May 262015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

It was a dramatic day as the S&P500 plunged 1% in the first session back from the long weekend. As unnerving as it felt, volume was below average and we are only 1.4% off of all-time highs. Hard to claim this was a crash by any stretch of the imagination, but in the market perception is reality, and today felt a whole lot worse than it looks.

Before the open, bullish sentiment on Stocktwits $SPY stream already fell to 41% and AAII’s bullish sentiment hovered near 5-year lows. As much as people try to correlate record prices and bullishness, we are anything but bullish at these highs. But this is actually a common phenomena. Every rally feels extended and fragile at the far right edge of the chart. Only months later do buy-points become obvious. If this were easy, everyone would be rich.

The five months of sideways churn since the start of the year cooled off any overbought condition that crept into the market. While we could easily extend Tuesday’s selloff on Wednesday morning, using bearish sentiment as a guide, we are far closer to the end of the selling than the start. Once the last of the hopeful bulls bailout, supply will dry up and we will bounce. The best trades are the hardest to make and today it felt a lot easier to sell this weakness than buy it.

Jani

 Posted by at 9:19 pm on May 26, 2015
May 192015
 

End of Day Update:

The S&P500 did a lot of nothing Tuesday as we consolidated Monday’s modest breakout. It stayed inside a 10-point range and closed lower by less than a tenth-of-a-percent. The benign trade tells us most owners are not taking profits and continue holding for higher prices, while those with cash don’t feel compelled to chase the breakout.

When few change their mind, prices don’t move and that is what happened today. Every other time the market challenged 2,120 this year, we quickly retreated from the highs. Today’s close marks the fourth day in a row we finished above this widely followed resistance level, making this time different.

While there are plenty of negative headlines making the rounds, none of them are new as we’ve seen versions these recycled headlines for months. Anyone who fears these issues sold a long time ago and is why periodic flare ups here or there no longer dent this bull market. Many claim this strength in the face of so many worries is irrational, but it makes perfect sense if you understand how markets work. When there is no one left to sell, we stop going down.

If prices remain above 2,120, expect recent sellers and shorts to come crawling back as the fear of being left behind overcomes their fear of gloomy headlines.

Jani

 Posted by at 9:36 pm on May 19, 2015
May 062015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Wednesday saw another high-volume selloff, this time triggered by unnerving comments from Janet Yellen concerning stretched equity valuations. The index sliced through the 50dma and undercut recent lows in the 2,070s.

While we finished in the red, today’s price-action is actually quite intriguing to the dip-buyer. We undercut recent lows, but rather than trigger an avalanche of reactive stop-losses, supply dried up and dip-buyers rushed in, lifting us 10-points off the intraday lows. Bears had a gift-wrapped opportunity to extend the selloff to 2,050, but the market bounced instead. Clearly there is still uncertainly swirling around the market, but this afternoon’s pause gives nervous owners time to more rationally form their next trading decision.

The last two-times we undercut the 50dma but finished off the lows, we saw strong rebounds the next day. Will tomorrow make it three in a row? If we reclaim the 50dma, there is a good chance the rebound will continue through all-time highs. There are two ways an over-extended market refreshes itself. The most obvious is by pulling back. But the second is churning sideways and grinding out the optimism. While we’re still within a couple percent of all-time highs, it’s been a trying year as the volatility chased off the weak holders. While everyone is still waiting for the widely expected correction, the longer we hold near the highs, the more likely we are to break them.

Jani

 Posted by at 10:24 pm on May 6, 2015
May 052015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The market giveth, and the market taketh away. Stocks tanked and gave back all of Friday’s rebound. This puts us right back on top of the 50dma and 2,090 support. Volume was elevated, but short of the high-volume down-days we saw last week.

Conventional wisdom says we should give more credence to high-volume moves, meaning recent down-days are more important than the corresponding up-days. And like most conventional market wisdom, it is true………half the time. Meaning it is as reliable as flipping a coin.

More than just volume, we need context. The market’s been stuck in a trading range all year. Originally we were holding between ~2,000 and ~2,100, but more recently it inched higher to ~2,150 and ~2,120. It’s been acting this way long enough that anyone who’s paying attention caught on, becoming a self-fulfilling prophecy. Every time we hit the bottom, swing-traders jump in and ride the elevator up to the top, where they promptly jump off. This style of trading props up dips and stymies rebounds. But like all good things, it will eventually come to an end.

Bears gleefully point to the market’s inability to break 2,120 resistance. But there comes a point when this stops being stalling and starts becoming basing. There is a reason double-tops are a common reversal pattern, but we rarely hear about triple- or quadruple-tops. These are not reliable technical signals because holding a level for three or four attempts means we are more likely to break through than turn lower. So while it is frustrating to see the market stall at 2,120 yet again, the longer we hold these levels, the more inevitable it is we will eventually smash through resistance.

The test comes Wednesday. If we bounce, cover shorts and go long. If the market cannot get out of its own way, then look out below because we have a date with 2,050 and the 200dma before finally breaking through overhead resistance.

Jani

 Posted by at 10:48 pm on May 5, 2015

Between the Lines

 Intraday Analysis  Comments Off on Between the Lines
Apr 212015
 
S&P500 4/21/2015 intraday chart

S&P500 4/21/2015 intraday chart

End of Day Update:

Stocks gave up early gains and finished near the lows of the day. The daily chart leads one to conclude this is weak, bearish price-action. But the intraday chart tells a different story. Most of the selling occurred in the first couple hours of the day after the market hit its head on 2,110 resistance. But, following the initial 11-point slide, we largely trade sideways for the remainder of the day and closed only one-point under the lows hit at 10:30am. The intraday chart contradicts the daily because it shows supportive price-action as few owners joined the morning’s selloff. When the market is given a perfect invitation to selloff, yet hold firm, that is bullish price-action even if we finished in the red.

While we cannot read too much into one day, it suggests the next few points will be higher. That is as far as this analysis can take us. We will have to reevaluate sentiment and price-action once the market tests prior highs near 2,120 before deciding to buy the breakout or sell the strength.

Jani

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 Posted by at 10:21 pm on April 21, 2015