How 'bout that stock market?!
Some of you were probably expecting a slightly more nuanced take on the market action of the last two days. After all the Dow (^DJI) was up 421 points yesterday, the biggest one day rally since November of 2011. In the last two sessions the S&P 500 (^GSPC) has gained 4.5%, recovering almost all of the losses sustained during December and leaving us once again within striking distance of new record highs.
This rally isn't about finance so much as it is emotion. Nothing changed over the last two days, save for Janet Yellen slightly modifying her constant stance, and a whole bunch of traders getting caught short. That's it. Once again the market stared into the abyss and decided not to die just yet.
You can be forgiven if you got caught short. I myself had a mental stop of 1975 for the S&P 500 and we closed almost exactly on that level on Tuesday. Scary stuff but you can't say we haven't seen this before in 2014.
In fact, this week was the fifth time this year stocks have pulled this little fake-break stunt. We did it before in February, April, early August and, of course, October. A screaming rally catching bears overconfident and altogether wrong defines the last two years of trading. You may not like charts but there's no excuse for ignoring ways to make money. The way to make money this year was buying dips hand over fist or, better still, buying an index fund and staying long.
One final takeaway, and this one speaks to life as much as markets: Every single one of the breakdowns I just referenced was accompanied by a whole bunch of folks screaming about why the end was neigh. The problem with being an 'End of the World' type is that you can only be right once, and after you are there's no one left to whom you can boast. Once again this year the optimists are the ones making the money. With a few notable exceptions that's always the case.
In real life Ebeneezer Scrooge would sell a newsletter. Don't be that guy. Find a little Christmas cheer and trade the market you have, not the one you think should be.