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Home Trending Picks Why You Shouldn't "Buy" the Current Rally

Why You Shouldn’t “Buy” the Current Rally

After going on a historic 4-day run, the market has reached a critical point. Both the Dow and S&P 500 linger around key resistance at the mid-May highs as investors get ready for another round of rate cuts, courtesy of a poor jobs report.

And even though it seems almost guaranteed at this point that the Fed will slash rates, that doesn’t mean that equities are ready to keep roaring.

At least, not until some sort of sell-off occurs.

In the daily candlestick chart above, you can see that the S&P 500 has behaved somewhat erratically over the last few months. Everything was going just fine until the trade war began to heat up again back in May, and since then, the possibility of lower interest rates has been the only positive – causing the recent buying frenzy.

And though Fed Chairman Powell has candidly suggested that a rate cut is coming, that doesn’t mean the market will continue to rise over the next week.

The worst-case scenario would result in a correction, and the best would be a very modest gain – just like what we saw in April.

At the moment, stochastics are sky-high at 91.74. The last time we saw a reading at that level, the S&P 500 plunged. The time before that? The index only rose 1% before falling.

So, while it might be tempting to go long after seeing the market surge like it did, odds are that we’re in an overbought trading environment. Even if equities continue to rise, they might not be able to do so at the current pace.

Buying-in at a time like this can be dangerous, and unless you were one of the brave souls to participate in the big green candlestick on June 4th, then you probably missed your shot at joining the “flash recovery”.

The market just set a lower low as well, so unless we see a nice sell-off and the setting of a higher low this week, I wouldn’t necessarily get excited about a bull market quite yet.

It could certainly be in the works, but until Powell says the magic words and actually cuts rates, we could be in for more volatility.

That certainly would make things more difficult for short-term swing traders looking for trends to develop, and until we see more temperance from investors, the best move might simply be to not trade at all.

Michael James
Michael James has been an avid cryptocurrency trader since the very first Bitcoin was minted. With a background in technical analysis and long-term cycles, he's helped thousands of investors navigate the digital currency markets.


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