Jani

Feb 252015
 
Source: Stocktwits.com

Source: Stocktwits.com

End of Day Update:

Stocks slipped modestly on below average volume as the trend of tight trade continues. We remain above 2,100 support, but breakout buying is noticeably absent. I’ve been inclined to give the market time to make its next move, but this anemic wedge higher is a concern.

This resilience in the face of materially bearish headlines shows owners are reluctant to sell regardless of the economic and geopolitical news. The resulting tight supply has been propping us up. While this conviction is providing stability in an uncertain world, we need broader buying to keep pushing us to the next level. Short covering and technical breakout buying got us this far, but now we need a larger pool of buyers to step up. If few are willing to buy record highs, then it doesn’t matter how tight supply is.

My biggest concern is the swelling bullishness without much price appreciation. Stocktwits’ SPY stream has gone from 40% bullish in January to 62% bullish tonight. In recent months 60% has been the magical sell signal and is why it feels like this rebound is stalling due to a lack of new buying. When everyone believes in something and is fully invested, there is no one left to keep bidding up the price.

Depending on a person’s timeframe, they could hold through the dip to support that purges this excessive bullishness. But anyone with new money should hold off buying and wait for better prices in coming weeks.

Jani

 Posted by at 10:09 pm on February 25, 2015
Feb 232015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks traded in a tight, five-point range Monday, consolidating Friday’s breakout to new highs. While we spent all of the day in the red, such minor losses are constructive because it shows few owners are taking profits or selling defensively.

Bullish sentiment is ramping up and at the highest levels since December’s top. While rising sentiment gives us pause, 56% bullishness could easily give way to 65% or 70% in coming days. It is important to watch sentiment, but it is only a secondary indicator.

Price is the main driver of trading strategy and so far the price-action is strong. The most impressive thing is how well the market is weathering the storm of bearish headlines. On-again, off-again negotiations between Greece and Europe couldn’t dent this rebound. Neither could a failed truce in Ukraine. And it’s been a while since we had economic numbers exceeded expectations. All of these headlines should have sent us into a 200-point tail-spin, but when the market doesn’t do what it is supposed to, that is a very clear signal it wants to go the other direction. If we don’t selling off on negative headlines, what is going to happen when we finally get some good news?

Source: Stocktwits 2/23/2015

Source: Stocktwits 2/23/2015

While I remain cautious of this market because of the rising bullishness, this strength cannot be ignored. Right or wrong, stock owners are not interested in selling. Without sellers, supply stays tight and prices continue creeping higher. Until we find something that finally cracks bulls’ resolve, the only direction to trade this market is higher.

Jani

 Posted by at 9:52 pm on February 23, 2015
Feb 192015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks were unable to break through 2,100 for a fourth day. Should we be worried?

There are two ways to interpret this price-action. If demand dries up above 2,100, that tells us this rebound is running out of steam. The more bullish interpretation is we are consolidating recent gains before making the next leg higher.

How do we know which scenario applies here? Technicians claim all we need is price, but price alone doesn’t give us the answer. We need to dig deeper into the market’s psyche to figure out what traders are thinking and how they are positioned.

We would be stalling if the market was unable to break 2,100 with bullish headlines blowing at our back. When things are as upbeat as they can get, yet the market fails to make further progress, that tells us we ran out of buyers. With headlines screaming Greece, Ukraine, rate hikes, falling oil prices, and slowing global growth, it is a big stretch to claim this rally has a tailwind.

It is far easier to make the argument we are stubbornly holding up in the face of a tidal wave of bad news. Bears are dumbfounded by how “stupid” this market is for not breaking down when there are so many obvious reasons we should be plunging. But here’s the thing, these bearish headlines have been around for weeks. Anyone who fears these stories sold weeks ago to buyers willing to own these risks. Once everyone who is afraid of an event leaves the market, then it can no longer hurt us because there is no one left to sell it. And that is exactly what happened. Greek and European negotiations blew up in a spectacular fashion Monday, yet Tuesday we set record highs. Strength in the face of bad news tells us this market still wants to go higher. Short this market at your peril.

Jani

 Posted by at 8:48 pm on February 19, 2015
Feb 112015
 

End of Day Update:

Stocks ended flat as all eyes were turned toward a meeting between Greece and European finance ministers. While progress was made, they failed to reach an agreement and pushed the final deal making to Monday’s meeting.

Clearly the market should be paying attention, but is it something we need to worry about? It seems every bearish amateur investor with a Twitter account is proclaiming the #Grexit will annihilate our market. They confidently believe they have some cunning insight that everyone else is too stupid to recognize. But do they really?

In the summer of 2008, very few professionals knew what MBS and CDS stood for, let alone the risks they posed to our financial system. Only in the aftermath of the collapse did people finally realize what happened. Now compare that blindside to the Grexit that retail investors have been discussing in coffee shops for nearly five years. Everyone in the market is fixated on each twist and turn in the Greek story, meaning if this thing blows up, it won’t catch anyone by surprise. Some predict this is just another false alarm, but even the optimist is well aware of the risks because this story is moving so slowly it is nearly old enough to enter kindergarten. With so much time to prepare, major institutions long ago hedged their exposure and a Greek default will be as traumatic to our financial system as Y2K was.

And there is another thing, markets tend to blow negative news out of proportion. The herd gets spooked and traders stampede for the exits. But we haven’t seen the fear of the unknown and the herd selling yet. What gives?

While every bearish amateur is waiting for the other shoe to drop, what if it already dropped, only no one heard it? If everyone knows about something and has plenty of time to prepare, doesn’t that mean it is already priced in? Hasn’t everyone who fears the #Grexit had plenty of time to sell? If all these people sold ahead of time, then who is left to sell when it happens? Contrary to popular perception, the market doesn’t need to crash for bearish news to be priced in.

There are a lot of things for us to worry about, but the Grexit is not one of them. The market is not reacting to these headlines, not because it is stupid, but because it is more savvy than the amateur investors predicting its demise.

Jani

If you enjoyed this post, retweets are always appreciated!

 Posted by at 10:37 pm on February 11, 2015
Feb 102015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 rebounded from recent weakness and ended at the highest close of the year. Declining oil prices were no longer an excuse for traders to sell stocks as oil gave up a portion of recent gains.

The headline justification for today’s rally was a softening of the standoff between Greek leadership and the ECB. Greece’s new leaders are discovering there is a difference between making campaign promises and being held accountable for the unintended consequences of those decisions.

While the Greek situation could continue to unravel, anyone who fears a Grexit already sold. Those that are left demonstrated they are mostly indifferent to the whole situation and are just as likely to ignore the next round of headlines out of Europe.

When the market is sitting 1% from all-time highs in spite of the fearful headlines, it shows it doesn’t care about these concerns because they are already priced in. Market strength in the face of fear mongering is a buying opportunity. That doesn’t mean the rally is invincible, only that bears will need to come up with something new and unexpected if they want to break the market.

Technically the market is acting well. We found support near 2,050 and the 50dma, setting the stage for today’s upside move to 2,070. The pain trade is betting against the bears since further upside will force them to cover their shorts.

While I expect higher prices in the near-term, I remain cautious further out. The last few years have been an easy, elevator ride higher, but a recent increase in realized volatility shows the market’s personality is shifting. At this point I’m far more likely to sell a breakout to all-time highs than buy it. But I reserve the right to change my mind as new information comes to light.

Jani

If you enjoyed this post, retweets are always appreciated!

 Posted by at 9:55 pm on February 10, 2015