MW Why the stock market's meteoric rise should crush any FOMO you might have

By Cam Hui

Momentum can swing both ways. Don't get hit.

Sideways consolidation or a pullback would be no surprise.

There are plenty of reasons for investors to be bullish on U.S. stocks. Numerous price-momentum studies point to significant higher stock prices. On the other hand, the Fear & Greed Index has recovered from a fearful reading to a greedy one. It may be a time for a pause in the advance.

Bullish momentum

I am seeing signs of strong price momentum and market-breadth thrusts everywhere. The market experienced a deGraaf Breadth Thrust on Monday, which is defined as 55% of S&P 500 SPX stocks reaching a 20-day high. If history is any guide, investors should see higher prices ahead.

Lending support to the bulls' case, Bespoke Investment Group found that the Cboe Volatility Index, or VIX VIX, fell to 20 from 40 in record time, which is another sign of strong and sustained price momentum.

A pause ahead?

On the other hand, the U.S. market has arguably risen too quickly and it's due for a pause. Columnist John Authers at Bloomberg observed that the current rally is highly reminiscent of the price surge off the August 1982 generational bottom. Even then, the market stalled after the initial advance (annotations in red are mine).

Buy the dip

Indeed, the market has become overbought. The VIX (bottom panel) reached the bottom of its Bollinger Band earlier in the week, and such conditions usually don't last. Some sideways consolidation or a pullback would be no surprise. Support can be found at the 61.8% Fibonacci retracement level of about 5,640.

The current advance has been led by the so-called Magnificent Seven stocks, and broader breadth indicators have been a little weak, which is a short-term concern.

Market strategist Seth Golden pointed out that the Nasdaq-100 NDX is close to "triggering an overheated condition that typically precedes a pullback or consolidation."

The bottom line: Don't be afraid to be bullish, but be cautious near term. Buy any dip that appears.

Cam Hui writes the investment blog Humble Student of the Markets, where this article first appeared. He is a former equity portfolio manager and sell-side analyst.

More: Has the stock market's epic rebound come too far, too fast? What investors chasing the rally should keep in mind.

Plus: Here's what stock investors need to know about big rallies and bear markets

-Cam Hui

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May 15, 2025 07:25 ET (11:25 GMT)

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