Time to Get Nervous?

End of Day Update:

Stocks slipped modestly on below average volume as the trend of tight trade continues. We remain above 2,100 support, but breakout buying is noticeably absent. I’ve been inclined to give the market time to make its next move, but this anemic wedge higher is a concern.

This resilience in the face of materially bearish headlines shows owners are reluctant to sell regardless of the economic and geopolitical news. The resulting tight supply has been propping us up. While this conviction is providing stability in an uncertain world, we need broader buying to keep pushing us to the next level. Short covering and technical breakout buying got us this far, but now we need a larger pool of buyers to step up. If few are willing to buy record highs, then it doesn’t matter how tight supply is.

My biggest concern is the swelling bullishness without much price appreciation. Stocktwits’ SPY stream has gone from 40% bullish in January to 62% bullish tonight. In recent months 60% has been the magical sell signal and is why it feels like this rebound is stalling due to a lack of new buying. When everyone believes in something and is fully invested, there is no one left to keep bidding up the price.

Depending on a person’s timeframe, they could hold through the dip to support that purges this excessive bullishness. But anyone with new money should hold off buying and wait for better prices in coming weeks.

Jani