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
Mar 032015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks slipped half-a-percent Tuesday, but it was actually a productive day. There was no headline driver for the opening weakness and it appeared like selling for selling’s sake. Monday’s “NASDAQ 5,000″ headlines probably spooked a certain contingent and they placed overnight orders to sell the “obvious top”. The cascade of selling continued into mid-day where the market undercut 2,100 support. But just as things appeared to be spiraling out of control, supply dried up and we recovered half of the earlier losses.

While this would be more fun if every day ended in the green, I was actually impressed with the market’s resilience. If we were at overbought levels, today’s technical weakness would have been more than enough to trigger a wider wave of selling. When the market is poised to move one direction, all it takes is the smallest of excuses to get things rolling. If the market wanted to go lower, this was the perfect invitation. But we bounced instead. This tells me we are not excessively overbought and on the verge of collapsing.

While we struggle to find buyers above 2,120, we also cannot shake free sellers under 2,100. One of these day’s we will move out of this tight trading range. The market’s non-reaction to recent bearish geopolitical headlines and looming rate hikes tells us owners are confident and reluctant to sell. Right or wrong, it doesn’t matter. When no one sells, supply remains tight, and prices inch higher.

But all of this is null and void if we cannot climb out of this range. The longer we hold near 2,100, the more likely it is we will come across a dip that doesn’t bounce. I need to see today’s supportive trade continue. Another test of support probably won’t end as well for bulls.

Jani

 Posted by at 9:49 pm on March 3, 2015

5,000

 End of Day Analysis  Comments Off
Mar 022015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks bounced back from recent weakness as the NASDAQ closed above 5,000 for the first time since the peak of the dot-com bubble. While it is natural to draw comparisons to those go-go days, the underlying economics couldn’t be more different. Fifteen years later we finally grew into those lofty valuations and almost all the biggest tech companies are now boring dividend investments.

But since everyone wants to talk about bubbles, the one thing we all can agree on is they go waaaaaaaaaay too far before bursting. Markets don’t correct after getting a little carried away, they cross state lines and end up in Mexico before slowing down. While it is getting harder and harder to find good deals in this market, there is still plenty of room to go before this market screams of frothy excess.

Shorter-term, recent headline fear-mongering and weak price-action opened the door to wider selling, but bears just couldn’t get it done. When markets have every excuse to sell off, but hold steady instead, we have to respect that behavior and cannot fight it. While bears might ultimately be right, bulls are making all the money. It’s cliché, but I’d rather make money than be right.

I remain concerned about the elevated bullishness, but the price-action tells us this move isn’t done. Watch for either further sideways consolidation before moving higher, or a quick run up before pulling back to support. Tuesday will give us an indication of what the market intends to do next.

Jani

 Posted by at 9:49 pm on March 2, 2015
Feb 252015
 
Source: Stocktwits.com

Source: Stocktwits.com

End of Day Update:

Stocks slipped modestly on below average volume as the trend of tight trade continues. We remain above 2,100 support, but breakout buying is noticeably absent. I’ve been inclined to give the market time to make its next move, but this anemic wedge higher is a concern.

This resilience in the face of materially bearish headlines shows owners are reluctant to sell regardless of the economic and geopolitical news. The resulting tight supply has been propping us up. While this conviction is providing stability in an uncertain world, we need broader buying to keep pushing us to the next level. Short covering and technical breakout buying got us this far, but now we need a larger pool of buyers to step up. If few are willing to buy record highs, then it doesn’t matter how tight supply is.

My biggest concern is the swelling bullishness without much price appreciation. Stocktwits’ SPY stream has gone from 40% bullish in January to 62% bullish tonight. In recent months 60% has been the magical sell signal and is why it feels like this rebound is stalling due to a lack of new buying. When everyone believes in something and is fully invested, there is no one left to keep bidding up the price.

Depending on a person’s timeframe, they could hold through the dip to support that purges this excessive bullishness. But anyone with new money should hold off buying and wait for better prices in coming weeks.

Jani

 Posted by at 10:09 pm on February 25, 2015
Feb 232015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks traded in a tight, five-point range Monday, consolidating Friday’s breakout to new highs. While we spent all of the day in the red, such minor losses are constructive because it shows few owners are taking profits or selling defensively.

Bullish sentiment is ramping up and at the highest levels since December’s top. While rising sentiment gives us pause, 56% bullishness could easily give way to 65% or 70% in coming days. It is important to watch sentiment, but it is only a secondary indicator.

Price is the main driver of trading strategy and so far the price-action is strong. The most impressive thing is how well the market is weathering the storm of bearish headlines. On-again, off-again negotiations between Greece and Europe couldn’t dent this rebound. Neither could a failed truce in Ukraine. And it’s been a while since we had economic numbers exceeded expectations. All of these headlines should have sent us into a 200-point tail-spin, but when the market doesn’t do what it is supposed to, that is a very clear signal it wants to go the other direction. If we don’t selling off on negative headlines, what is going to happen when we finally get some good news?

Source: Stocktwits 2/23/2015

Source: Stocktwits 2/23/2015

While I remain cautious of this market because of the rising bullishness, this strength cannot be ignored. Right or wrong, stock owners are not interested in selling. Without sellers, supply stays tight and prices continue creeping higher. Until we find something that finally cracks bulls’ resolve, the only direction to trade this market is higher.

Jani

 Posted by at 9:52 pm on February 23, 2015