May 262015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

It was a dramatic day as the S&P500 plunged 1% in the first session back from the long weekend. As unnerving as it felt, volume was below average and we are only 1.4% off of all-time highs. Hard to claim this was a crash by any stretch of the imagination, but in the market perception is reality, and today felt a whole lot worse than it looks.

Before the open, bullish sentiment on Stocktwits $SPY stream already fell to 41% and AAII’s bullish sentiment hovered near 5-year lows. As much as people try to correlate record prices and bullishness, we are anything but bullish at these highs. But this is actually a common phenomena. Every rally feels extended and fragile at the far right edge of the chart. Only months later do buy-points become obvious. If this were easy, everyone would be rich.

The five months of sideways churn since the start of the year cooled off any overbought condition that crept into the market. While we could easily extend Tuesday’s selloff on Wednesday morning, using bearish sentiment as a guide, we are far closer to the end of the selling than the start. Once the last of the hopeful bulls bailout, supply will dry up and we will bounce. The best trades are the hardest to make and today it felt a lot easier to sell this weakness than buy it.

Jani

 Posted by at 9:19 pm on May 26, 2015
May 212015
 

End of Day Update:

Opening weakness in the S&P500 quickly rebounded and turned into a decent gain for the index. Overnight worries about Chinese manufacturing and European weakness faded as soon as we opened. While it was nice to finish in the green, we struggled with 2,130 again as we find ourselves stuck in a very narrow range between 2,120 support and 2,130 resistance.

Headlines have given this market has every excuse to sell off, yet we keep making new highs. Too often the novice contrarian confuses price with sentiment. They assume high prices automatically equate to overly bullish sentiment and is why they want to bet against the trend. But the truth is price and sentiment are completely independent. Just as surprising, the contrarian trade is most often sticking with the trend while every else is convinced it’s gone too far and is about to correct. That is how we find ourself at record high prices while the AAII’s bullish sentiment remains 14% under historic averages and near five-year lows. It seems the crowd developed a fear of heights.

The most compelling signal the market can give us is not doing what everyone thinks it should. When we’re supposed to crash on Greece, weak GDP, rate hikes, and all the others, but we rally instead, that tells us to grab on and enjoy the ride. Don’t fear these headlines, instead fear the day when all the news is good and the market stops going higher

Jani

 Posted by at 11:14 pm on May 21, 2015
May 202015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 ended modestly lower in a day that saw it trade primarily between 2,125 and 2,130. There was an early dip to 2,122 that quickly bounced and a brief jump to 2,135 following the release of the Fed minutes. But neither divergence stuck and we finished inside the day’s range.

The market moved higher following Fed minutes that pointed to a delayed rate hike, but we quickly returned to this morning’s levels once everyone realized we already knew that. For all the build up, the minutes were forgotten barely two hours later.

But this retreat from the highs is giving bears something to crow about. It is surprising how vocal they are on a day that saw us set fresh highs. They complain about bullish optimism, but getting excited over a 0.4% dip is definitely stretching for something to gloat over.

This was the market’s fifth consecutive close above the widely followed 2,120 resistance level that stretches back to February. What was resistance becomes support and that appears to be the case here. Previous attempts at breaking 2,120 saw us retreat days later, so holding these levels for a week is encouraging. It’s not as great as seeing the market surge to new highs, but it shows we are not being overrun by a wave of profit taking since the current crop of owners appear far more content holding on for higher prices. Their conviction keeps supply tight and makes it easier for us to keep going higher.

While this breakout feels different, we need to see it continue making progress. If we close materially under 2,120, that shows the lack of demand is even more powerful than owner’s confidence. Since confidence is so fragile in the face of falling prices, we need to be wary if we cannot hold support. The other risk is if we cannot escape 2,120 and continue trading sideways. The longer we over above support, the more likely it is we will slip under and trigger a wave technical and stop-loss selling.

Jani

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 Posted by at 4:12 pm on May 20, 2015
May 192015
 

End of Day Update:

The S&P500 did a lot of nothing Tuesday as we consolidated Monday’s modest breakout. It stayed inside a 10-point range and closed lower by less than a tenth-of-a-percent. The benign trade tells us most owners are not taking profits and continue holding for higher prices, while those with cash don’t feel compelled to chase the breakout.

When few change their mind, prices don’t move and that is what happened today. Every other time the market challenged 2,120 this year, we quickly retreated from the highs. Today’s close marks the fourth day in a row we finished above this widely followed resistance level, making this time different.

While there are plenty of negative headlines making the rounds, none of them are new as we’ve seen versions these recycled headlines for months. Anyone who fears these issues sold a long time ago and is why periodic flare ups here or there no longer dent this bull market. Many claim this strength in the face of so many worries is irrational, but it makes perfect sense if you understand how markets work. When there is no one left to sell, we stop going down.

If prices remain above 2,120, expect recent sellers and shorts to come crawling back as the fear of being left behind overcomes their fear of gloomy headlines.

Jani

 Posted by at 9:36 pm on May 19, 2015
May 152015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 finished the week on a positive note. While Friday’s gain was less than 0.1%, it was enough to set another record close. We’re only up 0.3% for the week, but it was impressive because it includes recovering from Tuesday’s test of the 50dma.

A couple of months ago we had a right to be concerned when the market failed to extend a breakout to record highs, and these thoughts were justified as we watched prices retreat from the highs in following sessions. But like everything in this game, sometimes a certain behavior means one thing, while under different circumstances it tells us the exact opposite. This time around, pausing at 2,120 actually feels productive. We saw early distribution, but it was fairly muted and we recovered into the green by the close. Obviously demand remains weak near widely recognized resistance, but we climbed this high because most owners are confidently holding for higher prices. And at least to this point, tight supply trumps weak demand.

The interesting opportunity for bulls comes as we close in on the tipping point where reactive buying will boost demand for stocks. When the widely expected correction instead turns into a breakout, it forces pessimists to decide between buying in or being left behind. And that’s how melt-ups start.

Seeing the market pause, or even pull back modestly here is constructive. What we don’t want is a retest the 50dma so soon after bouncing off of it. Keep holding for higher prices as long as we stay above 2,100. On the other side, be wary of a sharp move higher next week since that signals buying capitulation and leads to exhaustion.

Jani

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 Posted by at 5:19 pm on May 15, 2015