If there is one thing we can count on, investors and traders are very predictable. The bulls continue to ride the momentum higher and are probably heading for some sort of destructive ending. The bears fight the trend and the tape, losing opportunity after opportunity when it appears the market is ready to break.
The price action of late has been surprising to many, the indices floating upward for a second straight week. Markets are up 35% or more from the lows, quite astonishing and not too shabby. The month of May was a good one, with no "sell in May and go away" happening this year. The S&P 500 closed up nearly 5% in May after a stellar April. Other indices such as the Russell 2000 were up even more, as it clocked a gain of more than 7.5%.
The follow through from April is just what the doctor ordered for the bulls, yet there may be a fly in the ointment. Volume trends are rather suspect, and without the commitment of buyers to get hinged to stocks there is vulnerability in price.
Breadth figures have been good and with the Russell showing leadership that is a good sign for a continued move upward. The trend is clearly in place; you just have to believe and ride along with it.
But what about a turn in the trend? How do we know it's happening, and how do we know if a move lower is just a fake-out or the real thing?
We follow indicators that give us some good lead time and help us determine when a change in trend is occurring. Our goal is not to get out at the top or in at the bottom. If that happens, then that is a wonderful moment.
But calling tops and bottoms is a loser's game. You can endlessly chase the bottom or get out at the top and never be satisfied. We are in a game of survival, and as such our focus is to identify trends and changes in trends and move our sails with the shifting winds.
The markets are swimming upstream at the moment. We'll see if that momentum continues into the next month. But for now, don't fight the trend.