Mar 192015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks gave back some of the Fed pop Thursday, but remain well above prior resistance at 2,080. We cannot read too much into today’s pullback because it is healthy to give back a little of Wednesday’s huge move. The encouraging thing is the market traded sideways near 2,090 for most of the day and only showed modest profit taking. Holding this level through Friday’s quad-witching means owners and buyers believe in this market and we will likely retest all-time highs near 2,02. But if we cannot maintain these gains, watch out below because that tells us this pop exhausted all available demand.

Jani

 Posted by at 9:23 pm on March 19, 2015
Mar 122015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced impressively and retook the 50dma. The one dig against today’s move is it happened on lower than average volume. But regardless, this is the biggest up-day in weeks and nervous bulls are breathing a sigh of relief.

It seems we are back in bizarro land since this sharp rebound was kicked off by abysmal retail sales. Traders addicted to easy money cheered the prospect of a weak economy and delayed rate hikes. Funny the world we live in where blowout employment tanks the market and pathetic economic news launches us higher.

Yesterday I said we should be wary of a rebound without a high volume capitulation bottom. And that is exactly what we got today. While the market can change the rules on us at any time, every dip over the last year bottomed on the highest volume of the move down. But Tuesday’s plunge was on lower volume than Friday’s leg down. That tells us more owners chose to hold the dip than sell it and we are missing the traditional purge that is a common trait of typical “V” bottoms.

This means 1) the market changed the rules on us, 2) this is a bull trap and it will fail soon, or 3) this is the first bounce in an extended sideways basing pattern. One possibility that the worst is behind us and two that we will retest Tuesday’s lows. While not scientific, 2 to 1 against this rebound sticking says we should be careful. But price is truth and we need to watch how it behaves in coming days. A bull trap can last two or three days before crumbling. But if the market is holding strong by early next week, then this is the real deal. Anything less and look out below.

Jani

 Posted by at 9:54 pm on March 12, 2015
Mar 112015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Wednesday was little more than a placeholder. We traded inside a 10-point range on less than average volume. The unfortunate thing for bulls is we saw similar price-action Monday, hours before Tuesday’s 1.4% plunge.

The only positive thing out of Wednesday is the loss was limited to 0.2%. Few buyers are attracted to these discounts, meaning we need to fall further before value investors and swing traders start buying the dip. It was also a fairly painless decline, meaning we didn’t flush out the last of hopeful. Only two things will turn this around, buyers snapping up irresistible discounts or a soul crushing slide chases off the last of the sellers and we bounce on tight supply. So far neither condition is met, meaning this move is not done making new lows.

The headlines are obsessing over rising rates and the surging dollar. But do we really need to worry about these things?

We are fooling ourselves if we think the Fed controls interest rates. They stopped buying bonds nearly a year ago. When everyone expected rates to rise, they fell instead. If long-term rates wanted to go higher, they would have done so already. This means we can safely cross increasing interest rates off the list of things to worry about.

The other fear is a strong dollar. But why is the dollar surging? Obviously because we are the strongest investment grade economy in the world. Hard to argue with that, I mean really, Europe? China? Asia? South America? We’re it. And as long as we look better than everyone else, expect foreign investment to continue flooding our markets and propping up prices.

And now I’ve given you two pieces of contradictory information. Price-action that tells us that we are headed lower, but rational analysis of the fundamentals that say we have nothing to worry about. How do we settle this discrepancy? Easy. Time. Everything in the market is about timing. Expect the selloff to continue until we have an incredibly painful, high-volume capitulation. Then we buy the rebound before everyone realizes things are not as bad as the fear-mongering lead us to believe.

It would be nice to see high-volume plunge Thursday morning that reverses midday and finishes near flat. That is the all-clear for us to get back in on the long side. Be very wary of any bounce that comes before a capitulation bottom, since that is likely a bull trap before the capitulation bottom.

