Sentiment Speaks: It Makes No Sense That The Market Will Continue To Rally

I love reading what the media tries to explain a market move, as it just makes me chuckle. On Friday morning, when the market rallied into the open, this was the headline on CNBC:

"Stock futures rise on hope increasing unemployment rate will keep the Fed at bay"

And, only an hour later, the market went red. I guess that hope was dashed quite quickly.

Moreover, I am seeing more and more perspectives that the market should not have risen this high, and why it can't go any higher. Specifically, many claim that a rising dollar and rising interest rates are now going to kill the stock market. And, they believe that there are no fundamental reasons for the rally to go on.

Before we look at this perspective a bit more closely, allow me to remind you of my perspective regarding fundamentals driving the stock market, as it will make it quite clear why market fundamentals will often have you looking the wrong way:

How To Analyze Market Sentiment Along With Market Fundamentals

To be honest, such perspectives make me scratch my head. It makes me question whether these market participants have even looked at market history or are they just regurgitating the common fallacies about the market because it makes sense within their world view as to how things should happen? Personally, I believe it is best to analyze markets based upon what is rather than what we want it to be. You will be much more successful in the long run.

But, as far as market history, we do not have to go back too far to recognize that the market was around the 3500SPX region when rates were in the same general range where we find ourselves today. Yet, the market is 30% higher. When you come to terms with that, then you have to reasonably conclude that rates have not been a factor. Therefore, if rates do rise and the market does drop from hereon (which is not what I am expecting), the logical conclusion is that this is simply a coincidental factor, at least based upon the proof of the market action seen over the last year. So, we can logically throw this fundamental perspective out the door.

Yet, I am simply amazed when I see people take the position that the market is simply wrong. And, so many are extremely confident that the market is about to drop when reality hits the market. And, this is exactly why they have missed the 30% rally.

Folks, if the market diverges from your premise, then it should lead you to only one conclusion: you, and not the market, are wrong. Again, may I remind you of the famous words of Jesse Livermore:

"A prudent speculator never argues with the tape. Markets are never wrong, opinions often are."

So please spare me the double talk as to why the market has rallied 30% against these common fundamental perspectives. The most productive action in which you can now engage is to accept you are wrong and try to understand why you are wrong. And, I would strongly suggest you read my article linked above to guide you to that understanding.

And, if you would like to read a bit more about my perspective on why it is foolish to rely upon these seeming correlations, feel free to read the following article as well:

Sentiment Speaks: Can The Market Now Head To New All-Time Highs?

As far as the premise that a rising dollar is negative for the stock market, well, I guess anyone holding this perspective has not even bothered to look at what the DXY has done over the last decade. And, if you are amongst those that do not know, the DXY has rallied with the stock market over the last 15 years. After you pick your jaw up off the floor, feel free to check the charts to see for yourself.

Now, even though we have herein obliterated a number of common fallacies and seeming correlations, I am quite certain it will not stop analysts and investors from clinging to these outdated and erroneous views. And, the certainty with which they will continue to post these views will likely only increase. They simply know that they are right.

I guess one could apply the old phrase "often wrong, but rarely in doubt" to these people. If you ask them, they will proudly tell you that is only a matter of time before the market proves them right. Yet, they fail to realize that they missed a 30% rally by being "right."

My goal in highlighting these facts week after week is not really to change these people of which I speak, as that is likely an exercise in futility. Rather, my goal is to force many of you to recognize the market for what it is, rather than what you believe it to be. It is always much more profitable to deal with the reality of price than attempt to fight it to the detriment of your investment account.

So, now that I made my position clear, let's move onto our view of the market.

Last week, I outlined to you that if the market was able to move through the 4490SPX resistance, it made it much more likely that we are setting up to rally towards the 4800SPX region. And, that is where I now stand. But, there is one more test the market must pass in the coming week to make this a much higher probability.

Currently, support in the market is in the 4470-4479SPX region. As long as the pullback which began from Friday's high holds this support, I would like to see one more rally that points us to the 4573SPX region. Should this develop over the coming week, then I would be ideally seeking a corrective pullback thereafter towards the 4400SPX region, which would be a buying opportunity, with our support then being 4335SPX, and with our upside target being 4794-4883. That would be a low-risk, high probability trade set up should it develop over the coming weeks.

Alternatively, a break of 4470SPX before we get that higher high over the one struck on Friday would open the door to another drop towards the 4230-4274SPX region, which, if held as support, can still point us to the next higher target region I cited above.

In other words, it would seem that the greater weight of evidence suggests that the market is setting up to attack the 4800SPX region later this year. The only question is one of which path it intends to take. And, as long as we hold the upper support I noted above in the coming week, my expectation is going to be for the more direct path which entails us holding the 4400SPX region over the coming weeks, and then rallying to the 4800SPX region.

Some of you wonder why I provide two aspects to my analysis. While some would interpret it as my saying that the market is either going to go up or go down, that is a ridiculously simplistic and superficial manner in which to view this type of analysis.

As I have said many times before, my analysis is different than if an army general were to draw up his primary battle plans, and, at the same time, also draws up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the army general prepares for battle. We prepare for market battle in the same manner.

Again, while I will never be able to tell you with certainty how the market will move in the coming weeks, months, and years, I present you with enough information to know where my primary perspective is wrong so that you can adjust in order to take account for the alternative situation. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which has been guiding us extraordinarily well for many years.

By now, I hope you recognize the difference in our analysis approach, other than the accuracy thereof. We strive to view the market, and utilize our mathematically based methodology, in the most objective and intellectually honest fashion possible, no matter how crazy it may sound (as many thought of it when I was calling for 4300+ when we were bottoming at 3500SPX). Moreover, it provides us with objective levels for targets and invalidation. So, when we are wrong in the minority of circumstances, we are able to adjust our course rather quickly, rather than fighting the market like many others you may read. So, you will never hear from me that "the market got it wrong."