Friday, May 25, 2018

This Market Wants To Go Higher

Source: "Phew"
The stock market took another fundamental beating yesterday and didn't budge. After getting excited about China economic reform and a North Korean deal, both reversed in a matter of hours and the market closed firm. That's been happening more lately. These are signs that the stock market wants to go higher.

More Bad News Great Action

In a few hour time span President Trump called off a North Korean peace accord meeting and reversed on the China trade deal.  Markets were excited about both and have been perking up on the news.

You would think the negative news reversal would spiral markets.  Instead, after an initial drop, markets crawled back all day to close near flat, as you see in the chart above.

That's a sign of bad news, great action. When you expect something but the market does the opposite you have to take note. It's a sign there may be something underlying that's more powerful going the other way.

Just Like The Recent Bond Spike

3% rates oh no, it's a catastrophe.  Markets have been worried for many months that a 3% 10 year Treasury yield would be the magic number to crash markets.

But the markets also held firm when yields spiked through 3% recently.

What's going on?

Why's The Stock Market Hinting Higher?

First, there's nothing really wrong fundamentally right now.  GDP's improving.  The market's now also preparing for fewer Fed rate hikes this year as seen by the spike in Fed Funds Futures after FOMC minutes this week. 

Source
Here's those Fed Funds futures. Up means down meaning an up chart means lower Fed Funds rates are expected.

Tech fundamentals are on fire. We keep hearing that cloud company capex, which is a core driver to tech spend, is accelerating. Add to that, traditional companies are also starting to open their wallets as we heard on Microsoft and Intel's recent earnings calls. It's getting better out there.

Even bad macro news isn't denting this market.

Anybody notice that change?

Conclusion

Bad news, good action is a bullish set up. Markets want to go higher.




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