That was fast. Midweek, the U.S. stock market crashed below key barriers, seemingly confirming the worldwide seriousness of Greece, China, Puerto Rico, the “mysterious” (a la USA Today) NYSE shutdown and the numerous other concerns discussed recently. Articles and commentaries poured out negative interpretations, with dire visions of worse to come. Instead, buyers appeared, halting the drop and turning the market back up. Therefore, instead of confirming a bearish trend, the stock market performed a classic fake out (AKA shakeout) that could lead once again to an opposite, bull market move.  Disclosure: Author is fully invested in U.S. stocks  Last week’s moves were much more than volatility at work. The whipsaws in such a period (intraweek) at such a time (broadly reported negative news added to investors’ concerns) and with the stock market at such a level (teetering on downside triggers) carry special weight and meaning. Here is the view:  Stock market tests lows, fakes breakdown, then reveals strength  As I discussed in “Stock Market’s About-Face Means Time To Be Fully Invested,” intraday and intraweek moves offer little information. Such shifts are often short-lived. Therefore, the best views of stock market trends come from examining weekly data. Focusing on weekly closes removes much of the trading effects, since traders tend to close out their positions before the weekend. Last week offers an excellent example.  First is the daily graph, basis for most of last week’s negative technical analysis.  Index charts courtesy of StockCharts.com  Here, then, is the weekly graph, which removes much of the non-trend volatility.  Now we can see the market’s antics for what they are: Noise atop vigor. With the reality of strength revealed, the likelihood of a new bull leg looks good. Not only is the technical picture sound, there is the potential for fundamental support from the upcoming earnings reports accompanied by management outlooks that will boost thinking about 2016’s growth.  But, what about Greece, China and Puerto Rico?  As I discussed in “China’s Scary Market Produces U.S. Stock Buys,” these country-based issues have weak links to the U.S. economy and stock market. The Wall Street Journal looks to be the first to admit this reality in this weekend’s article, “Greek, Chinese and Puerto Rican Crises All Fall Short of Going Global – Scant financial contagion of the sort that followed deepening U.S. mortgage crisis in 2008.”  After economic turmoil erupted on three continents in recent weeks, a familiar consequence of past crises is notably absent: panic.  In Europe, Greece veered dangerously close to exiting the euro. In China, a historic stock bubble appears to be deflating. In North America, Puerto Rico threatens one of the biggest government defaults in U.S. history.  But there has been little of the global contagion that followed the deepening U.S. mortgage crisis in the fall of 2008 and previous Greek debt crises.  The Wall Street Journal even corrected their earlier, misleading China stock market chart, expanding their previously foreshortened time period, thereby showing the complete bubble event.  In “the week that was,” the U.S. stock market not only shrugged off the noisy negatives, it also revealed an inner strength that could lead to a new bull market leg. Such fake out moves (or feints) are not unusual in the stock market and often provide good investing opportunities. Therefore, now looks to be an excellent time to be fully invested in U.S. stocks.  Bonus result from last week’s actions: Previous VIX (volatility) warnings are now moot  Remember the concern about the “too low” VIX (volatility) readings? The warnings were that the market was quiet – too quiet. Regardless of whether such worry is valid or not, it has been put aside by the last few days’ volatility.  Index/VIX graph courtesy of StockCharts.com
Market's midweek plummet met resistance, then support, then outright buying. This evidence of underlying strength means next move could be up.