Green Light Still Pending

The ceasefire in Iran sparked a massive rally in stocks this week.

In today’s Closing Bell, we ask if this is the green light to increase our exposure to stocks.

A strict reading of my trading model, which I use to analyse price action, indicates that the risk remains to the downside for now.

I explain in detail why that is the case in the video below.

But remember, trading markets involve making judgments based on probabilities.

We are never 100% sure of anything. The outcome of each trade we enter is unknown. What is known is that trading a particular strategy many times should result in a certain number of wins and losses.

A technical trading model is just a map of something that’s incredibly complex. Making sure we don’t mistake the map for the territory is important in trading.

Markets are constantly changing, and we need to change with them rather than remaining stubborn.

So, as I analyse markets, remember that technical analysis is a windsock, not a crystal ball. If the markets tell me to change my view, I will happily do so.

Now back to the markets…

The long-term trend in the S&P 500, Nasdaq, and S&P/ASX 200 remains up, so a strong close this month could confirm a buy signal.

But until then, it is best to take a wait-and-see attitude.

A few issues are bubbling beneath the surface that could cause problems down the track.

Software stocks continue to implode as more AI tools are released.

We show you a whole bunch of market-leading US software stocks that are on their knees, resting on major support.

Private credit remains a question mark amid rising redemption requests.

Sub-par US office space is being sold at pennies on the dollar as lenders call in their loans. Regional banks are most exposed to losses but haven’t yet shown signs of cracking.

So, even though the Iran war may be close to wrapping up, there are still some issues that could cause the selling to return.