Dec 042014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

It was another interesting day. Weakness in European markets knocked us down at the open, but we came roaring back midday. Even though we closed in the red, we were well off the early lows. It is always encouraging when selling stalls and rebounds, instead of accelerating lower.

2,075 is resistance as the market struggles with this level, but the longer we hold near it, the more inevitable it becomes we will break through it. At this point in the year, fundamentals no longer matter as big money jockeys for position into year-end. While the S&P500 is up a very respectable 14% for the year, it left many cynical managers in its wake. Some never believed in this rally, others were flushed out in October’s dip under 1,900. Both groups are trying to figure out how to repair the damage before sending out annual reports to their investors in a few weeks. While they would love to see the market pullback to 2,000 before then, all too often the market does the exact opposite of what the most desperate traders are praying for.

Source: AAII 12/4/2014

Source: AAII 12/4/2014

The AAII sentiment survey took a nosedive this week. Bullish sentiment plunged 9.5% even though the market remains within a fraction of all-time highs. This shows many investors are afraid of heights and reluctant to embrace this rally. But all too often today’s holdouts become tomorrow’s chasers. But not to get too far ahead of ourselves, bulls finally overtook bears on Stocktwits’ SPY sentiment gauge this week.

While momentum is higher, end-of-year buying is an artificial tailwind that will vanish January 1st. Rather than put new money in this market, we should be thinking about taking profits. Breaking 2,075 could trigger one last short-squeeze, pushing us up to 2,100 before finally running out of steam. Its been a great run, but we need to consolidate recent gains.

Source: Stocktwits $SPY 12/4/2014

Source: Stocktwits $SPY 12/4/2014

Friday we have employment. While it gives the talking heads something to obsess over, the market hasn’t cared about employment since we started showing positive numbers several years ago. Hit, miss, or exceed expectations, it hasn’t mattered as this market rallied through it all. Outside of some intraday volatility, this report will be ancient history by the close.

Jani

 Posted by at 10:26 pm on December 4, 2014
Dec 032014
 

End of Day Analysis:

Today we closed at another all-time high. The unfortunate thing for anyone betting against this market is new highs come in clusters. We set a dozen records over the last few weeks and will most likely continue doing so for some time to come.

Many people have a hard time understanding how this market can keep going up in spite of all the economic and political uncertainty. What they fail to realize is we are going up because of this uncertainty, not in spite of it.

Everyone knows supply and demand drives prices, but few understand what that really means. People only trade stocks when their outlook about the future changes. Something happens that causes them to decide they want more of one thing or less of something else. It is this changing of opinion that translates to buying and selling, and ultimately moving prices. Since October 15th we’ve gone from acute levels fear and panic, to things are not so bad. It is this softening of negative sentiment that propelled us higher.

And this brings up back to our current situation. October was a painful month that not only inflamed fear and anxiety, but it also flushed many individual and institutional investors out of the market. These investors find themselves underweight equities as we continue making new highs. Over the last several weeks, the fear of a market collapse is giving way to fear of being left behind and many of these October sellers are turning into December chasers. The pressure to buy here is especially strong with institutional money managers who will send quarterly and year-end reports to their clients at the end of the month. Expect all this catch-up buying to fuel the Santa Claus rally. But this end-of-year buying is artificially driven by a date on the calendar. We could very easily find ourselves with vacuum of demand starting January first when institutional money managers are no longer under pressure to dress up their books for the quarterly reports.

Jani

 Posted by at 10:09 pm on December 3, 2014
Dec 012014
 

End of Day Analysis:

Stocks slipped to 2,050 support on the first day back from the holiday weekend. Journalists and talking heads are paid to come up with a reason for every market gyration. Real or imagined, producers and editors don’t care as long as it makes good copy. And today we were told the market sold off on poor Black Friday sales and weak economic numbers out of China. Maybe the truth is a lot more boring. Maybe we slipped to support for no other reason than a minor imbalance between supply and demand following an impressive run of up-days.

Traders know stocks cannot go up every day, but anytime we slip a few points, they start predicting this is the next collapse. Today’s elevated volume, the highest in nearly a month, shows a lot of people responded to this weakness by selling the dip.  While it is clearly an overreaction to claim a 1% pullback from all-time highs will lead to the next big selloff, this is actually a healthy response for the uptrend. The more cynical the crowd, the more viable the rally.

The market is still setting up nicely for October sellers to chase prices higher into year-end. Underweight money managers can only wait so long for their predicted pullback before they have to concede defeat and start buying. If they want to keep their job, they cannot look foolish by missing this easy up-trend when end of year statements come out.

Jani

 Posted by at 10:45 pm on December 1, 2014
Nov 242014
 
Source: AAII.com 11/24/2014

Source: AAII.com 11/24/2014

End of Day Analysis:

Stocks closed higher in a quiet, holiday-week session. Most big money managers are on vacation, so don’t expect a lot of meaningful trade this week. But the low volume leaves us vulnerable to volatility as smaller traders exert more influence over the market.

Paradoxically, the higher the market goes, the more nervous traders get. In AAII’s latest bulls/bears survey, bullishness actually decreased 9%, hitting 5-week lows all while the index kept setting record high after record high. We see a similar phenomena in the Stocktwits’ SPY sentiment gauge that is still more bearish than bullish. Don’t let anyone fool you into believing this market is overly bullish simply because we are at all-time highs.

Source: Stocktwits.com 11/24/2014

Source: Stocktwits.com 11/24/2014

Almost every day in September and October ended with above average volume. That tells us there was a whole lot of selling going on. All of it at lower levels from these record highs; some of it at much lower levels. These recent sellers are falling victim of regret while they watch the market march higher without them. Pressure is mounting to jump back in as the fear of a market collapse is quickly giving way to fear of being left behind. Expect the market to continue higher as these regretful sellers continue chasing the market higher into year-end.

Jani

 Posted by at 9:55 pm on November 24, 2014
Nov 192014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis:

Volatility crept back into the market as early trade gave back all of Tuesday’s gains. It was a gut-check for bulls when prices slid nearly non-stop through the first two hours. But just like it was supposed to, prior resistance at 2,040 turned into support and we bounced right off of 2,040. While we still finished in the red, the midday rebound was clearly bullish.

With fresh memories of October’s demoralizing plunge, traders still have a hard time warming up to this relentless assault on record highs. The lack of enthusiasm is clearly evident through the low volume rally. Everyone automatically assumes the market has to be wildly bullish as it sets new high after new high, but burned traders remain far more skeptical than they were earlier in the summer. This doubt and worry is the fuel that keeps pushing the market higher.

Big money was patting themselves on the back when they took profits this summer, but countless all-time highs later, these same managers are under intense pressure to buy back in at higher levels, else they risk being left even further behind. It is this pressure to chase that keeps a bid under the rally and why every ten-point dip keeps getting bought. Owners that don’t want to sell and managers that need to buy is a recipe for higher prices.

Jani

 Posted by at 10:24 pm on November 19, 2014