Tariffs and the trade war are still in the news. But they will be for some time. The uncertainty of trade is now the new normal.
That's important because uncertainty is often associated with market declines. However, when uncertainty becomes certain, as it is now, traders tend to look past that news.
So, trade will be in the headlines for some time. Those headlines could lead to occasional blips in the market action, but it no longer seems likely that a trade war will be the catalyst for a bear market.
I know that sounds a little confusing. And I know I often turn to parenting analogies to understand the market. I hope you'll indulge me with another one...
Professional Investor Reveals Shocking New Pot Opportunity
First children are the most stressful. Every time the first child suffers a skinned knee or even believes they might have skinned their knee, parents rush to treat the "boo boo."
With the second child, parents might move a little slower. They know the boo boo will heal in just a few seconds in most cases.
Well, when Donald Trump first became president, it seemed like every tweet was important. Now, traders understand that the tweet will cause a little excitement but will heal itself in a few moments.
This is good news since the market has been recovering from the trade war over the past month. The chart of SPDR S&P 500 ETF (NYSE: SPY) below puts the past month in perspective.
There was an initial selloff on news that China would impose tariffs on U.S. goods and news that the United States would retaliate. This was before traders were accustomed to the escalation. Over the past four weeks, there has been more news, but overall there hasn't been any real movement in the stock market.
Obviously, we ended last week at an important price level. The blue rectangle (above) shows that we are at resistance, a level SPY reached before selling off twice in the past month.
I expect SPY to break through resistance this time. That's based on momentum. The next chart zooms in on the recent market action and shows my Income Trader Volatility (ITV) indicator at the bottom of the chart.
ITV turned bearish in the first days of the selloff and it is now bullish. This is likely a signal that that prices are positioned to break through resistance.
What Investor Sentiment Is Telling Us
Sentiment also confirms an "up" move is likely. The next chart shows the latest results of the weekly survey conducted by the American Association of Individual Investors (AAII).
This survey dates back to 1987. For an average week, 38% of investors are bullish, 30% are bearish, and 32% are neutral.
Last week, just 26% were bullish, about 42% were bearish, and 32% were neutral.
There has been an unusually low number of bulls for the past month. Most investors are bearish or neutral.
Over more than 40 years, this survey has shown that the majority of investors are usually wrong. When there are few bulls, like there are now, markets tend to rally.
As I've noted before, this makes sense. If markets were easy, every investor would enjoy success. We should expect most investors to be wrong because it is difficult to hold minority views.
Momentum and sentiment say we are due for a rally. The news is bearish, but the weight of the evidence is bullish. In the markets, it's best to take action based on evidence. For now, that tells me we should be bullish.
How We're Trading A Bullish Gold Market
And, it's not just stocks that are bullish. Among the other bull markets is gold, which is trading at a six-year high and breaking out of a basing pattern that shows the potential for an additional 14% gain.
As gold rallies, gold miners become more attractive. An interesting gold miner is Franco-Nevada Corporation (NYSE: FNV). To start with, the stock is on an ITV "buy" signal.
FNV is one of just 15 publicly traded gold miners with a dividend yield. That makes it a unique way to combine income with an inflation hedge. That should make the stock attractive. But rather than simply buy the stock like most investors would, my I recently told my Income Trader readers about a way to earn instant income from the stock without having to wait for the dividend.
If everything goes right, we collect our instant payout and move on. Worst-case scenario, we would get the chance to buy the stock at a big discount to current prices -- and we may even get to collect that dividend, depending on how long we hold the stock.
As I always tell people, it's about as close as you can get to a win-win when it comes to investing. My Income Trader subscribers and I have been making trades like this for years -- with a 90.5% success rate. And there's nothing complicated or risky about it once you learn the basics.