Jani

 Posted by at 9:12 pm on March 11, 2015
Mar 092015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced modestly following Friday’s bloodletting. We ended higher by 0.4% on less than average volume. The big headlines came from Apple’s product launch and the broad market followed AAPL’s lead higher, but it also peaked when investors were underwhelmed by the final version of the Apple Watch.

Today’s low-volume bounce was largely a placeholder for what comes next. We need to go back to last Friday’s price-action to get a feel for where the market stands. As we discussed last Thursday, the market needed a capitulation bottom before it could continue higher. Was Friday that day? We clearly smashed through 2,090 support in a very painful intraday selloff. It was also the first day in nearly a month with above average trading volume. While both of those traits are what we were looking for, was it enough?

Selloffs are rarely one day events and while the volume was elevated, it was well short of those that formed February’s capitulation bottom. Both of these factors suggest Monday’s bounce is not the all-clear bulls are hoping for. While sentiment came in quite a bit, one last plunge under the 50dma would do a far better job resetting sentiment and clearing the way for a move higher.

For this to be a “V” bottom, we need to rebound quickly and Tuesday is that day. If we don’t recover 2,090 tomorrow, expect this to correction to drag on a bit longer, either falling further, or at best trading sideways. There is no need to rush in and buy the dip. Let others gamble away their money trying to pick a bottom.

Jani

 Posted by at 9:56 pm on March 9, 2015
Mar 052015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks finished modestly higher, hugging 2,100 support for most of the day. The low-volume gain was good enough to snap a two-day selloff as traders sat on their hands ahead of Friday’s employment report.

While the financial media loves to hype up non-farm payrolls every month, it’s been years since the report materially affected the market beyond a couple of hours of volatility. Good numbers, bad numbers, and everything in between haven’t been enough to slow down our six-year old bull. And I don’t expect Friday will be any different. While pundits speculate about the risk of too much or too little, barring a black-swan catastrophe, employment will be ancient history by lunchtime.

I’ve been rooting for the breakout, but its inability to mount any kind of follow through is concerning. Trading inside a tight, 20-point range shows both bulls and bears are stubbornly sticking to their positions. That leaves the rest of us wondering which side has more staying power.

I gave the benefit of doubt to bulls because the market didn’t flinch in the face of bearish headlines from Greece, Ukraine, and China. It even rallied as the Fed’s rate hike chatter heated up. Markets that disregard bad news are the best ones to buy. But then we kept hitting a ceiling at 2,120. Demand completely dries up every time we approach this level and we slip back to 2,100 support. While confident owners who refuse to sell keep supply tight, we need fresh demand to keep pushing this higher.

It appears like February’s strong performance sucked in all the potential buyers and now there is no one left to extend this move. While this would be a lot easier if the market went up every day, we know periodic pullbacks are normal and healthy. We shouldn’t fear a dip to the 50-dma at 2,060.

Two red flags hinting at further weakness are the absence enthusiastic dip buying and lack of a painful capitulation bottom. The importance of enthusiastic dip buying is self-explanatory, but to find that bottom, we also need a brutal dip that flushes out the last of the hopeful. This is a relentless intraday selloff that punishes bulls by methodically marching lower until they cannot stomach the thought of watching another dollar evaporate. Only after the hopeful are flushed out and replaced with courageous dip buyers will we find the bottom.

While the market sold off in recent days and undercut support, most of this weakness happened at the open and prices rebounded into the close. That price action is fairly easy to hold through since the afternoon bounce reinvigorates the spirit of the hopeful. It doesn’t feel like we’ve had that completely demoralizing day where everyone gives up hope and decides to sell before it can get any worse. Buying the high-volume capitulation is a great way to capitalize on other trader’s emotions.

The market could bounce on Friday, but I need to see enthusiastic buying before I’ll be convinced. More likely this weakness continues until we refresh the bullish skew carried over from February’s strong performance.

Jani

 Posted by at 9:39 pm on March 5, 2015