Conviction Drives Pricing
When the conviction to own stocks is higher than the conviction to sell stocks, markets tend to rise. Therefore, we can learn something in any market by focusing on the fact that all trades have a buyer and a seller.
A Bullish Triangle For The Bulls
The S&P 500 recently broke above previous resistance (see green arrow in chart below). The series of higher lows prior to the breakout told us buying conviction increased at higher and higher levels within the period of consolidation, which leans bullish. Has the concept of higher lows been helpful? Yes, a May 1 video clip covered the “higher lows allow for some patience” strategy in detail.
The study of charts is not a form of voodoo or witchcraft, but rather a way to monitor the actions of human beings within the context of simple and easy to understand economic principles. The formal name of the S&P 500’s recent pattern is an ascending triangle. From stockcharts.com:
An ascending triangle has a definitive bullish bias before the actual breakout…the horizontal line represents overhead supply that prevents the security from moving past a certain level. It is as if a large sell order has been placed at this level and it is taking a number of weeks or months to execute, thus preventing the price from rising further. Even though the price cannot rise past this level, the reaction lows continue to rise. It is these higher lows that indicate increased buying pressure and give the ascending triangle its bullish bias.
Consumers Drive The Economy
If we felt like we were about to lose our job or felt like it may be difficult to pay our mortgage, we probably would not be planning a discretionary family trip. The projections for travel this year also align with the market’s recent push to new highs. From Bloomberg:
About 37.2 million Americans will travel 50 miles or more from home during the upcoming holiday weekend, the most in 10 years, according to AAA, based in Heathrow, Florida. This 4.7 percent projected increase from 2014 includes trips by car, air, cruise, train and bus in the May 21-25 period. Memorial Day provides “a good indication of what’s ahead” because the holiday marks the unofficial start of the peak vacation season, said Julie Hall, a spokeswoman for the largest U.S. motoring association. This “very positive forecast” should continue throughout the rest of the summer, she said.
