Jan 062015
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Another brutal day for the market, this time slipping under prior support at 2,000. The saving grace is we reclaimed this technical level by the close, even if just barely. Volume was higher than yesterday and well above average. No doubt the continued weakness and violation of a widely followed technical level triggered a wave of stop-loss orders, causing this surge in volume.

Timeframe and timing are everything in the market. In a situation like this, both bull and bear can be right. A nimble dip-buyer can make a quick buck when this selloff bounces on Wednesday or Thursday. But the bear could also be right when the rebound fizzles and the selloff continues next week.

Sentiment on Stocktwits SPY boards has been all over the place. Last week it was oozing with 68% bullishness, but a few short days later it flipped on its head with 61% bears boasting about the imminent collapse. We need to remember this is primarily a measure of day-trader sentiment. While a very active group, they are small and cannot sustain directional moves without the support of big money. This Stocktwits sentiment skew likely means we are getting close to near-term bounce, but we need to widen our lens if we want to figure out what happens next. That means looking at investors with a longer time horizon.

Source: Stocktwits 1/6/2015

Source: Stocktwits 1/6/2015

There have been countless 2015 predictions circulating the financial press and the vast majority of pundits and big money managers expect this to be another good year. But the thing to remember is people naturally talk their book. If they are bullish on the market, then they are already fully invested. Where we run into trouble is when everyone is bullish, that means few are left to buy the market and keep pushing it higher.

We’ve gotten used to sharp selloffs followed by equally fast rebounds. If the market finds a floor Wednesday or Thursday, expect the dip-buyers to rush in and send us back to the 50dma and 2,050. But since this trade is getting a tad too obvious, be prepared for the relief to be temporary. The market is split in two, diametrically opposing camps, bulls expecting us to continue marching higher and bears predicting a devastating collapse. The third, and most widely overlooked option is a slow grind lower with countless head fakes along the way to zing and humiliate overly aggressive bulls and bears.

Jani

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

S&P500 daily at end of day

End of Day Update:

Stocks tanked on the first real trading day of 2015, continuing the selloff that started in the final sessions of 2014. Volume was above average and this was a meaningful move, unlike the low-volume, holiday fluff we’ve seen recently. The question is if this is just another routine, buyable dip like all the others, or the start of something different?

Volatility often picks up during changes in trend. This is where one side is losing control and the other is getting stronger. For the first time in a while, both forces are on equal footing. The battle gets scrappier and price moves are more dramatic. Big drops followed by big rebounds. And more plunges and bounces.

For the last three-years I’ve been a buy-the-dip guy, but this one feels different. Back then the market sold off as traders feared the worst around every corner. But bull markets feed on this fear. Low expectations make it easy for a market to rally. But here we find ourselves without a worry. The rest of the world has been melting down over the last six-months, but US Blue Chips have been immune to whatever ales the rest of the world. No doubt they became a safe harbor in a turbulent world, but how much longer can that last? If US markets are still pricing in continued strength, it is harder to exceed those expectations and all too easy to miss the mark. That doesn’t give us a favorable risk/reward.

Every market tops when it runs into a dip that doesn’t bounce to new highs. The big tell for us is what happens next. Today we sliced through the 50dma on accelerating volume. No doubt we took out technical stop-losses and triggered a wave of defensive selling. Buy-the-dip has become such a routine trade that it shouldn’t surprise anyone to see the market bounce in the next day or two. But will there be enough buying behind that rebound to send us back to new highs? Or will the move stall and we stumble into another round of liquidations?

It feels different this time and it is hard to get excited about buying the dip. The confirmation will be a string of lower-highs and lower-lows. If that is the case, forget about the 200dma, October’s 1,820 lows are at risk. While everyone fears a huge selloff over a couple of days, the real damage comes from a six-month grind lower.

Jani

 Posted by at 9:31 pm on January 5, 2015
Dec 182014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Wow. What else is there to say about this monster rebound? Buyers haven’t been this desperate to own stocks over a two-day period since 2011. But is this aggressive buying good for the market? Is it sustainable? Does it give us a stable foundation to build on?

