Jani

Nov 192014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Volatility crept back into the market as early trade gave back all of Tuesday’s gains. It was a gut-check for bulls when prices slid nearly non-stop through the first two hours. But just like it was supposed to, prior resistance at 2,040 turned into support and we bounced right off of 2,040. While we still finished in the red, the midday rebound was clearly bullish.

With fresh memories of October’s demoralizing plunge, traders still have a hard time warming up to this relentless assault on record highs. The lack of enthusiasm is clearly evident through the low volume rally. Everyone automatically assumes the market has to be wildly bullish as it sets new high after new high, but burned traders remain far more skeptical than they were earlier in the summer. This doubt and worry is the fuel that keeps pushing the market higher.

Big money was patting themselves on the back when they took profits this summer, but countless all-time highs later, these same managers are under intense pressure to buy back in at higher levels, else they risk being left even further behind. It is this pressure to chase that keeps a bid under the rally and why every ten-point dip keeps getting bought. Owners that don’t want to sell and managers that need to buy is a recipe for higher prices.

Jani

 Posted by at 10:24 pm on November 19, 2014
Nov 182014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Stocks smashed through 2,040 resistance and closed above 2,050, setting yet another record high. Volume was more brisk than in recent days as these gains triggered a wave of technical breakout buying and short-covering.

Too often people mistakenly think contrarian investing means going against the trend. They see something they think has gone too-far, too-fast and are convinced the underlying data doesn’t support the move. They see themselves as a savvy contrarian investor when they bet against the move. But all too often this ends up being a costly mistake.

Contrarian trading has nothing to do with the trend or technicals. It is only about the crowd and its mood. It doesn’t matter what the underlying price action is. Sometimes it is contrarian to go against the trend, but more often than not it means betting on the trend no one believes in.

October’s plunge left traders with a cynical hangover. Even at record highs, they continue talking down this market and are certain we are on the verge of crashing lower. Many of these traders bailed out during October’s selloff and were left behind by the subsequent rebound. They are desperately hoping for the breakdown so they don’t feel so foolish for selling last month.

Unfortunately for these cynics, with so many people bashing the market, the contrarian trade is buying the breakout. AAII’s Asset Allocation Survey showed equity allocations are at 14-month lows. Stocktwit’s SPY sentiment gauge is 54% bearish, a full 16% more bearish than when the market peaked in September. All of these doubters will turn into reluctant buyers as the fear of a selloff is replaced by a fear of being left behind. Expect the market’s strength to continue pressuring underweight money managers to chase the rally higher into year-end.

Jani

 Posted by at 9:19 pm on November 18, 2014
Nov 172014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Stocks shrugged off early weakness and finished a smidge higher, but that is all it took to mark another record close. Overnight we learned Japan unexpectedly slipped into a recession. While that sent their stocks crashing 3%, our market barely noticed, down just a fraction at the open.

The S&P500 has been unable to move past 2,040 resistance. Many traders feel this is stalling and foretells of an imminent collapse. Even though the market keeps making record highs, the Stocktwit’s SPY sentiment gauge keeps making new lows. That shows a material divergence between price and trader’s expectations.

While traders are growing suspicious of this market, it is dangerous to argue with a market that holds strong in the face of bearish news. The headlines out of Japan were more than enough to send a vulnerable market into a tailspin. Fears over global growth triggered October’s 10% selloff. But this time it barely registered as the market clearly shifted from a half-empty outlook on the global economy to one that is half-full.

Source: Stocktwits 11/17/2014

Source: Stocktwits 11/17/2014

The talking heads have a million reasons why the market is acting this way, but it really comes down to simply supply and demand. October’s selloff shook free most of the available supply. Now when the market runs into bearish economic headlines, there is no one left to sell the news and the market proves amazingly resilient. When no one sells, supply becomes tight, and prices go up. People can invent all the justifications they want, but this market’s strength comes from tight supply.

Increasing cynicism bodes well for continued gains. Even though we are at record highs, traders are selling and shorting this consolidation. Unfortunately for them, they will be the next round of buyers forced to chase the breakout above 2,050. Markets fall from unsustainable levels quickly. Holding near 2,040 for nearly over a week shows these new highs are not unsustainable. Owners can continue holding and shorts need to be very careful.

Jani

 Posted by at 10:33 pm on November 17, 2014
Nov 132014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Today’s low-volume gyrations confused traders by sending off multiple false signals. The morning’s breakout convinced us this would be yet another routine, record close. Then the intraday plunge pushed us down to levels we haven’t seen in a week. Early highs fading into a weak close is never a good sign. But afternoon buyers swooped in and bought the 10-point “dip”, pushing us back to break-even. What could have been a very insightful day, instead turned into a whole lot of nothing.

The last few days saw a decent amount of churn with buyers and sellers equally represented near 2,040. Trading sideways typically leads to a continuation because markets retreat from unsustainable levels quickly. Every move to new highs is met with suspicion. Many take profits or short the breakout. These traders make their moves in the first couple of days following a breakout, but if the market can withstand this early wave of selling, then it will resume uptrend once the supply from the doubters dries up. Already four days into this 2,040 consolidation, we can confidently assume the wave of profit-taking and shorting is already behind us. With another supportive day on Friday, 2,050 is all but assured.

But everyone knows markets move in waves, so don’t let a pullback to support catch us by surprise. Maybe the rally fails Friday. Maybe we smash through 2,050 before slowing down. Only time will tell. On the other side, maybe we bounce off of 2,020. Maybe it is 2,000 or 1,980. As long as we see it coming and plan accordingly, we can respond intelligently, deliberately, and most importantly, profitably.

Jani

 Posted by at 7:13 pm on November 13, 2014
Nov 102014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Stocks finished with another record close. This puts last month’s emotional selloff even further behind us. While prices have rebounded decisively, many traders remain numb from the bitterly painful plunge to 1,820. If anyone is not totally dumbfounded by this market, then clearly they are not paying attention. We went from record highs in September, to a world-is-ending selloff in October, and are right back to making fresh highs in November. This was one of the most abrupt moves in recent history and it did an amazing job of humiliating nearly everyone trying to trade it.

October’s sell off triggered the highest volume we’ve seen all year, but the subsequent rebound has been much more sedate. While many prognosticators claim the low-volume rebound shows lack of conviction, they are misinterpreting this as a bearish phenomena. While the lack of conviction is real, the contrarian investor sees this as a bullish development. It shows a huge number of recent sellers missed this rebound. With every new high, the market is leaving them further and further behind. And the pressure is building for them to jump back in. These regretful sellers are the source of the low-volume buying that will propel us higher into year-end.

While the market is setting up nicely for a chase higher, we need to be mindful of support. A dip back under 2,000 or the 50dma so soon after reclaiming them shows larger problems are lurking under the surface. It is okay to own the market here, and sideways trade that dips back to 2,000 is normal and healthy, but failing to hold support would be a major concern. Trade accordingly.

Jani

 Posted by at 9:35 pm on November 10, 2014