About a month ago, there was a lot of buzz about reopening stocks. Entertainment, travel, restaurants. There was also a buzz about financial stocks. The overall thought was that as everything fully reopened, the areas that had been lagging would catch up. Analysts also figured that higher interest rates would allow banks to make more money in addition to the fees they had been living off for the last year or more.
But what if there was more to it than that?
I see two possible scenarios that could play out.
The S&P looks like the little kid just got launched off the teeter-totter and isn’t showing any signs of slowing up soon. The Dow and the NASDAQ don’t look much different. Jobs number are confirming that we are truly recovering from the staggering losses that resulted from the pandemic.
So did we call the recovery too early last month? Are we just starting to see what this will really look like? On one hand recovery could simply mean getting back to where we were before this all started. And we are there, for the most part. It could also mean that the momentum we had prior to the pandemic is being realized but also being boosted by an economy that has been strengthened by adversity. People aren’t as whimsical and are more risk concious.
Or there is another possibility. Maybe we are punch drunk and this first glimpse of a post pandemic reality has everyone blindly celebrating and over paying for stocks. It could be that we are touching new highs and that when the bill comes in for all of the bolstering that went on for the last 12 months is going to come due and pull the rug out from under it all.
When we have momentum this strong and this defined, momentum setups are the ideal tool to turn to to figure out which scenario is true. The give us the guard rails to let us confirm the rally still has room to run and also give us ample warning when a reversal is setting up.
Keep learning and trade wisely,
Market Wealth Daily