Going for a higher high

By Jani Ziedins | Intraday Analysis

Jul 18

S&P500 daily @ 2:24 EDT

Another nice up day in the markets.  In midday trading we moved up against July 3rd’s high, pushing toward yet another higher high.  Yesterday finally provided a strong up day in higher volume, something recent up days have lacked.  Friday’s reversal was largely a short squeeze, but the last two days have added follow-on buying from a wider base of bullish investors, giving more credibility to this move.

The interesting thing to note over the last couple weeks is how all the bad news from the Obamacare ruling to yesterday’s disappointment over the Fed’s inaction led to a sharp sell-off, but then just as quickly reversed higher and ended the day positive.  There is a contingent of traders trying to push the market down after each disappointing headline, but they are quickly run over by value buyers jumping on every dip.

I still think we have a retest of the lows in our near future, but I have obviously been early in my anticipation of that move lower, and in the markets early is the same thing as wrong.  No one can be certain what the future holds and that is why we practice disciplined risk management to mitigate the losses when we are inevitably wrong.  But at the same time, just because I was stopped out doesn’t mean I’m going to give up on the trade either.  In the market it is all about timing and if you get the timing wrong, simply take a small loss and wait for the next opportunity.  Trading is many different things for many different people.  Some people have the need to be right, but I’m in this to make money, so I don’t mind making a mistake, adjusting my plan, and then trying again.

Europe, weak domestic economy, and stagnant jobs growth was widely expected and already priced in the markets.  The new information we have is the affirmation of Obamacare and underwhelming earnings results from most companies.

IBD 85/85 index @ 2:25 EDT

As I shared in an earlier posts, the Obamacare ruling can actually be positive for the markets simply because the result was decisive and we can move forward knowing what the rules are.  Uncertainty is what drives the market crazy and bad news is almost always better than uncertainty.  Even though the market doesn’t like Obamacare’s new rules, it is better than if the Supreme Court forced Congress to refight the healthcare debate.

Earnings have been disappointing, but not so bad as to crash the market.  But it has been enough of a concerting to steer large money managers into defensive names.  When boring blue chip companies like WMT are making monster runs and setting all time highs, that is clear indication big money is seeking safety.  So while the main indexes are holding up well, more speculative stocks, such as those found in IBD’s 85/85, are under performing the indexes and still trading under their recent highs.

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.