Sep 042014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Today was one of those days that make you stand up and take notice. The ECB surprised everyone with their unexpected rate cut, but rather than rally on all the free money, US stocks sold off from early gains. When markets selloff on good news, watch out!

There are always two ways of looking at things. Until this point, quantitative easing was seen as a good thing and our markets are up huge since the US Fed started the program a couple of years ago. But there are two sides to every story and it seems the market is taking the contrarian view with the ECB rate cuts. Rather than embrace the easy money, the market became concerned this unexpectedly aggressive action is required to keep Europe from falling apart. The means market is starting to reconsider how little risk premium it is currently carrying at these record levels.

Markets frequently overdo things on both the upside and downside. This rally defied all the naysayers over the last two years, but every good thing must come to an end. Are we there yet? If the market continues to struggle  in the face of normally good news, that is a strong warning to us.

Friday morning we have US non-farm payroll.  I expect a respectable number and a modest bounce in equities, but if the market fails to gain traction and recover Thursday’s weakness, we could see more selling in the near-term. The best trade over the last two years has been buying every dip, but failing to hold the 50dma so soon after reclaiming it shows many investors are no longer throwing money at this market and we could be in the early stages of a larger correction. Continued weakness on Friday gives us an interesting shorting opportunity, but brushing off Thursday’s weakness and closing strong shows the market is ready to continue higher.

Jani

 Posted by at 10:18 pm on September 4, 2014
Sep 022014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update: 

Stocks barely held 2k following the Labor Day break. After opening modestly higher, there was a swift, late-morning selloff that pushed us under 2k. It wasn’t until the final 20-minutes of the session that we finally held above this psychological milestone. Volume was elevated in comparison to the lethargic flows in the final weeks of the market’s traditional summer session. In coming weeks we should expect big money to return to the markets and begin adjusting their portfolios heading into year-end.

This was the sixth day we traded around 2k. While we cannot break through this psychological barrier, we are not turning away from it either. Without external support, markets tend to fall under their own weight, meaning this sideways trade is actually supportive of a continuation. It shows few owners are worried and locking-in profits. As long as owners continue holding, supply will remain tight and keep propping up this low-volume rally.

There is a tremendous amount of headline noise coming from Eastern Europe and the Middle East, but so far the market is not paying attention to it as we continue to trade near record highs. And it isn’t only the stock market, but commodities too. Between a rising dollar and few worries that any of these situations will expand beyond regional conflicts is keeping a lid on fear and risk premiums. Since most of these hotspots have been flaring up for months without any major consequences, the market is already looking beyond them. If it is on the front page, it is already priced in.

The million dollar question is what does big money see when they look at this market. Are there still bargains to be found? Or are values getting a little too rich to put new money to work? As they look to year-end are they more inclined to keep buying, or will they start taking profits? It is easy to say this rally’s come too far and needs the proverbial ten or 20% pullback. But at the same time it is foolish to fight the trend. I wish I knew the answer, but the best we can do is wait and see what happens. Either we are basing for a continuation, or building a double-top/head-and-shoulders reversal. Only time will tell.

Jani

 Posted by at 9:47 pm on September 2, 2014
Aug 282014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

Stocks cratered when Ukrainian officials announced Russian forces invaded their country. Actually cratered might be a too strong of a word to describe the early 9-point selloff. How about we say stocks yawned 9-points following reports of a Russian invasion.

Here’s the headline bears have waited for and they are dumbfounded by the market’s lack of a reaction. How could such bearish news result in this small of a dip? Easy, everyone who feared the Russian escalation sold a couple of weeks ago during the dip to 1,900.  With all those worrywarts long gone, that means anyone still holding stocks isn’t afraid of the Ukrainian crisis since they already demonstrated a willingness to own stocks through the previous dip.  While the media can hype up the story all they want, if owners don’t care to sell the fear, stocks will hold firm in spite of the noise. The time to sell the Ukrainian crisis was when it first developed. Now that it’s old news, the market doesn’t care. If bears are looking for something to takedown the market, they need fresh and unexpected headlines.

Volume continues to be pathetic leading up to the three-day weekend. Labor Day is the traditional transition from summer trade to the more serious fall session, ultimately leading to year-end positioning. Big money managers that spent the summer at the beach house are returning to work and the decisions they make will determine how we close the year.  Will they feel compelled to chase the market and continue bidding prices up to record highs? Are they content with their portfolio and will coast into year-end?  Or do they see valuations getting a little too rich and start locking-in profits? While we don’t have the answer to these questions now, at least we know what to look for in coming weeks as September trade sets the tone for the fourth quarter.

Stocks continue trading near 2k and show both a lack of breakout buying and profit taking.  But pausing more often leads to a continuation than a reversal, so we should expect the next move to be higher. But if this is the start of the next leg higher, or one last short-squeeze before reversing lower has yet to be seen.  By mid-September we should have a better view on what big money is thinking and how they are positioning for the rest of the year.

Jani

 Posted by at 9:20 pm on August 28, 2014
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
Aug 252014
 
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Break out the party hats, the S&P cracked 2k for the first time.  The market came a long way from the 666 doldrums in 2009 and with the benefit of hindsight, all the predictions of doom and gloom were grossly exaggerated.  Maybe the Fed’s intervention saved us, or maybe it was the resilience of the human spirit.  Either way it shows it is better to bet on the market than against it.  Further, I have no doubt this secular bull is not even halfway done, but that is the long-term view, as traders we are more interested in what comes next.

While the market is clearly higher than it was a couple of weeks ago when it sank to 1,905, bears desperately cling to a few glimmers of hope even as we make record highs.  Today’ volume was pathetically low.  The only day in recent history undercutting today’s low was July 3rd’s half-day.  We were also unable to close above 2k when breakout buyers failed to flood the market following this momentous occasion.  Summer’s traditionally low-volume often leads to more erratic moves since it gives a larger voice to smaller players.  The real question is what will happen when big money returns after Labor day.

With the VIX back in the 11’s, whatever fear sprouted from the Ukrainian and Iraqi crises has clearly vanished.  While the 90-point plunge did a good job purging weak holders, it seems like we returned to nearly the same level of complacency.  While complacent owners are often bullish because their reluctance to sell keeps supply tight, we have to wonder how many prospective buyers have not already bought into the invincible rally.  While markets can top in a dramatic inverted V pattern, more often they end with a double-top or head-and-shoulders.  Very few people see a top coming and either fail to lock-in profits when times are good, or they assume every dip is buyable.  The recent rebound further reinforces the widely held view that every dip is buyable, but by the time everyone knows something, it soon stops working.

While I don’t have a crystal ball, it seems the market is at a critical juncture and either we end the year dramatically higher or dramatically lower .  Will buyers continue to chase prices to record highs?  Or will smart money start locking-in profits in coming weeks ahead of the inevitable pullback?  It won’t be long before we have our answer.  If the market continues marching higher, join the bandwagon, but another dramatic sell off in the near-term will be a big warning sign to anyone who is paying attention.

Two-years ago the market was afraid of its own shadow and traders would scramble for the exits every other week.  Now it seems civil wars and sanctions against some of the world’s largest oil producers hardly raises an eye.  My how far sentiment has swung in a couple of years.  While everyone knows the market will pullback at some point, the hard part is figuring out exactly when it will happen.  Is it next week, next month, or next year?  I think the next few weeks will go a long way to telling us how the year will end.

Jani

 Posted by at 9:38 pm on August 25, 2014