Jani

Aug 282014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

Stocks cratered when Ukrainian officials announced Russian forces invaded their country. Actually cratered might be a too strong of a word to describe the early 9-point selloff. How about we say stocks yawned 9-points following reports of a Russian invasion.

Here’s the headline bears have waited for and they are dumbfounded by the market’s lack of a reaction. How could such bearish news result in this small of a dip? Easy, everyone who feared the Russian escalation sold a couple of weeks ago during the dip to 1,900.  With all those worrywarts long gone, that means anyone still holding stocks isn’t afraid of the Ukrainian crisis since they already demonstrated a willingness to own stocks through the previous dip.  While the media can hype up the story all they want, if owners don’t care to sell the fear, stocks will hold firm in spite of the noise. The time to sell the Ukrainian crisis was when it first developed. Now that it’s old news, the market doesn’t care. If bears are looking for something to takedown the market, they need fresh and unexpected headlines.

Volume continues to be pathetic leading up to the three-day weekend. Labor Day is the traditional transition from summer trade to the more serious fall session, ultimately leading to year-end positioning. Big money managers that spent the summer at the beach house are returning to work and the decisions they make will determine how we close the year.  Will they feel compelled to chase the market and continue bidding prices up to record highs? Are they content with their portfolio and will coast into year-end?  Or do they see valuations getting a little too rich and start locking-in profits? While we don’t have the answer to these questions now, at least we know what to look for in coming weeks as September trade sets the tone for the fourth quarter.

Stocks continue trading near 2k and show both a lack of breakout buying and profit taking.  But pausing more often leads to a continuation than a reversal, so we should expect the next move to be higher. But if this is the start of the next leg higher, or one last short-squeeze before reversing lower has yet to be seen.  By mid-September we should have a better view on what big money is thinking and how they are positioning for the rest of the year.

Jani

 Posted by at 9:20 pm on August 28, 2014
Aug 272014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

A lot of nothing as the market barely moved intraday, ultimately finishing flat on unusually low volume.  But sometimes no news is good news.  This is the third day we held the 2k level.  This is significant because markets typically stumble from unsustainable levels fairly quickly.  Holding here for another couple days shows we haven’t stretched the rubber band too far yet.  This isn’t a justification to buy record highs with reckless abandon, but simply suggests the next few points will likely be higher.  And even bears can get behind a few point rally because double-tops and head-and-shoulder patterns by definition exceed the previous high before breaking lower.

As for what traders are thinking, those that own are comfortable owning and those that are afraid of the risks continue staying away.  When no one changes their mind, we don’t have waves of buying or selling that drive market moves and is why the we are pausing at 2k.

It is noteworthy this technical milestone didn’t set off a wave of breakout buying or short covering.  That shows many traders anticipated this move and took their positions ahead of time.  It also indicates few owners think we’ve come too far and are taking profits by selling into the strength.  The one concern I have is how many people assume our next stop is 2,100.  If the average trader thinks we are headed to 2,100, that means they already bought in.  But if they already bought in, that means there are fewer left to continue buying the market and pushing us higher.

While the final few weeks of low-volume summer trade is interesting to watch, nothing really matters until big institutions start maneuvering their portfolios for year-end following the Labor Day holiday.  The million dollar question is if big money wants to continue accumulating stock because they still see bargains, or if they are more inclined to lock-in gains because everything appears fully valued.  It seems highly unlikely the market will finish the year at 2k and either we continue marching higher, or we crash through the August lows.  At this point I’m fairly agnostic and will simply wait for the market to tell me which way it wants to go and seeing how we trade through the first few weeks of September will go a long way to telling us how the market wants to finish the year.

Jani

 Posted by at 10:42 pm on August 27, 2014
Aug 252014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Break out the party hats, the S&P cracked 2k for the first time.  The market came a long way from the 666 doldrums in 2009 and with the benefit of hindsight, all the predictions of doom and gloom were grossly exaggerated.  Maybe the Fed’s intervention saved us, or maybe it was the resilience of the human spirit.  Either way it shows it is better to bet on the market than against it.  Further, I have no doubt this secular bull is not even halfway done, but that is the long-term view, as traders we are more interested in what comes next.

While the market is clearly higher than it was a couple of weeks ago when it sank to 1,905, bears desperately cling to a few glimmers of hope even as we make record highs.  Today’ volume was pathetically low.  The only day in recent history undercutting today’s low was July 3rd’s half-day.  We were also unable to close above 2k when breakout buyers failed to flood the market following this momentous occasion.  Summer’s traditionally low-volume often leads to more erratic moves since it gives a larger voice to smaller players.  The real question is what will happen when big money returns after Labor day.

With the VIX back in the 11′s, whatever fear sprouted from the Ukrainian and Iraqi crises has clearly vanished.  While the 90-point plunge did a good job purging weak holders, it seems like we returned to nearly the same level of complacency.  While complacent owners are often bullish because their reluctance to sell keeps supply tight, we have to wonder how many prospective buyers have not already bought into the invincible rally.  While markets can top in a dramatic inverted V pattern, more often they end with a double-top or head-and-shoulders.  Very few people see a top coming and either fail to lock-in profits when times are good, or they assume every dip is buyable.  The recent rebound further reinforces the widely held view that every dip is buyable, but by the time everyone knows something, it soon stops working.

