Wait for it…….

 End of Day Analysis  Comments Off on Wait for it…….
Mar 292016
 

Screen Shot 2016-03-29 at 9.16.23 PMEnd of Day Update:

The S&P500 had a good day, setting another 2016 closing high and putting us back in the green for the year. Quite a reversal of fortune from what most people expected in January. This is yet another example of why we should be skeptical of what most people know. That’s not to say the crowd is stupid, just that its opinion is already priced in and something else is more likely to happen, either better or worse. This time we were saved by less-bad than feared.

Things didn’t look so great this morning when we opened and the market slipped on Asian weakness and falling oil prices. But Janet Yellen came to the rescue by promising slower than previously forecast rate-hikes. That was enough to send stocks surging and the dollar tumbling. This brings up the other certainty of 2016: Euro/Dollar parity. So far that’s been a painful ride for all the hedge funds that thought this trade was easy money.

But this only tells us where we are, something everyone already knows. What we really want to know is where we are going next. Without a doubt this is far better time to be a bull than a bear. We are more than 200-points higher than February’s lows. Anyone who sold defensively and missed this rebound is left wondering what to do next. While I’d love to say we will surge another 200-points between now and June, markets don’t work that way. The easy money has been made and now the gains will be slower and harder. Given how far we’ve come, this is a far better place to be taking profits than adding new positions. While the temptation to chase is strong, even if we continue higher in the near-term, without a doubt we will retest these levels in coming weeks and months. Never forget markets move in waves and we are far closer to the top of this wave than the start of it. There is no need to chase because we will get another shot at these levels in the future and longer-viewed investors should hold off and wait for better prices. Shorter-horizon traders probably want to stick with the near-term momentum. Typically we sell off fairly quickly from overbought levels and now that we’ve been above the 200dma for two-weeks, the next few points are more likely to be higher than lower.

A big portion of the fuel propelling this strength comes from desperate money managers chasing this rebound into quarter’s end. Anyone who reactively sold January’s weakness is in a world of hurt now that the market turned green for the year. Smart money definitely isn’t looking so smart right now. They want to show their investors they didn’t miss the rebound and are buying stocks by the dump truck load. But all of this changes when the calendar rolls over on Friday. The artificial demand caused by quarterly window-dressing will evaporate and we will see if anyone is left to sustain this march higher.

The real tell will come early next week. Hold up after the artificial window-dressing demand fades, then there is real support under this market. Stumble and all of a sudden weeks of chasing turns into weeks of selling as the market takes a well deserved break. While I’d love to be able to tell you what will happen, recent price moves are too erratic and unreliable to be predictive. One day’s breakdown turns into the next day’s breakout. Anyone trading this market with a bias is getting chewed up by these head fakes. But rest assured, the next move is coming and the market will reveal its hand once Q2 gets underway. Trade well and all-time highs are next. Stumble and we won’t catch ourselves until 1,950 support.

Jani

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 Posted by at 9:18 pm on March 29, 2016
Mar 172016
 

Screen Shot 2016-03-17 at 10.07.17 PMEnd of Day Update:

The S&P500 set another 2016 closing high Thursday as it continues to leave the January doldrums further and further in the rearview mirror. Oil broke through $40 for the first time in a while and the world feels a lot better than it did a few weeks ago. But to a contrarian, these good times are just as unnerving as the obscene pessimism we saw in mid-February. I trade against the crowd, not with it and right now this feels like too much of a good thing. It bears repeating that markets move in waves and just like January’s one-way selloff stalled and rebounded after it exhausted supply, this one-way rally will run out of demand any day now.

Wednesday the Fed told us to expect fewer rate-hikes this year than previously indicated. That reassurance was enough to fuel this two-day pop that pushed us through the 200dma and moved us to these 2016 highs. But the thing to remember is a big chunk of this buying came from bears covering their shorts and technical traders buying the breakout. Now that we’ve crossed virtually every technical level that people would use, we no longer have this autopilot buying to keep this move going. Instead we will have to convince thoughtful traders to start putting their money into the market. Given traders’ natural fear of heights, this 200+point run from February’s lows has a lot of nervous people sitting on their hands.

