Good to Be Back

End of Day Update:

Stocks plunged Wednesday, closing Monday’s gap higher and continuing to 2,050 support before bouncing. The weakness sliced through the 50dma and prior resistance at 2,065. This flushed out recent dip-buyers and technical traders using these levels as stop-losses. That autopilot selling is what pushed us off a cliff in the first 30-minutes of the day.

This is the kind of market where if you have profits take them. If you have losses, wait two days and then sell for a profit. Since February we’ve been stuck in a trading range between 2,050 and 2,120. Buying the breakout or selling the breakdown has been the exact wrong trade, but most people come to this with a bullish or bearish bias and cannot help themselves. The profitable trade has been betting against these swings and now we find ourselves at the lower end of this range. Either the pattern continues and we bounce, or we start a new one and continue the move lower. 

Bears have a laundry list of reasons this market should collapse, but these are recycled headlines that have been with us for months. Rate hikes, strong dollar, lethargic economic expansion, plunging oil, euro drama, Middle East unrest, etc. Despite the noise, we are within 3% of all-time highs. When everyone is aware of something, that tells us it is already price in because everyone already had the opportunity to trade it. Without a doubt we could continue lower, but it won’t be for the reasons everyone is talking about.

We have employment on Friday. While a lot of people look forward to this “market moving” news every month, it is far less useful than the talking heads would have us believe. Over the last several months, sometimes good news is good, but other times it is bad. Same goes with bad news; sometimes it is bad, other times it causes prices to jump. While this contradictory behavior seems confusing, the takeaway isn’t that employment drives the market, but that the market does whatever it wants regardless of the headline. Sometimes it wants to go higher. Other times it wants to sell off. This is supply and demand at work, not headlines moving markets.

Recent weakness put sentiment in the gutter, meaning most likely good news is good again. It also means bad news could be good news too. We’ll have our answer soon enough.

Jani