While I don’t have a crystal ball, it seems the market is at a critical juncture and either we end the year dramatically higher or dramatically lower .  Will buyers continue to chase prices to record highs?  Or will smart money start locking-in profits in coming weeks ahead of the inevitable pullback?  It won’t be long before we have our answer.  If the market continues marching higher, join the bandwagon, but another dramatic sell off in the near-term will be a big warning sign to anyone who is paying attention.

Two-years ago the market was afraid of its own shadow and traders would scramble for the exits every other week.  Now it seems civil wars and sanctions against some of the world’s largest oil producers hardly raises an eye.  My how far sentiment has swung in a couple of years.  While everyone knows the market will pullback at some point, the hard part is figuring out exactly when it will happen.  Is it next week, next month, or next year?  I think the next few weeks will go a long way to telling us how the year will end.

Jani

 Posted by at 9:38 pm on August 25, 2014
Aug 132014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Buyers jumped back in following yesterday’s minor dip.  Volume was modestly higher, but still well under average as the trend of apathetic trade, or more accurately a lack of it, continues.  Owners are comfortable owning and few are selling the strength.  Those that don’t believe in this bounce already sold it, with the more bold going short.  And most with cash are reluctant to bid up prices in anticipation of future gains.  Those factors conspired to leave us slightly above the recent 1,910/1,940 consolidation.  While today was technically a breakout, the lack of follow-on buying was uninspiring.  Of course the more widely followed and significant level is 1,950.  That has history going back to early June and will likely generate far more trading activity than a minor break of 1,940.

Tuesday evening I said Wednesday would be a big day because either we breakout to the upside, or slip back into the consolidation.  And wouldn’t you know it, the market made a liar out of me by doing neither and instead creeped higher, but fell shy of a 1,950 breakout.  Being so close to a major technical level is too tempting for market makers and bots to not push us through, triggering all the automatic breakout buying and short-covering that would follow.  But what happens after that is what we are most interested in.  Do we find support and continue higher, or is this the last gasp of the rebound before retreating back into the consolidation?

If I am right/wrong:
At this point the market could go either way.  We are nearly exactly in the middle of the 1,910/1.990 trading range that began in mid-May.  At the halfway point it is hard to claim we are overbought or oversold.  Without an edge one way or the other, the best trade is to wait for a better trade.  If forced to choose, at this point I would stick with the up-trend simply because that is where the momentum is.

Trading Plan:
Holding above 1,950 and ignoring fearful headlines is bullish.  Stalling and retreating back into the trading range is not necessarily bearish, but at best it means the rally needs more time before continuing.  Looking ahead, most likely the real trading opportunities will come after Labor Day and everything before then is just noise.

Jani

 Posted by at 10:15 pm on August 13, 2014
Aug 122014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

And on the third day the market rested, giving up a fraction of a percent following a two-day, 30-point rebound.  Volume continues falling off a cliff as every day over the last five finished with less volume than the day before.  Some claim low volume is bearish, others say it is bullish.  But what we know for sure is traders are growing comfortable with their positions and simply waiting for the market to make its next move.

Wednesday is an important day.  Either we breakout and reclaim 1,950 support, or the rebound stalls and we fall back into the consolidation.  Obviously a breakout is bullish, but slipping back into the trading range is not necessarily bearish.  It could mean the market needs more time before resuming the up-trend.  But the risk is the longer we stay inside the trading range, the more vulnerable we are to slipping under 1,900 support and triggering all the technical stop-losses littered under this widely followed level.  That could kick off another round of emotion selling.  But rather than fear this, we should embrace it because it will likely form a capitulation bottom and set the stage for a sharp, and profitable, rebound.

The one warning I have bulls is rebounds from oversold conditions snap-back with ferocious force.  Trading between 1,910 and 1,940 for nearly two weeks shows the market is clearly not stretched to unsustainable levels.  Either that means we have more selling left before finally reaching extreme levels, or the market is content hanging out here and we should expect a more protracted consolidation.

If I am right:
Most of the time markets trade to extremes, meaning there is a good chance we will slip even further before this pullback is done.  Often corrections find support halfway through the move as dip-buyers rush in and prop up the market.  But if we cannot find a more diverse pool of interested buyers, demand dries up and we stumble into another leg lower.  Failing to escape from this consolidation in coming days leaves us at greater risk of one last leg lower.

If I am wrong:
It’s been a fearful couple weeks and we’ve seen quite a bit of turnover as ominous headlines scared out the weak and replaced them with confident traders willing to buy the dip.  Retaking and holding 1,950 support will show the worst is behind us, at least in the near-term.

Trading Plan:
At this point the market could go either way and we don’t have an edge in coin-flip style trades.  Bulls can stay long, bears can stay short, and those out can stay out.  But soon I expect we will get more clarity from the market as it reveals what it is thinking.  From there we can find a trade with better odds.

Jani

 Posted by at 9:19 pm on August 12, 2014