Stocks are set to open sharply higher to start the week. Worries about a growing number of Covid-19 cases are being set aside as market players focus on a major Warren Buffett investment and an editorial in China that placed emphasis on promoting a 'healthy' bull market.
For a while now the bears have believed that the market was 'due' for some sort of setback. The argument is easy to make as Covid-19 cases hit record numbers in several states. There are some reasons that the economic recovery may be lumpy and technically the market is becoming quite extended. The upcoming earnings season is also likely to be one of the worst we have ever seen.
The problem is that the bear case is just too easy to make and is being overwhelmed by a giant wave of liquidity and a surge in speculative trading. When Chinese officials signaled their inclination to promote a bull market, online searches for the phrase 'open a stock account' jumped sharply, and the Shanghai Composite had its biggest gain since 2015.
It is important to understand that it is the nature of stock market punditry to keep trying to predict market turns. Calling turning points is the great glory of Wall Street. It is highly unproductive in most cases but the Wall Street pros simply can't resist doing it.
Sooner or later the character of the market will shift and we will need to move quickly to protect capital and position for the next cycle, but it is very costly to do that prematurely. Aggressive bulls can typically create a large cushion of profits that will keep them well ahead of their bearish competitors when a turn does occur.
One of the most notable characteristics of this market right now is the aggressive speculative trading that is taking place. The amateurs like Dave Portnoy and those at Robinhood are receiving most of the attention but this action also attracts many high skilled momentum traders that have been playing the game for years.
It is easy to view this speculative trading as a contrary indicator but it tends to last far longer than contrarian bears think that it will. The action in China overnight with the surge in searches for how to open a brokerage account, illustrates the potential for more money flowing into the market as monetary and fiscal stimulus provide even more liquidity.
My game plan is to keep aggressively trading the action that is in front of us. I'm ignoring the 'timing' bears until they show me some evidence in the form of weak price action. Negative arguments just aren't working and I see no reason to embrace them.
The fact that there are so many bears that believe this market is due for a reversal is a big part of the reason it keeps running higher. It won't last forever but no one knows when it will end.