Market Update: The Squeeze Continues

I'll keep saying it...because it seems lately like there's very little else to say...

The "short squeeze" continues.

The Nasdaq climbed to its highest level in 2 years - while the S&P 500 - as I thought it might - broke out to its highest price level in 9 months:

There's still a lot of bearish sentiment out there, too. As an example, here's a breakdown of market opinions over the last month or so (while keeping in mind that the opinion surveys are always a week behind:

To give you a sense of where things are - "normal" bearish sentiment is around 31% for the AAII (American Association of Individual Investors) survey. So with nearly 40% of investors holding bearish opinions the week of May 17th, it'll take even more "squeezing" before this rally runs its course.

I think the market rally can continue through at least Memorial Day and may go for a lot longer than that before we see a renewal of bearish trading conditions.

I continue to believe we'll see a short-term "kick the can down the road" resolution to the debt-ceiling situation (until next fall). Presuming that's correct, the market can continue to work its way higher - my new target is a price gap in the Nasdaq QQQ that's about 7% higher than the current price:

And yet this is one of those times when I almost wish I'd never heard of the stock market.

I say all that with a smile. It's not because anything bad has happened. The goodBUYs portfolio has had a mix of small wins and small losses lately - so we're more or less treading water, but holding nicely far above its smallcap index benchmark.

But my frustration lately is more about the lack of what I'll call "positive feedback" from the stock market.

Here's what I mean by a lack of positive feedback...

Basically, you are doing GREAT this year if you own any or all of these 8 key stocks...

• Meta
• Apple
• Amazon
• Netflix
• Google
• Microsoft
• Nvidia

But there are 493 other stocks in the S&P 500, and something like 5,990 other stocks you can buy on the NYSE or Nasdaq.

And if you own almost any combination of those other stocks, your trading account is either underwater, breaking even, or its performance looks incredibly under-whelming compared to the +50% gain of the "FAANGS+2" over the last 5 and a half months!

So it's natural to feel frustrated.

To paraphrase Winston Churchill, never have so few stocks done so well for so long - while leaving everything and everyone else in the dust.

But our frustrations at this current situation can become a trap - a trap that leads to big losses and sorrow - if we're not careful.

The Mental Game of Trading & Investing

Let's face it - there's a bit of a rush of excitement and energy when we choose a stock to research, decide we like it - then buy it - and (hopefully) watch it go up at least a little (and sometimes a lot) in a few weeks, a few months or longer.

When it doesn't happen - when the stock doesn't go up, but instead goes sideways or down - we feel lost, dejected, out of sorts.

It can be even worse when it seems like everyone else - in this case, anyone who owns some or all of the  8 stocks that are driving the stock market higher and higher - is making money while it seems like all we wind up owning are the proverbial "dogs with fleas."

So here's the trap we need to watch for...

In our search for that rush of "positive feedback" - we can wind up like a gambler in front of an old-time Vegas slot machine - the kind of slot machine that refuses to pay out a gush of quarters that we feel we're rightfully owed.

Our brains tell us - hey, just insert a few more quarters and you're that much closer to hearing the familiar "ding, ding, ding" as the spinners line up "all cherries" or whatever, and we get our much-anticipated payout.

That's what the casino wants us to think.

That's also what the stock market - led by Wall Street's investment banks, hedge funds, and CNBC pundits - wants us to think. It wants us to think that things are OK and getting back to normal.

So sometimes the best strategy is to ditch the machine and not play - or vastly slow down the speed at which we're feeding in our quarters.

But that's hard to do. It takes discipline.

It also takes an eye for details as to what's "normal" and what's not.

For example, I keep saying that I'll get a lot more enthusiastic about the stock market when I see the small stocks in the Russell 2000 index start to "act" better.

And yet even as the Nasdaq and S&P 500 lurched higher last week, the Russell 2000 keeps sliding backward, making "zero" progress:

I sound like a terribly scratchy, broken record these days, saying the same things over and over again.

But this is one of those periods where we need to maintain our discipline, and not allow ourselves to act emotional, despite whatever frustrations we may feel.

There's a lot to today's stock market that doesn't make sense. It's OK to let those feelings go. Take a break from the casino.

The slot machines will still be there when we get back.

And unless the other indexes like the smallcaps Russell 2000 start to play a sustainable game of "catchup" soon...I suspect the other casino players may still be waiting for their "payout of quarters" for many more weeks to come.

Best of goodBUYs,

Jeff Yastine