Nov 122015
S&P500 daily

S&P500 daily

End of Day Update:

The S&P500 sliced through the 200dma as it slumped 1.4% Wednesday. This move leaves us just above 2,040 support that comes from earlier in the year. Volume was barely average, telling us there wasn’t a lot of reactive and emotional selling today.

Nothing like a little selloff to revive bears’ hopes and dreams. Whether you were watching TV or reading online streams, plenty of people believe this is the “BIG ONE”. But here is the thing, dig back in your memory and recall a time when all the pundits successfully predicted a big selloff before it happened. If you are struggling, don’t worry, it’s not your memory that’s failing you, it’s the pundits. Now don’t get me wrong, most of these people are exceptionally intelligent and insightful. There is also a lot of truth to what their ideas. But what trips them up is the basic laws of supply and demand. When the crowd is convinced we are headed lower, how do you think they are positioned? Once a pessimist sells, they lose their vote and are merely cheerleaders. And right now it feels like we have a lot of people rooting for the market to go lower. The reason people are so quick to jump on the “this is it” bandwagon is because memories of September’s fear and regret are so fresh in their mind.

The biggest headline these days is December’s looming rate hike. In a WSJ survey, 92% of economists predicted the Fed will boost interest rates next month. For all practical purposes it appears like there is universal belief the Fed will finally act. Monetary tightening for the first time in nearly a decade has people predicting doom and gloom for our economy. Of course many of these same people also called for runaway inflation and $10k gold because of the Fed’s “reckless” money printing. If they got the first call wrong, there is little reason to believe they will get it right this time. Further, the conversation shifted to rate hikes as soon as Quantitative Easing wrapped up last Fall. If anything, Janet Yellen has been dragging this out, so it should not be a surprise or shock to the systems when it finally happens. People don’t get hit by the bus they see coming, so this rate hike will be a non-issue.

While people are scared by this selloff, this is just another buyable dip on our way higher. In my November 5th post, I warned people that we should be preparing for a very typical pullback following a large rebound. Sixty points later, that is exactly where we find ourselves. Two-steps forward, one-step back. Technicians frequently find Fibonacci patterns in directional moves. This would be a retracement of 24%, 38%, 50%, or 62%. Following a 225-point rebound, these are pullbacks of 55, 85, 112, or 140-points. We’ve already passed the 55-point mark and 85 isn’t very far away. While we don’t want to catch a falling knife, an interesting entry would follow the market slicing through support and recovering those losses on huge volume. This would be the capitulation day that chased of the last of the sellers. Traders who miss a big run always hope for a pullback that will let them get in, but all too often they lose their nerve when the market gives them what they were asking for. Embrace discounts, don’t fear them.


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 Posted by at 8:00 pm on November 12, 2015

The “No Hike” Selloff Continues

 Intraday Analysis  Comments Off on The “No Hike” Selloff Continues
Sep 222015
S&P500 daily

S&P500 daily

End of Day Update:

Stocks continued the “no hike” selloff as the S&P500 lost another 1.25% and closed fractionally above 1,940 support. Volume was restrained, not even reaching average levels.

Investors were hoping the Fed would keep rates near zero and in order to avoid further spooking fragile markets, the Fed acquiesced when they decided not to hike last week. But rather than cheer, waves of traders have been selling the news ever since. We are still well within the heart of the 1,900 to 2,000 trading range, so stock owners are not panicked yet, but you can feel the uneasiness growing with each leg lower.

There was no real headline driver for Tuesday’s global selloff, but overseas markets were hit hard and that selling spilled over to U.S. shores. And as I write this, it looks like we will have more of the same Wednesday because Asian and S&P500 futures are sharply lower. While we are still well within the trading range, it won’t take much to push us down to recent lows where the uneasiness will give way to fear and panic.

When the herd is panicked and we see our screens filled with red, it is hard avoid being infected with the same feelings of dread and despair. But a further selloff is actually the most bullish thing that can happen. The two most common reversals are the v-bottom and the double-bottom. V-bottoms are sharp and fast. We’re nearly a month into this correction, well past the window of opportunity for a v-bottom to save us, so we can eliminate that as a trade setup. The next best savior is the double-bottom. For those that are not familiar, a key attribute of the double-bottom is having the second dip undercut the first dip’s lows. That means the most bullish thing that could happen to us involves us falling under 1,860. This is something we should be bracing ourselves for, but rather than fear this capitulation bottom, we should welcome it and even trade it to our advantage.

Of course we might not go straight to 1,850, or even get there at all. The next likely level to bounce off of is the 1,900-1,910 region. We could easily see an intermediate support at these levels. Where we go from there largely depends on how traders respond. If we see full panic and volume is off the chart, that could be our capitulation bottom. But if the bounce is feeble and fails to recover 1,950, the new lows under 1,850 are likely. While it will be uncomfortable, if we know what is coming, then we will be better prepared to trade it well.


