The Other Wall (No Politics, I Swear, Read On)

There's a Wall Street saying that goes like this:

A bull market climbs a wall of worries.

As many other Wall Street sayings, it reflects a true phenomenon. When the stock market is bullish, as it has been since 2009, every piece of bad news is absorbed by each and every market participant, chewed a little (i.e. the market goes down a bit) and then fully digested. And then, a few days (or weeks at most) later, the market soldiers on and makes new highs.

What this means is that, in a bull market (which is nothing else than a rising market), the fundamentals, the technicals and the sentiment are so good that one or two pieces of short-term bad news can only be but a temporary setback, a soft, very climbable "Wall of Worries". And the supply of stocks that suddenly materializes (often at a lower, thus more interesting price) as a result of those worries is gladly devoured by the market participants and provides fuel for the next leg up.

And I believe we've basically been in this configuration since the horrendous low reached in the doldrums of the "Great Recession" of 2008-2009, namely the infamous 666 level reached by the S&P 500 Index in early 2009.

This bull market is still going on strong 8 years later, which makes it one of the longest bull markets of all time ("all time" sounds impressive but it only means since people have been studying these things, which is about 100-odd years ago).

This is what I wrote exactly one year ago:

It looks like the 1810-1830 support band for the S&P 500 has been tested successfully again. 

That's the 5th time since April 2014, which reinforces it as support. The Bears have to decisively pierce this 1800-ish support level to have their views vindicated. The onus is on them.

Granted the Bulls have a lot of resistance levels above too (More on this in future posts), but don't let yourself be scared out of your long-term investments by the voices of doom. They're always loudest near significant bottoms.

To add meat to my analysis, I'll make a probabilistic prediction (which should be the only kind of prediction when it comes to markets, as they are dynamic and chaotic): I give the S&P 500 a 65% chance of rebounding from here.

Which brings me back to the Wall of Worries. Well, it looks like we keep climbing it. So much has happened since last year, much of which would very much qualify as proverbial walls of worry. Yet, the market keeps climbing and climbing. It's up about 25% (yesterday, the S&P 500 closed above 2300 for the first time "in the history of the universe" 😃) since I wrote the paragraph above and will keep climbing until it doesn't! When would that be? I can't tell you, I'm just a Technical Analyst, not a fortune teller!

See, like I promised, no politics! Have a great day.

Isam Laroui, CMT