Mar 102015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The bloodbath continued as the S&P500 smashed through all kinds of technical support. 2,060, 2,050 and the 50dma could do nothing to slow this selloff. But as ugly as it looks on a daily chart, the intraday price-action wasn’t all that dramatic. We gapped lower at the open, but quickly settled into a sideways trading range between 2,050 and 2,060 for most of the day. Those that held through the early weakness were not unduly pressured by an extended intraday slide. The lack of pain showed up in volume that failed to exceed Friday’s totals and barely finished above average. It is hard to claim the crowd panicked and rushed for the exits on such benign volume.

There are two ways to interpret this. Either the tidal wave of selling hasn’t hit yet. Or we’re running out of sellers and this thing is about to bounce on tight supply. While we can logically rationalize the latter, recent history says bottoms form on the day with largest volume of the entire move. Using that pattern as a guide, today’s lower volume selloff is likely not the end of this.

The financial press is trying to convince us the market is melting down because the Fed is moving their planned rate hikes forward a few weeks. Really? When phrased that way, it sounds just as absurd as it really is. So if this isn’t rate hikes, what is it? My money is on the surging US dollar since it pressures multinational companies’ overseas income. But while that is true, the one thing we cannot discount is the US dollar is exploding higher because we have the only global economy worth investing in. As long as global investors continue to throw money at our markets, rates will stay low and equities will keep going higher.

While we will likely see more red before this is done, I suspect we are getting close to a near-term bottom. A morning plunge followed by an afternoon bounce on tremendous volume would be the best buying invitation we could ask for.

Jani

 Posted by at 9:44 pm on March 10, 2015
Dec 172014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced decisively from yesterday’s lows, reclaiming 2,000 support and the 50dma. The 2% move was the largest gain since 2013 and came on the highest volume we’ve seen since the pullback started.

The headline catalyst was continued accommodative language from the Fed and Janet Yellen. While they didn’t specifically say recent global turmoil would delay interest rate hikes, that is the way many traders took it.

A gain is always better than a loss, but it is usually safer and more sustainable to see the market grind higher in more measured steps. Huge moves often result in equally dramatic moves in the opposite direction. That’s clearly been the case over the last three days. Will we see more of the same tomorrow? Only time will tell.

The last time we saw an equally impressive up-day was October 10th, 2013 as the market also rebounded from a dip under the 50-dma. While the market held those gains and eventually climbed another 100-points over the next two months, the moves immediately after the 2% gain were much slower. If that situation plays out again, there will be plenty of time for traders to jump on board the rebound.

The risk is if the selling isn’t over and we see another equally dramatic move lower tomorrow. Markets typically rebound quickly from oversold levels. It’s taken four days for us to reclaim 2,000 support after a couple failed rebound attempts. That shows traders previously refused to embrace the bounces. Is the third time the charm? We will find out on Thursday.

While it is okay to buy the dip, keep the trade on a short leash and don’t allow these gains to retreat into losses. Failure to continue this momentum higher is very bearish and says we haven’t found the bottom yet.

Jani

 Posted by at 10:42 pm on December 17, 2014
Nov 172014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Stocks shrugged off early weakness and finished a smidge higher, but that is all it took to mark another record close. Overnight we learned Japan unexpectedly slipped into a recession. While that sent their stocks crashing 3%, our market barely noticed, down just a fraction at the open.

The S&P500 has been unable to move past 2,040 resistance. Many traders feel this is stalling and foretells of an imminent collapse. Even though the market keeps making record highs, the Stocktwit’s SPY sentiment gauge keeps making new lows. That shows a material divergence between price and trader’s expectations.

While traders are growing suspicious of this market, it is dangerous to argue with a market that holds strong in the face of bearish news. The headlines out of Japan were more than enough to send a vulnerable market into a tailspin. Fears over global growth triggered October’s 10% selloff. But this time it barely registered as the market clearly shifted from a half-empty outlook on the global economy to one that is half-full.

Source: Stocktwits 11/17/2014

Source: Stocktwits 11/17/2014

The talking heads have a million reasons why the market is acting this way, but it really comes down to simply supply and demand. October’s selloff shook free most of the available supply. Now when the market runs into bearish economic headlines, there is no one left to sell the news and the market proves amazingly resilient. When no one sells, supply becomes tight, and prices go up. People can invent all the justifications they want, but this market’s strength comes from tight supply.

Increasing cynicism bodes well for continued gains. Even though we are at record highs, traders are selling and shorting this consolidation. Unfortunately for them, they will be the next round of buyers forced to chase the breakout above 2,050. Markets fall from unsustainable levels quickly. Holding near 2,040 for nearly over a week shows these new highs are not unsustainable. Owners can continue holding and shorts need to be very careful.

Jani

 Posted by at 10:33 pm on November 17, 2014
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