The market again continues to hang out right at the 50dma and neither the bulls or bears have the strength to break the market from these levels. It is still early in the day and we could see a more directional move this afternoon. Today is options expiration so volume will be inflated, but it will still take a price move greater than 1.5% to trigger a follow through day. Ideally we’d like to see volume far higher than yesterday to demonstrate the elevated volume isn’t simply a technicality due to the options market, but is really institutional investors getting behind the upside move on the long side.
The one helpful part of hanging out at the 50dma is the average has been inching up with every passing day and so while we are sitting on support, the market is still in a modest up trend. But of course the real tell will be when we break above or below this consolidation in volume. The last few weeks has done a good job of bloodying premature bulls and bears anticipating technical breakouts and they are getting far more gun-shy with each successive humiliation. What this means is the next move out of the trading range is more likely to be the real deal because fewer premature day traders are artificially pushing the market. With a diminished influence of technical and momentum traders, the next price move will be more influenced by institutional investor supply and demand and thus more likely to stick than the recent peak-a-boo breakouts that quickly retreated back into the trading range. There is no grantee the next peak-a-boo won’t also retreat, but the probability of the market showing its true colors increases with each failed peak-a-boo due to the decreased influence of technical and momentum traders.
Again, no reason to trade these daily swings and it is best to wait for a confirmation either direction. It is better to give up a little upside in order to improve your odds of success by waiting for a higher probability trade.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.