A friend of mine who is a floor trader on the New York Stock Exchange pointed this TMZ tweet out last week and I shook my head. The headline reads, “Day Trading on the Stock Market is Easier Than You Think.”
I couldn’t help myself, so I clicked on the article and this headline came out of my screen and poked me in the eye…
Now, if this isn’t a contrarian indicator, I don’t know what is!
There is a slew of data that suggests magazine covers and headlines such as these tend to get things wrong – very wrong in most cases.
I believe the market has a lot of tailwind at its back, although much of it is “artificial,” like a photoshoot with a fan blowing into the scene from off camera. Some of this tailwind includes:
In a nutshell, between now and Election Day, we have two political parties who each want to “be the one” who make decisions that help you so that you vote for them and not the other team. Nothing has changed. It’s still the same old popularity contest, but this year, it’s all about money, unemployment, jobs, healthcare, and anything that hurts or helps your pocket.
All that being said, it doesn’t matter that this economic tailwind is artificial or real. All that matters in the stock market is whether there is more buying pressure or selling pressure. It all comes down to the irrefutable law of supply & demand.
If there are more investors clicking the buy button than the sell button, price must rise. If there are more investors selling than buying, then price must fall. It’s really that simple.
So, the fact that stimulus comes out of thin air is truly irrelevant. All that matters is how the majority of investors react to this information, and if more people buy than sell, then the market will go up, even if it doesn’t make any fundamental sense at all when you watch the evening news.
Eventually, that trend will change, and perhaps the TMZ tweet above is foreshadowing such a change in trend. But until the movement of the market confirms such an opinion, it’s best to stick with the trend instead of trying to guess when it will end.
Till next time…
AdamCategories: Adam Koos, CFP®, CMT®, Market Commentary