Jani

Jan 292015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced back, reclaiming a big chunk of Wednesday’s losses. Volatility remains insane as today’s 35-point intraday surge nearly matches yesterday’s 40-points intraday slide.

While today’s third bounce off of 1,990 revives bull’s confidence, it is hard to feel good about a market that whips around 2% a day. Boring markets are healthy and bullish, but this market is anything but boring.

We are only three-percent from all-time highs, but this volatility shows uneasiness creeping in. The Wall Street Journal reports intraday price ranges have swelled 50% this year as compared to 2014’s more sedate trade. Yet the VIX remains under its 10-year average of 20, showing lower than typical levels of fear. And not only is the market near all-time highs, we are also trading at premium forward earnings multiples versus historic averages, 17 vs 14.6.

Source: WSJ.com

Source: WSJ.com

Record stock prices, increasing realized volatility, low implied volatility, and stretched multiples; makes you wonder if smart money is buying or selling here. Okay, I admit that was a rhetorical question because the answer is obvious.

Stay safe.

Jani

 Posted by at 10:54 pm on January 29, 2015
Jan 282015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks took bullish, blowout earnings from AAPL and turned them into a gut wrenching selloff. When the market crumbles on good news, you know we are in trouble. Some blame the weakness on the Fed’s midday policy statement claiming the economy is expanding at a “solid pace” and job gains are strong. Funny the world we live in when great news triggers a 40-point intraday selloff.

But this shouldn’t surprise regular readers of this blog. For a while we’ve noted the weak demand every time this market tried to rebound. The elevated volatility is also a grave concern because it tells us the market’s personality is changing. That doesn’t mean we are headed for a 2008 style collapse, but we shouldn’t automatically expect every dip to be a buying opportunity. We knew this pattern couldn’t last forever and this time the weakness feels different.

Today’s selloff closed above key psychological support at 2,000, but the market closed before the late-day sell off could take us any lower so I’m not sure that qualifies as holding support. There is a lot of pressure on bulls to get this turned around Thursday. If we break under 2,000 support, December lows and the 200dma are the next stop as formerly confident and complacent bulls turn into scared sellers.

While I remain skeptical of this market, I will have to reevaluate my outlook if the market bounces and breaks through overhead resistance at 2,060.

No doubt Thursday will be an interesting and insightful day.

Jani

 Posted by at 9:40 pm on January 28, 2015
Jan 272015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks stumbled on a combination of disappointing economic news and weak blue chip earnings. We crashed through technical support at the open, recovering some of those losses by the close, but not enough to push the market back above support.

It is a strange world we live in when markets rally on seemingly devastating news for Euro stability, but then a hodgepodge of obscure economic indicators and company earnings take the market’s legs out. Volatility has become par for the course and nothing should surprise us anymore.

The thing that troubles me is we have seen very little volatility in the market’s steady ascent from the 2011 lows. For a long stretch, we could count all the 1% moves on our fingers. But more recently, a 1% move is benign and more often we are surging and crashing from day-to-day. It really feels like the market’s personality is changing. If that’s the case, it means we are going from steady up trend to something else. Maybe that’s choppy sideways trade. Maybe it’s the long-awaited correction. Or maybe we explode higher in one last surge before collapsing. Only a few percent from all-time highs, it is hard to conclude which of these outcomes is happening, all we can say for sure is this feels different.

Index futures are up after Apple’s blowout earnings, but the market decoupled from Apple a few years ago and the two often trade independently. A big move for Apple doesn’t automatically raise all boats in the S&P500. Outside of a brief pop at the open, the Apple story will become a single stock event and the rest of the market will quickly return to whatever else has been driving it recently.

Technically, if the market cannot reclaim 2,050 by Wednesday’s close, that shows we are running out of buyers and should prepare for a test of the 200dma. This the time for bulls to show they are still in control. If they cannot, lookout below.

Jani

 Posted by at 9:26 pm on January 27, 2015
Jan 262015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced back from opening weakness following the Greek elections. While this result significantly increases the chances for a “Grexit”, we’ve been down this road before. Last time selling Greek uncertainty was a mistake and it appears traders don’t want to be fooled a second time. Headlines that triggered a wave of selling a few years ago, barely budged the needle today.

Two mitigating factors are the election’s result was widely expected and most institutions have hedged their exposure to Greek default. So it’s not a surprise the market’s reaction was so muted. Of course the thing to be aware of is the lack of a selloff leaves us vulnerable if the situation devolves and is worse than expected.

But just because we don’t have to worry about Greece doesn’t mean we have nothing to worry about. The market is up nearly 100% from the 2011 lows and anyone betting on this market is fat, dumb, and happy. While the market can always continue higher, it is getting harder and harder to find cynics to convert into believers. Markets top when everything looks the best because that is when everyone has already bought all the stock they can.

Trading near record highs, it is hard to identify the next buying catalyst since there is so little fear. While we could see a temporary surge if we break through recent resistance at 2,060, that momentum will likely only carry us to previous highs near 2,100. After that it is hard to figure out what is going to get those that haven’t bought yet to start. If we run out of demand, that leaves us with two outcomes, an extended trading range, or the larger selloff everyone’s been predicting since 2011.

If we hold 2,050 through Wednesday, then we will test the old highs. Fail and prepare for a swift ride to the 200dma.

Jani

 Posted by at 8:19 pm on January 26, 2015
Jan 152015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks slipped for a fifth consecutive day as overseas concerns dominated financial headlines. After three years of currency manipulation, Switzerland gave up and let the franc float. It exploded higher, catching many traders and institutions off guard.

While this move won’t have much of an impact on US earnings, it affects the financial system. Traders who have margin calls in one asset class, raise capital by selling other assets, often those showing the biggest gains. That means we could see some liquidation pressure on US equities. But bigger than just margin calls, this also affects sentiment.

We went from all-time highs a few weeks ago, to obsessing over the half-empty side of the glass. Since every dip has been a buying opportunity, many owners are complacent and not worried about headline noise. The market bounced before and they assume it will bounce again. That’s why we haven’t seen huge waves of selling yet. It also means there are a lot of potential sellers still hiding in the market.

Currently overnight futures are down nearly a percent. If this weakness holds to the open, that puts us near December’s lows. Break that and previously confident owners will start getting nervous. Not far below is the 200dma. Undercutting both of these key levels would trigger a large wave of selling and finally form a capitulation bottom. And that is the bullish scenario. Things get ugly if we crash through 1,950 without finding a bottom. That’s when panic selling takes over and we retest October’s lows.

Jani

 Posted by at 10:01 pm on January 15, 2015