Oct 222014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks snapped a powerful, three-day win streak, giving back nearly 25-points from the intraday high. Under normal circumstances this would qualify as a wild ride, but given recent volatility, this was a fairly benign pullback. And we shouldn’t be surprised to see the market run into some headwind as traders lock-in a 130-point bounce off recent lows.

1,950 has been a meaningful technical level going all the way back to June, and it was again today. We rallied up to this level early in the day, but couldn’t break through and that is when the liquidation began. There was no real headline driving either buying or the selling, meaning most traders are still reacting to last week’s emotional rollercoaster.

Right now we find ourselves stuck between the 200dma and the 50dma and will likely remain here for a bit longer. Today’s weakness will rekindle anxiety in those that regretfully held through the dip to 1,820, compelling them to sell proactively before they risk going through that pain again. That doubt and fear could easily push us back to the 200dma, but the real test comes next. Does the market panic and plunge through the 200dma on its way to undercutting the 1,820 lows. Or will calmer and more confident value investors shrug off the volatility and take advantage of emotional selling to buy their favorite companies at a discount?

While the bounce remains fragile, a dip to the 200dma and 1,900 is a normal and healthy part of building a sustainable rebound. The time to worry is if we fail to hold support so soon after reclaiming it.

Jani

 Posted by at 9:34 pm on October 22, 2014

Holding 2k

 Intraday Analysis  Comments Off
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
Jun 172014
 
S&P500 daily at 1:55 EDT

S&P500 daily at 1:55 EDT

Intraday Update

MARKET BEHAVIOR
Stocks are holding the recent breakout following a modest test of 1,925 support last week.  Volume remains light in the traditionally slow summer vacation months.

MARKET SENTIMENT
We are holding record highs in spite of negative headlines coming out of Iran and the potential for more political gridlock in DC.  With multiple days to digest these headlines, they are largely priced in and we shouldn’t expect further selling based on what we already know.  Markets crashes typically arrive with a sell first, ask questions later reaction to spooky headlines and the fact we held 1,925 support for a 4th day suggests this market is indifferent toward these concerning headlines.  Barring an unexpected deterioration in the situation, we should expect the uptrend to continue.

These headlines rattled nerves, but didn’t cause many people to hit the sell button.  Five-years into this bull market and nearly three-years since we’ve seen anything resemble market panic, investors have become very complacent.  While we all know this cannot last, in the near-term complacency is bullish because it means most owners are unwilling to sell no matter what is going on around them.  Their confidence keeps supply tight and makes this death-defying really possible.

TRADING OPPORTUNITIES
Expected Outcome: Higher in the near-term
Confounding the skeptics and finding support tells us there is little that will rattle this market.  While history reminds us this cannot last forever, in the near-term this “hold no matter what” attitude among stock owners keeps pushing us higher.  At this point it doesn’t seem like we will find a headline that sends owners running for the exits and instead this market will only top when we run out of optimistic buyers.

Alternate Outcome:
Markets rarely get things right the first time and this leads to over and undershooting.  Fears of Sequester and Fiscal Cliffs were clearly overblown.  This time we are largely ignoring civil war in Eastern Europe and the Middle East.  Under appreciating the risks involved in these situations leaves us vulnerable to a worse than expected outcome.  The higher we go, the harder we fall.

Trading Plan:
Anyone sitting on profits should have an exit plan.  Maybe that is proactive selling into strength or it is a trailing stop, but don’t let complacency cause you to let these profits evaporate when the market rolls over.  Bears waiting for this market to crack need to be patient.  These headlines out of the Middle East were the perfect catalyst, but since the weakness already bounced back, admit defeat and wait for something bigger.

Plan you trade; trade your plan

 Posted by at 11:56 am on June 17, 2014
Jun 162014
 
S&P500 daily at 3:32 EDT

S&P500 daily at 3:32 EDT

Intraday Update

MARKET BEHAVIOR
Stocks are bouncing around today as they digest overseas headlines.  We are one percent from recent highs and nearly 50-points above the 50dma.  Prior resistance near 1,925 is acting as support and we are holding this technical level for a 3rd day.  Volume has been below average every day for nearly a month, but this is typical of light summer vacation trade.

MARKET SENTIMENT
Without big money’s steady hand, summer can be volatile as smaller traders have more influence.  This is especially true when the market is trying to digest worrisome headlines coming out of Iraq and a potential flare up of political discord in DC.  While we are only a few points from all-time highs, the market is anything but relaxed.