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 Posted by at 11:07 pm on September 22, 2015

How to Respond to a Crisis

 Intraday Analysis  Comments Off on How to Respond to a Crisis
Aug 312015

End of Day Update:

I’m changing things up a little tonight. Normally I write about the daily fluctuations in the stock market, but given the dramatic and emotional moves in recent days, a bigger picture analysis is warranted. This blog post is for all the nervous owners out there that are not sure how to respond to these uncertain times.

As I write this, overnight stock futures are plunging nearly two-percent because of continued Asian weakness. No doubt this will carryover to our shores Tuesday morning and compel many owners to sell their stocks at even greater discounts. Their rationale is to sell now before things get worse.

But as investors and traders, the first questions we should ask ourselves is if we want to buy stocks when they are cheap or expensive? The natural follow-up is if we want to sell when they are cheap or expensive? While the answers are obvious, this isn’t consistent with the way most people trade.

Many owners are desperately selling their stock right now because they want to get out before things get worse. “What if this is another 2008?” they are asking themselves. Surely we all want to avoid that type of disaster again. Not so fast, some of the best buys I made over the last 20-years were in 2008. Not as a trader, but as an investor.

I rarely write about the buy-and-hold portion of my portfolio because there really isn’t much to talk about. Every month I add to my long-term investments and then forget about them. Through thick and thin, they just sit there. Sometimes they go up in value, other times they go down. But every month I keep adding to them because I believe in the US economy and that our stock market is the best place to grow my money until I need it 20 or 40 years from now.

While we only recently climbed out of the “lost decade” where our market was flat from 2000 to 2013, those were actually fantastic years for the long-term investor who dollar-cost-averaged into the market over that entire period. When everyone was selling and reducing their 401k contributions because of the dotcom bubble and financial crisis, I kept buying more. Those buys in 2002, 2003, 2008, and 2009 have more than doubled. All my buys in 2004, 2005, 2010, and 2011 are up in the high double digits. While the stock market had a “lost decade”, my buy-and-hold account had a phenomenal decade because I continued buying when other people were selling.

Think about that tomorrow as you contemplate selling your stock or decreasing your 401k contributions because of this Asian uncertainty. Personally I’d love to see another 2008 because that would be another fantastic buying opportunity for the buy-and-hold portion of my portfolio.


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 Posted by at 10:19 pm on August 31, 2015
Aug 122015
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

This was a day traders won’t soon forget. Contagious overseas selling dragged the S&P500 down nearly 1.5% before lunchtime. By itself this was a striking move, but the day was only half over and the second act was even more impressive as we rebounded to close in the green! We’ve grown accustomed to daily moves that measure a quarter of percent in this dull and slow market. We haven’t even moved outside a 5% range all year-long, but somehow we managed to slide across 3% in one day! Amazing.

Unfortunately for many traders this wasn’t the good kind of amazing because it convinced them to trade reactively, a.k.a. sell-low and buy-high. And honestly I cannot fault anyone who was fooled by these dramatic moves. Sometimes the market gets the better of us and this was easily one of those days.

After this move made both bulls and bears look foolish, we are left wondering what comes next. Clearly the selling could have spiraled out of control because nothing shatters confidence like screens filled with red. But supply dried up near 2,050 support and we bounced. This rewarded those that held the dip and Pavlov would tell us they are even less likely to sell the next one. This was yet another example of a market that simply refuses to breakdown. While the obvious interpretation of today’s bullish reversal is, well bullish, nothing in the market is ever that clear-cut.

A breakout above all-time highs is extremely likely given this market’s refusal to breakdown, but emotion is sky-high and chances are this will be anything but a smooth ride. While confident owners are keeping supply tight, it will take a bit of time before recent sellers warm back up to this market. Whether is it lingering fear, or a refusal to admit making a mistake, many of these sellers will stay in cash until prices climb so high they stop fearing a correction and start fearing being left behind. Often we see prices snap back aggressively from extreme oversold levels, but it is hard to claim a 2.5% dip from all-time highs qualifies as extremely oversold. Today’s rebound tells us the path of least resistance is higher, but it will probably continue to be a bumpy ride.


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 Posted by at 9:31 pm on August 12, 2015

Calm and Orderly Selling

 Intraday Analysis  Comments Off on Calm and Orderly Selling
Jul 222015

End of Day Update:

The S&P500 slipped modestly following disappointing earnings from AAPL and MSFT, but it wasn’t all bad. Even though these titans of tech shed billions in market cap, the selling didn’t spread much further than the tech sector. If the market was overbought, this was more than enough of an excuse to breakdown. How contained the selling was shows owners remain confident and are supporting these prices. This resulting tight supply makes it easier for the rebound to continue to new highs.

It is no surprise that we pulled back following a 89-point run from 2,044 to 2,133. There is nothing concerning about this move because it is normal and healthy. Finding support at 2,100 and the 50dma is the obvious level, but chances are we won’t make it that far given how benign today’s selling was.


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 Posted by at 9:52 pm on July 22, 2015