Still hanging on to 2k

End of Day Update: 

Stocks barely held 2k following the Labor Day break. After opening modestly higher, there was a swift, late-morning selloff that pushed us under 2k. It wasn’t until the final 20-minutes of the session that we finally held above this psychological milestone. Volume was elevated in comparison to the lethargic flows in the final weeks of the market’s traditional summer session. In coming weeks we should expect big money to return to the markets and begin adjusting their portfolios heading into year-end.

This was the sixth day we traded around 2k. While we cannot break through this psychological barrier, we are not turning away from it either. Without external support, markets tend to fall under their own weight, meaning this sideways trade is actually supportive of a continuation. It shows few owners are worried and locking-in profits. As long as owners continue holding, supply will remain tight and keep propping up this low-volume rally.

There is a tremendous amount of headline noise coming from Eastern Europe and the Middle East, but so far the market is not paying attention to it as we continue to trade near record highs. And it isn’t only the stock market, but commodities too. Between a rising dollar and few worries that any of these situations will expand beyond regional conflicts is keeping a lid on fear and risk premiums. Since most of these hotspots have been flaring up for months without any major consequences, the market is already looking beyond them. If it is on the front page, it is already priced in.

The million dollar question is what does big money see when they look at this market. Are there still bargains to be found? Or are values getting a little too rich to put new money to work? As they look to year-end are they more inclined to keep buying, or will they start taking profits? It is easy to say this rally’s come too far and needs the proverbial ten or 20% pullback. But at the same time it is foolish to fight the trend. I wish I knew the answer, but the best we can do is wait and see what happens. Either we are basing for a continuation, or building a double-top/head-and-shoulders reversal. Only time will tell.

Jani