Last October we bounced more than 200-points from the lows in a massive relief rally, but we climaxed and stumbled into a nearly 100-point pullback right around the levels we currently find ourselves. While it is hard to sit out a of rally like this when fear of losses is replaced by fear of being left behind, resist the urge to chase. Risk is a function of height and currently these are the riskiest levels of the year. Even if stocks continue going higher, don’t worry about it too much since the inevitable pullback will at the very least retest 2,000 support, and more likely push us back into the mid-1,900s. This is a far better time to be taking profits than adding new positions, so be patient and wait for a better entry point. The more aggressive among us can look for this rally to climax and short a dip back under the 200dma as we transition from this half-full sentiment back to our half-empty obsession.

A notice for regular readers of this blog, I’m taking my family to Hawaii next week for Spring Break and will not be posting to the free blog while I am on vacation. I will continue following the market and premium subscribers will still receive their daily market analysis.

Jani

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 Posted by at 10:43 pm on March 17, 2016

A Long Ride to Nowhere

 End of Day Analysis  Comments Off on A Long Ride to Nowhere
Mar 102016
 

Screen Shot 2016-03-10 at 7.40.12 PMEnd of Day Update:

While the S&P500 finished Thursday unchanged, it was anything but a boring day. An impressive mid-morning, 16-point rally was gutted and crashed 35-points, pushing us deep into the red. But just when it looked like the bottom had fallen out, we rebounded 20-points and finished the day exactly where we started. For as much as the market moved, volume was surprisingly light and didn’t even reach average levels. While it was an impressive day, most people resisted the urge to trade these volatile swings.

This insanity was driven by the European Central Bank’s latest stimulus efforts. They initially surprised global traders with the size of their move, but then follow-up by underwhelming us with their commitment to future actions. Those contradictory statements lead this unhinged price-action.

What does this volatility mean for our next move? That’s the million-dollar question. Following February’s 200-point rebound we’ve been struggling with 2,000 resistance. We raced up to this level last week but have been unable to break through it ever since. Thursday was the 3rd time we’ve traded above 2,000, but so far we failed to hold those gains because buyers keep disappearing. Given how far and fast this market moved since the February lows, this pause is anything but a surprise. But it would be helpful if we knew if this was simply a pause before continuing higher, or hitting our head on resistance and tumbling back into the heart of 2016’s trading range.

The thing to remember about selloffs is they are shockingly fast. The two-weeks we’ve been struggling with 2,000 by contrast are moving in slow-motion. If we were going to crash, why hasn’t it happened yet? That’s a tough question bears need answer. But we cannot give bulls a free pass either. We had great employment last Friday, a huge surge in oil prices, and now additional stimulus from the ECB. Given these tailwinds, why can’t we break 2,000? Failing to rally on good news is often a signal to look out below.

This afternoon I would have given the edge to bears given the massive intraday selloff. But everything changed when we ran out of sellers and closed flat. As I said, selloffs are fast. No matter how well things are lining up for bears, we have to respect this price-action. If people don’t sell the headlines, they don’t matter. I’ve been expecting a routine pullback following this 200-point run, but given how stubborn owners are clutching onto their stocks, this sideways trade could be all we get. That said, the smaller the correction, the less upside we will see from a continuation. If we break 2,000 resistance Friday, expect the upside to be limited to a quick run above the 200dma before the necessary pullback happens. Given the limited upside, this is still a better place to be taking profits than adding new positions.

Jani

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 Posted by at 9:04 pm on March 10, 2016

As Expected

 Intraday Analysis  Comments Off on As Expected
Mar 082016
 

Screen Shot 2016-03-08 at 10.27.40 PMEnd of Day Update:

The S&P500 slipped 1% Tuesday, ending a streak of five-consecutive up days. Volume was average, but less than the elevated levels seen during the breakout above the 50dma. Oil gave up a big chunk of its Monday gains and was an excuse for equity traders to take profits following this nearly 200-point rebound from February’s lows.

