Still finding support

By Jani Ziedins | Intraday Analysis

May 11

S&P500 daily @ 12:45 EDT

Stocks are in positive territory this morning in the face of JP Morgan’s pressure on the financial sector.  The bank reported $2b in ‘hedging’ losses.  How that happened is anyone’s guess, but lack of risk management and oversight of the trading operation seems to have crucial role.

As for the indexes’ price-action, they continue to trade slightly above recent lows.  It is nice to see we have not triggered an avalanche of sell-orders, but the buy-the-dip crowd is also unable to move the market higher.  The one thing that remains intact is the series of lower-highs and lower-lows and it will take a material move from here to reverse this pattern, requiring the markets to break multiple layers of resistance before reclaiming the highs of two weeks ago.  We have the former support at 1360 that is now acting as resistance, the 50dma, and then finally moving through the 1415 and 1422 highs.  Not that it can’t be done, but these are several speed bumps along the way that will potentially slow down any move higher.

The thing that still concerns me is the lack of panic selling.  Typically the market bottoms by flushing out weak holders as it becomes irrationally over-sold.  It is this emotionally impulsive selling that lets savvy contrarian traders step in for quick profits.  In many instances orderly sell-offs are far too rational to form solid market bottom.   The lack of panic selling indicates there are still a lot of optimistic bulls out there and sentiment needs to come down a notch or two before we can bounce and head higher.  Of course I don’t have a crystal ball and the market is going to do whatever it wants to do regardless of what I think, but using history as a guide, it seems like we still might have more room on the downside.  But either way we need to take our cues from the market and respond accordingly.

Stay safe.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. 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 manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, 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 young children.