It’s important to keep an open mind when evaluating the stock market. It doesn’t make sense to always be Bullish or Bearish because the market is not always in an uptrend or a downtrend. It’s simply best to do your homework, look objectively at both the positive and negative signs, and invest accordingly. That being said, let’s review the market’s recent action.

NEGATIVE SIGNS:
1) All the major averages are below their 50-day moving averages and the Russell 2000 is in a correction. This is important because 4 out of 5 stocks move with the market’s general direction. If the averages are under pressure, most stocks will be as well. The Nasdaq 100 is currently the strongest index, and those stocks are where I am focusing my attention right now.
2) Geopolitical tensions. It seems like the market is vulnerable to any major headline concerning Russia, Ukraine, Middle East, etc.
3) The Fed is unwinding their bond buying program. Although they plan to keep rates low for a while, some view the liquidity taken out of the system as a negative.

POSITIVE SIGNS:
1) There are many stocks with STRONG earnings growth that are holding up very well right now. It feels as if they are ready to explode to the upside as soon as any tension is relieved off this market.
2) Certain sentiment measures shifted to extreme pessimism recently. For the past few years, many market participants have had one foot out the door and any little market pullback gets them extremely fearful. This can be seen in the recent CNN Fear/Greed Index and the CBOE Equity Only Put-to-Call Ratio.
3) The market has been extremely resilient over the past few years. Every time warning signs start to appear, it’s been wise to put a little money to work and stick with the overall uptrend.

CONCLUSION:
I wasn’t sure whether the “Economy” should fall under a positive or a negative? Many economic numbers are showing overall improvement (a positive sign), but leading some to believe the Fed will raise rates sooner than later (a negative sign). I think it’s too early for the Fed to act, mainly because there are still some parts of the economy (housing, wage growth) that remain fragile. In addition, I am trader and not an economist. I mostly trade individual growth stocks, and as long as their uptrends remains intact, I will continue to expose client capital to the best stocks I can find. Remember, markets are driven by 3 things: Earnings, Interest Rates and Psychology. Overall, earnings growth is strong, interest rates are low, and many still hate this market. Good luck trading!

I can be reached at: jfahmy@zorcapital.com.

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