It comes as no surprise the market’s gains slowed down after such a strong run. Big money managers hate chasing large jumps in price. Experience taught them these things inevitably cool off and they can get in at better prices if they are patient. In a bit of a self-fulfilling prophecy, big money’s reluctance to buy leads to a vacuum of demand and causes the very pull-back they are waiting for. Just like big money, we should also resist the temptation to chase. This is a far better place to be taking profits than adding new positions. If someone missed the move, chalk it up to a learning experience and wait patiently for the next trading opportunity. Better to miss the bus than get hit by it.

Last Thursday I told readers to watch for a rally that breaks 2,000 and then fizzles. So far that’s been exactly what happened. Friday’s strong employment pushed us through 2,000 resistance, but not long after demand dried up and we slipped from those midday highs. When the market fails to rally on good news, look out below. And if we needed confirmation, we got it Monday when oil popped 5% yet the S&P500 finished the day flat. Only a few weeks ago a move in oil like that would have lit a fire under equities. The lack of movement Monday tells us bulls are tapped out.

While one day of weakness doesn’t automatically make this the start of a bigger pullback, we will know real soon if it is. Selloffs develop quickly and if we are consolidating recent gains, expect a dip to at least the 50dma to develop over coming days. On the other hand, if prices firm up instead, expect the rebound to continue to at least the 200dma. If someone shorted a break of 2,000, the trade is working and you should continue holding until at least 1,950. But now that the weakness started, move your trailing stop down to 2,000 because if this is the real deal we shouldn’t retest that level.

Jani

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 Posted by at 10:28 pm on March 8, 2016

Buy the Fear and Sell the Cheer

 End of Day Analysis  Comments Off on Buy the Fear and Sell the Cheer
Mar 032016
 

Screen Shot 2016-03-03 at 8.44.35 PMEnd of Day Update:

The S&P500 continued its hot streak Thursday, closing in the green for the third consecutive day and rallying nearly 200-points over three-weeks. This leaves us just shy of 2,000 and well above the 50dma. Not bad for a market that had been written off for dead in early February. Just goes to show what the herd and experts on TV know.

In my February 11th blog post, I reminded readers that markets move in waves and that period of weakness represented a buying opportunity, not a place to sell defensively. Now that we find ourselves just shy of 2,000 resistance, I will remind everyone again that markets move in waves and this is a far better place to be taking profits than adding new positions. While seeing the market bounce this high brought relief, we cannot forget risk is a function of height and right now we are near the highest levels of the year. Rather than feel good about these gains, we should be growing paranoid.

Friday morning we get the monthly employment report. Maybe it will be better than expected. Maybe it will be worse. I have no idea and I won’t pretend to. What I do know is the recent rebound sucked up a big chunk of the available demand, meaning there are far fewer willing buyers prepared to jump in this market than there were two-weeks ago. No doubt momentum could keep this move alive a little longer, but it would be foolish to assume we could rally another 200-points over the next three-weeks. If this move is closer to ending than starting, we should be thinking more defensively than offensively. While I don’t know what employment will be, I do know it will be far harder to keep this rally going than it will be to stall and consolidate recent gains. Successful trading is not about predicting the future, but understanding probabilities.

The ideal short setup would be a price surge following a stronger than expected employment report that fizzles and stumbles into the red before the end of the day. Failing to add to recent gains on bullish news tells us demand is drying up. No doubt the talking heads will spin it as good-news-is-bad-news, but we know better. Things are a little too good right now and inevitably the pendulum will swing the other way in a few days. But rather than jump on the world is ending bandwagon, we will buy that dip and ride it back to the upper end of the trading range.

For a trade, short a rally that fizzles and falls back under 2,000 resistance. Most likely it will retest the 50dma and even 1,900 support before bouncing and giving us another dip buying opportunity. While things look less scary than they did a few weeks ago, not a whole lot has changed and we should expect this trading range to continue through the end of the quarter. Keep buying weakness and selling strength.

Jani

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 Posted by at 8:45 pm on March 3, 2016