Ignore the headlines and buy the dip has been the rally call of last couple years and many are sticking to that game plan here.  Buyers showed up to defend 1,925 and so far are preventing any further selling.  Their cause is aided by confident owners unwilling to sell fearful headlines, keeping supply tight.  Last year the market jumped at the sight of its own shadow as we had temporary selloffs on headlines of sequester, fiscal cliffs, Arab spring, and taper to name a few.  This year prospects of war in Ukraine and Iraq are met with cautious optimism.

While it is encouraging to see the market hold up in the face of these headlines, the best profit opportunities come from irrational market moves.  While participants are nervous over these geopolitical headlines, no one is fearful enough to sell their stock at a discount.  After nearly two years of watching every dip bounce back to new highs has trained owners to hold no matter what.  With so few sellers, the future of this market rests on the buy side.  As long as buyers keep soaking up what little selling we have, the market will continue higher.  But every rally reaches a point where everyone who wants stock already has all they can hold and the market stalls on a lack of new money.

TRADING OPPORTUNITIES
Expected Outcome:
The longer we hold up in the face of these headlines, the less likely they will take us down.  Markets tend to roll over quickly and avoiding a precipitous drop as these headlines break means they are well on their way to being priced in.

Alternate Outcome:
Owners are demonstrating comfort with the risk/reward at these levels.  With such a little discount being offered to hold this risk, the market is telling us it doesn’t expect these events to deteriorate in any appreciable way.  That leaves buyers vulnerable to a worse than expected outcome that is clearly not priced in.

Trading Plan:
The best profit opportunities arise from emotional and irrational moves in the market.  Since no one is offering us a discount to hold this risk, there is little reason for us to own these headlines.  The same goes for shorting the market.  We had the scary headlines and the market didn’t flinch, meaning it will take something larger to crack this market.  At this point it seems we are in no-man’s land and where the market goes from here is a coin-flip.  If I were forced to pick sides, holding these levels suggests we will continue higher, but any degradation of the situation in Iraq could set of a mad rush for the exits.  With such a poor risk/reward, the best trade is to wait and see what comes next.

Plan your trade; trade your plan

 Posted by at 1:33 pm on June 16, 2014
Jun 112014
 
S&P500 daily at 2:54 EDT

S&P500 daily at 2:54 EDT

Intraday Update

MARKET BEHAVIOR
Stocks slipped modestly as they consolidate near the 1,950 level.  Early weakness brought us down to the low 1,940s, but dip buyers propped up the market and are defending these levels.

MARKET SENTIMENT
Unsustainable breakouts tend to rollover quickly when follow-on buying fails to materialize.  If we continue holding 1,940 for a fourth day, that suggests buyers still see value at these levels.  Of course we need to be extra cautious during the summer’s low-volume since smaller trades have a larger impact and we often see increased volatility.

Recent strength defies the skeptics but from a sentiment POV it makes perfect sense.  We’ve transitioned from a fearful market in 2013 to a greedy one in 2014.  While this rarely ends well, these moves go higher than anyone expects before breaking down.  By itself complacency is bullish because it means most owners are unwilling to sell no matter what the headline or price action.  They refuse to sell because they are confident any dip will bounce and so far they have been proven right.  In a self-fulfilling prophecy, lack of selling keeps supply tight and makes it easy for the rally to continue.

TRADING OPPORTUNITIES
Expected Outcome:
Markets move in waves and the risk of a pullback are highest following a strong move higher.  At best we digest these gains and trade sideways, at worst we retest recent support back near 1,900.  Either way the risk/reward to initiating a new position here is stacked against us.  Give the market a couple more days before rushing in.

Alternate Outcome:
Anything can happen during summer’s light volumes.  The pain trade has clearly been higher as everyone expecting near-term weakness is either out of the market or short.  These bears and cynics are scrambling to buy a piece of this market before it gets away from them and that reactive buying keeps pushing us higher.

Trading Plan:
We trade when the odds are in our favor and buying up here is little more than chasing performance. While this move could easily run toward 2,000 over the next few weeks, the market needs to catch its breath and we will have the opportunity to buy in a few days after the risk of a pullback fades.  If we cannot hold 1,940, then things get interesting.

Plan your trade; trade your plan

 Posted by at 12:55 pm on June 11, 2014