Jani

Sep 152014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

A tale of two markets; while the S&P500 ended flat, the NASDAQ and small-cap indexes cratered 1%. The divergence shows investors were pulling away from speculative technology and small-caps and moving that money into boring blue-chips. Similar to the phenomena we saw back in April. While one day doesn’t make a trend, it would be foolish not to take note.

Tuesday is the start of the Fed’s meeting and is a popular event for the market to speculate on, but while Fed meetings, notes, and press conferences generate lots of buzz in the financial press, they haven’t done much to change the mood of the market. Last year everyone dreaded the very mention of Taper, yet here we are, practically done with Taper and yet holding near record highs. So much for conventional wisdom. Outside of raising short-term interest rates to 5%, I doubt the Fed meeting will have a lasting impact on the market. Of course we should expect near-term volatility as traders impulsive react to a stray word or two.

The market is at an important turning point. What happens next could determine how we trade the rest of the year. While we are holding near record highs, we are seeing a slight roll off from the top. Quite bullishly, we haven’t seen recent dips under prior lows trigger waves of technical selling. This shows most of the people who fear weakness already sold this consolidation. Those that remain are demonstrating they don’t mind a dip here or there. As long as they remain confident and complacent, supply stay tight. But at the same time, we are rolling off in what could be a double-top or head-and-shoulders. One move, two legitimate interpretations. If this were easy, everyone would be rich.

We are a few points above the 50dma. Bulls need us to bounce over the next few points. Fail to hold the 50dma and it could be a very rough few weeks for the market as previously confident owners turn into nervous sellers. Trade accordingly.

Jani

 Posted by at 10:15 pm on September 15, 2014
Sep 112014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update: 

As with most things in life, it isn’t how you start, but how you finish. Again the market opened weak, but found a bottom in early trade and proceeded to climb into the green by the end of the day.

There is a laundry list of reasons why we should selloff; geopolitical tensions, weak domestic growth, stalled European growth, Taper, this bull is five years old, etc. But if there are so many reasons to selloff, why do we keep trading near record highs?

The quick and dirty reason is those that don’t trust this market sold long ago and no longer have a vote in what comes next. Markets move when traders change their outlook and either buy or sell stock. Those that don’t trust this market continue staying out and those that believe in it keep holding. As long as those that own continue believing every dip will bounce, they will hold any weakness and the market quickly bounces on the resulting tight supply. Those that criticize this market from the outside gave up their right vote, so the people we need to pay attention to are stock owners. As long as they remain confident and complacent, the market will stay strong due to a lack of supply.

Today’s failed selloff shows there is no bite to the bearish thesis. Markets stretched to overbought levels will snapback within days. We’ve been hanging around 2k for nearly three weeks and had multiple invitations to selloff. This resilience demonstrates the market is not over-extended….yet. The smart play is sticking with the rally in the near-term. After 2,010, what happens is anyone’s guess. If we explode past 2,010 unsustainably, then that could finally be the top bears have been waiting for. But if the market rallies smartly and deliberately, look for this to set the mood for the remainder of the year.

Jani

 Posted by at 9:49 pm on September 11, 2014
Sep 102014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks slipped under Tuesday’s lows in early trade, but bounced off of 1,983 and never looked back. The noteworthy thing is we broke support, but no one sold. That tells us most of the people who wanted to sell have already sold. Owners that watched the early morning weakness, shrugged it off and we bounced on the resulting tight supply. This most likely means we are headed back to the upper end of the recent trading range near 2,010. While not a large move higher, it shows us the market is not poised to breakdown.

Jani

 

 

 

 Posted by at 9:57 pm on September 10, 2014
Sep 092014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Another tough day for the market, notching the fifth loss out of the last six trading sessions. Taken out of context, that sounds like a horrific stretch, but each loss has been so modest we are only down one-percent from all-time highs. Like everything in the market, there are two ways to interpret this. Bears will point to all the distribution, while bulls will claim how meaningless this distribution’s been. Which sides is right? That’s the million-dollar question.

Volume returned to nearly average levels since we came back from the holiday break. This shows institutional money is playing a larger role as we head into the busier fall-trading season. Even with the elevated trade, the market’s been successful at finding a buyer for every seller and we continue trading near the psychologically important 2k milestone.

While it is concerning buyers don’t want to chase prices higher, at the same time it shows owners are content and not taking profits. When owners don’t sell stock, supply remains tight, propping up prices. Markets typically retreat from unsustainable levels fairly quickly, so spending nearly two-weeks around the 2k level shows broad support from buyers at these prices. But what we don’t know is how deep this well of support is. Will we continue to find an ample supply of buyers ready to buy today’s 13-point dip? We will know the answer on Wednesday.

While Tuesday’s trade pushed us under recent support at 1,990, it didn’t trigger a larger wave of selling and we quickly bounced off of 1,985. The big test for Wednesday’s trade will show if this was yet another head-fake whipsaw around 2k, or the start of the next directional trade. If breaking support fails to trigger a larger selloff on Wednesday, look for the market to bounce back to new highs in coming days. On the other hand, continued selling shows we are running out of buyers and it will only be time before the weakness converts previously confident owners into nervous sellers.

Jani

 Posted by at 9:56 pm on September 9, 2014
Sep 042014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Today was one of those days that make you stand up and take notice. The ECB surprised everyone with their unexpected rate cut, but rather than rally on all the free money, US stocks sold off from early gains. When markets selloff on good news, watch out!

There are always two ways of looking at things. Until this point, quantitative easing was seen as a good thing and our markets are up huge since the US Fed started the program a couple of years ago. But there are two sides to every story and it seems the market is taking the contrarian view with the ECB rate cuts. Rather than embrace the easy money, the market became concerned this unexpectedly aggressive action is required to keep Europe from falling apart. The means market is starting to reconsider how little risk premium it is currently carrying at these record levels.

Markets frequently overdo things on both the upside and downside. This rally defied all the naysayers over the last two years, but every good thing must come to an end. Are we there yet? If the market continues to struggle  in the face of normally good news, that is a strong warning to us.

Friday morning we have US non-farm payroll.  I expect a respectable number and a modest bounce in equities, but if the market fails to gain traction and recover Thursday’s weakness, we could see more selling in the near-term. The best trade over the last two years has been buying every dip, but failing to hold the 50dma so soon after reclaiming it shows many investors are no longer throwing money at this market and we could be in the early stages of a larger correction. Continued weakness on Friday gives us an interesting shorting opportunity, but brushing off Thursday’s weakness and closing strong shows the market is ready to continue higher.

Jani

 Posted by at 10:18 pm on September 4, 2014