After the dark days in March when indices were battered, the current stock market trend is a huge relief (to the bulls, anyway). Traders were taken by surprise as the price action pushed indices higher for the second straight week. Markets are now up 35% or more from the lows – not too shabby! The month of May was strong, and the SPX 500 closed up nearly 5% after a stellar April. The Russell 2K was up even more, clocking a gain of more than 7.5%.
How long will this stock market trend last?
The followthrough 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. Without commitment from buyers, price remains vulnerable. Breadth figures have been good, and the forward momentum from the Russell 2K is a good sign. A bullish trend is clearly in place, so get on board and ride it.
But, what about a turn in the stock market trend? How do we know it’s happening, and how do we know if a move lower is just a blip or the “real thing”?
Follow the indicators, especially price and volume. They will provide clues that help you determine when a change in trend is occurring.
Keep in mind that our goal is not to get out at the top or in at the bottom. If that happens, great, but it’s not a winning strategy. You can endlessly chase the bottom or get out at what you think is the top and never be satisfied. Trading is a game of survival. Our focus is to identify trends, spot 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.