The indices are gapping higher in the early going Thursday morning as the market continues to celebrate a dovish Fed. There was nothing very surprising about the Fed interest rate decision and policy statement. They did not immediately cut interest rates -- as some, including the President, had hoped -- but Jerome Powell indicated that the Fed was ready willing and able to cut rates quickly and aggressively as needed.
The market is already predicting that a cut will occur in July and there are some pundits that think it could be as much as 0.5%.
As I've written quite often in the past decade, the market loves to love the Fed. The positive response is reflexive and anyone that doubts it is run over by the momentum.
The bears are quick to tell us that it really is different this time. The Fed interest rate cuts will be ineffective and that the fallout from the trade war with China will offset the Fed's efforts.
What will happen if there is a trade deal and some improvement in the economic outlook? Will the Fed back off from its dovish stance and cause the market to give back its gains?
This is a good example of a situation where it is better to simply respect the price action that is in front of our face, rather than try to find reasons why it won't persist. It is easy to craft a pessimistic argument about the market here, but fighting the momentum created by a dovish Fed has consistently been a mistake.
Many market players believe that the Fed is doing the wrong thing and that it is going to eventually lead to an epic disaster. Maybe so, but anticipating when and how that will occur is not the way to navigate the market today. The bulls have the momentum and the bullish narrative is being embraced.
One of the biggest positives right now is that the technical conditions favor further upside. I wrote on Friday that the tight trading range and consolidation were exactly what the bulls needed. That trading range has now been resolved to the upside and the primary issue is how much further this momentum can carry us.
This sort of market action tends to create fear of missing out, a supply of dip buyers and a greater focus on stock picking. That doesn't mean we should be undisciplined and chase stocks foolishly, but it does mean we shouldn't be too intent on trying to time a major market top.
One of the easiest mistakes to make in a market like this is to try to anticipate a top. There will be a pullback soon enough, but the business Thursday is to stay with this positive momentum as long as possible and make some money. Fed dovishness tends to be worth much more than intellectual bears think.
Gold, which I discussed yesterday as my go-to trade on a dovish Fed, is gapping up strongly this morning. I may take some short-term profits by a move in the Gold ETF (GLD) . Around $129 to $130 will be a big multi-year breakout that will attract significant technical attention.