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It is said that Ms. Market likes to do whatever she can to confound the masses that play at her game. So, just about the time that everybody on the planet (yes, including the fast money masters of the universe) was prepared for the "retest" and were busy placing odds as to how low stocks would go during the inevitable decline, what does the market do - ignore the script and dance merrily higher, of course!

You could hear it in the guest's voices on financial TV yesterday. (Why the sound was on so often is beyond me.) But I heard guest after guest basically saying, "Yea, this looks good, but just you wait - the retest is coming." Okay.

This is a perfect example of the need to "be right" in this business. So many of the guys that come on TV think they must do what everybody knows can't be done. As in, telling us, with absolute certainty, what is going to happen next.

But as Ned Davis taught me many, many years ago, this game isn't about "being right" - it's about making money!

So, although I must admit that I actually don't know what it going to happen today in the stock market and I do recognize that the market's trend can change quickly, I'm going to go ahead and try to "esplain" why stocks are going up instead of down right now.

Reasons For the Advance

First there are the technical factors. On Friday, both the Dow and S&P broke through their 50-day moving averages. And then yesterday, stocks advanced and didn't once look back. So, the fast-money folks who shorted into the retest had to scramble for cover.

I know, I know, why does anyone care about something as simple as a 50dma these days? The bottom line is that to this day, lots of people on Wall Street still view the 50-day as the line in the sand between good and evil. Yes, it is a little silly, but it is what it is.

Next up is the fact that rates have pulled back the last three days. And since the fundamental aspect of the correction was tied to rates, well, this one is fairly straightforward.

Part of the recent pullback in rates may be tied to the talk of "inflation is dead." Yes, believe it or not, that was an actual headline yesterday. This too seems a little ridiculous, but it may have contributed a bit to rates heading a bit lower.

Speaking of rates, there is also a fair amount of chatter about Jay Powell perhaps being more dovish (or less hawkish) than the markets have perceived to date. Don't forget, the new Fed Chairman testifies on Capitol Hill today. And the current thinking is that Mr. Powell doesn't have any incentive to "make a splash" with his first public remarks. As such, the boys in the bond pits may have been making some adjustments over the last couple of days.

Staying with the Fed, new Governor Randal Quarles said nice things about the economy yesterday. "I am fairly optimistic about the current state of the economy," Quarles said in prepared remarks. "Along many dimensions, it has been quite some time since the economic environment has looked as favorable as it does now."

So, if you mix in less fear about inflation, rates not blasting through 3%, and a solid economy, you wind up with a recipe for a decent stock market.

On that note, is also worth noting that technology and many of the market's darlings remain in pretty darn good shape. For example, the Q's (aka the NASDAQ 100 or ETF symbol QQQ) are within a stone's throw of new highs. Oh, and don't look know but both (NASDAQ: AMZN) and Netflix (NASDAQ: NFLX) actually finished at fresh all-time highs yesterday. Can you say FOMO?

So, there you have it; at least a handful of reasons why stocks have been going up instead of down lately.

What to Watch For

However, before you run out and start buying up those short-vol ETFs again (those that are still around, that is) in order to get your leverage on, keep in mind that stocks have run a long way in a very short period of time. This means that we've once again got an overbought condition on our hands. And with Powell talking monetary policy and the Fed's fav inflation indicator (PCE) due out on Thursday, well, anything can happen.

So, as I opined on Monday, my indicators suggest that we should be giving the bulls the benefit of the doubt here and that investors should remain on the bull train. However, let's also recognize that the road to higher highs is likely to be a bit bumpy.

Publishing Note: I am traveling the rest of the week and will publish reports as my schedule permits.

Thought For The Day:

Be kind, for everyone you meet is fighting a hard battle. -Plato

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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At the time of publication, Mr. Moenning held long positions in the following securities mentioned: AMZN, QQQ - Note that positions may change at any time.


The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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