As kids learn from the Tortoise and the Hare, slow and steady wins the race. By that measure it is hard to get excited about the speed and size of this rebound from the 1,970 lows. The biggest concern I have is choppy trade is often a symptom of changes in trend. We’ve had three material dips since summer and now this uncharacteristically sharp up-move. The bull rally turned five this spring, making it fairly mature as far as bull markets go. And there is little fear priced into the market since it has largely ignored bearish geopolitical and economic headlines from around the world as it keeps setting record high after record high. US large cap stocks are the last-man standing in a world where almost all other markets and asset classes have seen material selloffs. How much longer can this continue?

Anyone taking the time to look through the CrackedMarket archives will see I’ve been a resolute buy-the-dip guy since I started this blog in early 2012. Greece, Cyprus, Euro breakup, Fiscal Cliffs, Govt Shut Downs, Taper, etc. It didn’t matter what the headline, I embraced the fear and saw every negative headlines as an excuse to pick up stock for cheap. But we all know this must come to an end at some point. Buying the dip has become so routine now that everyone is doing it. Good employment, bad employment, strong GDP, weak GDP, Russia invading sovereign nations, nothing matters to this market. That is until it does. We might finally be arriving at that point where it does.

While I’m not ready to say tomorrow is the first day of a 20 or 30 percent bear market, all these factors lining up here are enough to make a buy-the-dip guy far more cautious going forward. The market has enough momentum that it can coast into year-end, but what happens in January is anyone guess. Markets typically look ahead six to 12 months, which means if the market suspects we will see inflation/deflation/increasing interest rates/currency contagion/recession/or anything else next year, it will start pricing it in starting in January. If the rate of gains slows down and becomes more sustainable, then this can continue. But if we retreat back under key support levels in the near-term, I wouldn’t be so quick to buy the dip this time.

Jani

 Posted by at 9:48 pm on December 18, 2014
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
Dec 162014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

It was a wild ride as the market gapped lower at the open, rallied 40-points by lunchtime, only to give all those back and then some by the close. While the market closed lower by 16-points, we traveled nearly 120-points to get there. Absolutely stunning.

The crashing oil story took the day off as the market obsessed over the imploding Russian Ruble. Many pundits drew parallels to 1998’s currency crisis and that was enough to roil markets around the world. But was this just a hiccup, or the start of another global meltdown?

Russia’s been the target of sanctions from the West since they exploited and inflamed the crisis in Ukraine. These political tensions and preexisting economic weakness already reduced Western exposure to Russia, so it is far less likely this crisis will take Western banking and economies down with it. This story should leave the front pages in no time.

As for oil, it’s funny how bears try to have it both ways. Rising oil prices are clearly bad for consumers, but then so are falling oil prices?!?!? On popular social media it is hard to find many people on Main Street that are worried about $2 gasoline. This video clip got nearly four thousand up-votes on a popular website when one guy shared his feelings from his last trip to the gas pump.

Technically today’s price action was as ugly as it gets. We blasted above key levels in midday trade, but couldn’t hold them and made new lows by the close. This wild ride lead to lots of trading and volume was 28% above average and one of the most active days of the year.

Source: Stocktwits 12/16/2014

Source: Stocktwits 12/16/2014

But technicals are only half the picture. What about sentiment? Last week’s selloff saw bullish sentiment on Stocktwit’s SPY boards plunge from 65% to 41% while bearishness spiked to levels last seen near the bottom of October’s selloff. While hardly conclusive, it does show many traders have changed their minds recently and their selling is clearly evident in the falling prices. But the thing about markets is they operate on supply and demand, not sentiment. By the time the crowd is overwhelmingly pessimistic, that means they’ve already sold their stock. Once the crowd finishes selling their stock, we run out of supply and prices rebound.

While today’s headlines feel horrific, we have to remember they feel this way during every dip. If they didn’t, no one would sell the headlines, and we wouldn’t have a dip to begin with. The question is if this time is more than another routine dip. In a bull market we have to operate under the premise that every dip is buyable. That’s because a rally continues countless times, but only reverses once. When trading, I would rather put my money on countless profit opportunities, than bet everything hoping this is that one time.

But we cannot be ignorant to the risks either. If we are already at oversold conditions, the market should bounce and race higher into year-end. But if we cannot find a bottom, the next stop is 1,950. After that it’s 1,900. Break 1,900 and we’ll race past October’s lows.

Jani

 Posted by at 10:11 pm on December 16, 2014