so have a plan that makes sense, have faith in it, and enjoy the journey.
The second thing that comes to mind is more like an old wives’ tale. The stock market is often said to climb a wall of worry. There are as many types of investors as there are people. There are different time frames, different values, different goals, different temperaments, different experiences, different plans, different parts of their journey, and different on and on. The thing is, markets ebb and flow. When you take a step back and look at a longer-time frame, broad markets typically don’t move from immediately screaming upwards to immediately screaming downwards. The point is, even though many are worried about an increasing market, the next thing to look for would be sideways movement before a larger, or excessive (more than a simple two-legged correction) drop in the markets.
With all that said, the markets can do what they want, when they want and how they want. Sounds like a description of a strong-willed person! The point is that it is best to control risk as best as possible and do things that make sense to ride the trend until it turns. In closing, the long and short-term trend is up. The S&P 500 is overbought. We have stops and second purchase prices in play. There is nothing new in the market (unless someone can convince me that human nature has changed) and even so, I’m excited to see this week’s upcoming price action.
by Adam Straseske, CMT