Another solid session on Tuesday. for the NASDAQ 100 as technology stocks rally ahead of earnings reports next week. The solid price action across the board has been against the naysayers. Earnings reports continue to pile on and for the most part have been surprises to the upside with regards to actual earnings. This morning the QQQs are sitting near all-time highs along with small caps (IWM). We continue to hear about how valuations are too high and a correction is near. All the while the market moves higher. At some point, it will catch up to this market. For now, we continue to rally and reap the rewards. It pays to watch your stocks and follow your plan.
Are valuations high given historical norms? Yes, they are nearing the levels of the year 2000 when many companies never had any sales! 2000 was a crazy year as we saw a tremendous move in technology stocks. Valuations were out of control and even more amazing the Fed hadn’t pumped trillions into the economy. Fast forward to today we have had a Fed who has pumped trillions and for the most part have kept a majority of the liquidity available to the market. They have raised rates, but raising rates has been good for the banks and savers. When the Federal Reserve shrinks its balance sheet for the first time we will see how the market reacts. There is no sense in guessing where the market will go as we will likely be wrong. It pays to follow price and leave the ego inflating activities to others.
This V-Shaped rally will have to consolidate at some point. The tighter the price action the better for this rally to continue. We are in an ultra-low VIX environment and any movement outside the norm will be treated like it is the end of the world. Follow your trading plan. There is no sense in trying to be a hero and maximize any market turn. Sit tight and follow your stocks. Do not give in to your emotions about how you feel regarding this market. It will only lead to heartache and a lot less capital at your disposal.
Have a great rest of your trading day!
