Markets are starting to climb a wall of worry after a solid week of upside trading.
That’s the case despite some downbeat economic news, says James “Rev Shark” Deporre.
“Currently the bears have some pretty convincing arguments against further market upside,” Deporre wrote recently on Real Money. “China's economic growth is slowing, and inflation is being driven by supply-chain problems and increased energy prices. Interest rates are rising, and central banks are running out of ammunition. Bears will also claim that valuations are unreasonable and much of the market is in a bubble.”
While the bears do have a compelling negative argument, stocks managed a strong rebound last week. “After the CPI numbers were released on Wednesday morning, stocks moved sharply higher and finished at the highest levels in several weeks on Friday,” Rev Shark noted.
According to Deporre, the question now is whether the bears can regain their edge due to the macro worries or will these negatives help to build the proverbial 'Wall of Worry'.
“Markets often climb a wall of worry when there is hesitancy to put cash to work, but as stocks act well, those on the sidelines start to inch in and do more buying,” he said. “That buying drives up stocks and causes more people on the sidelines to go to work.”
The negative narratives are growing loud, but will they kill the positive price action that started developing last week?
“That’s the battle we face, and the best way to deal with it is to watch the price action,” Rev Shark said. “Some downside is justified at this point, but we need to watch support levels and see how much interest there is in buying softness.”