Stocks Take A Breather, Getting Ready For The Next Leg Higher

Stocks finished lower across the board yesterday; large-caps, small-caps and everything in between. What does this mean? Nothing.

The markets have been on a tear over the last couple of months, especially the tech-heavy Nasdaq and the small-cap Russell 2000 Index. And for a while there, it seemed like stocks could only go up. But, of course, stocks can go down sometimes as well. And that's all we saw yesterday.

Actually, I was happy to see it. The strong open we saw on Wednesday left a gap on the charts of both the Nasdaq and the Russell. These appeared to be simple common gaps. But common gaps are typically filled. And many technicians hesitate to buy when a common gap exists. So seeing them both filled in yesterday cleans up the technical picture.

Could there be some more downside or backfilling after the run-up we've seen so far? Sure. It would only be natural. And if we did, I wouldn't give it a second thought.

With this historic bull market, you should be buying both the rallies and the dips. If you think the market will be substantially higher in the future, why wouldn't you? Buy on the way up if you think there's more to go. And get excited when the market temporarily goes down as this is an opportunity to buy your favorite stocks on sale.

Why am I so confident on the market? It's because of this historic economy. With surging economic growth (Q2 '18 GDP is expected to come in at 4.7%!), record low unemployment, record corporate profits (driven by deregulation and massive corporate tax cuts), and record high consumer confidence (made even better by the individual tax cuts and the aforementioned jobs market), the only logical direction for this market to go right now is up.

And a record economy should ultimately usher in a record bull market. As I've mentioned before, the longest bull market on record is 12.3 years. The current bull market is 9.3 years old. But with this economy poised for years (if not decades) of new prosperity, this market is likely to become the longest bull market in history with plenty of room to spare.

So keep your watch list of stocks fresh and ready to go because there's never a bad time for picking up your best stocks in this market.

Best,

Kevin Matras

Executive Vice President, Zacks Investment Research

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