Market bears have been very hopeful lately that the negative seasonality of August and September would finally produce conditions for the corrective action they have been predicting for so long. While volume was extremely light on Friday, this lack of interest doesn't seem to be leading to the selling pressure the bears envisioned. The indices not only continued to trend higher but hit new all-time highs on some of the lightest volume of the year.
This is not a particularly positive technical setup but the market seems unconcerned about conventional wisdom. Seasonality hasn't mattered in a number or years so why should light volume new highs be an issue?
The driving force on Friday were benign comments by Fed Chair Jerome Powell at the Jackson Hole economic symposium. He indicated the Fed is going to continue to raise rates very slowly but since there are few signs of inflation and the economy is doing well that it should be well tolerated. It is truly a Goldilocks environment right now, with high levels of economic growth and optimism but cool inflationary pressures.
For much of the last month the market has seen quite a bit of choppiness and rotation under the surface. This shifted last week, however, when the FAANG names and technology stocks reclaimed their leadership role. For a while it was value names that were holding up the indices. That has now shifted back to more traditional leadership, which has helped to ramp up sentiment.
In addition to more traditional leadership there has been a resurgence in some strong pockets of momentum. The most notable is the cannabis sector, which has taken off after the Canopy Growth Corp. (CGC) deal with Constellation Brands, Inc. (STZ) . Other names such as Tilray, Inc. (TLRY) and Cronos Group Inc. (CRON) are exploding higher again this morning.
The last week of August is often one of the deadest times of the year as market players enjoy the last days of summer but this market doesn't seem very concerned with traditional notions of how it should trade. There is good action in individual stocks, sentiment is positive and there is a strong desire to buy the dip. Political and trade issues seem to be forgotten and when they do arise they are seen as potential buying opportunities rather than catalysts for a reversal.
The key to navigating this market is to stay focused on the price action and to avoid anticipating problems. The bears keep telling us that disaster awaits but they have no clue how to accurately time their predictions. Focus on what is in front of you.
