How Rallies Like Today Happen


Are you wondering why a few photo opps and a couple of smooth words from our Congressmen can cause the market to launch higher this morning? What happened – Did the fundamentals of our economy drastically improve over the weekend?

No. Here’s what happened:

By Friday last week, investors were mostly “sold out” for the short term (selling had been going on for a few days in a row) – and with fewer people eager to sell (it’s a psychological thing, they get “exhausted”), prices push up. The buyers, sensing a possible market bottom, then test the waters, buying a little bit.  Following reassuring words coming out of Congress, these  early traders got on board late Friday afternoon with their small positions. With more soothing words over the weekend, traders felt safe to buy more – and  once momentum started moving, and as it looked like the bottom on Friday could be a possible low, more traders stepped in at the end of the day as markets moved north.

Asia and Europe traded up this AM ahead of the opening of US markets and pushed more buyers in. US retail investors, who don’t stay up all night, woke up to see building strength in US markets and then they began to buy.

Important Point

Also understand this – from a trading perspective, we wouldn’t know if Friday were a tradable bottom until after the fact. So traders have to jump in and risk a little, to see. The alternative (and these are viable options depending on the person) is to wait for the trend to start moving and jump on (it still could reverse), or investors could buy depending on valuation (or people could do nothing). But in these instances, investors often become traders trying to find a good entry point for their “value” ideas.

Bottom line – more buyers than sellers at a certain point of time, coupled with positive news from Washington, gave the edge to buyers – whether this continues is anyone’s guess!