Bears just can’t get it done

By Jani Ziedins | Intraday Analysis

Sep 20

S&P500 daily @ 2:51 EDT

The predicted selloff continues to elude the “experts”.  Trading sideways at new highs is constructive and supportive of a move higher.  Keep doing what is working and ignore all the cynics who are trying to pull you on to their losing side.

MARKET BEHAVIOR

Market dipped at the open, touching 1450 before fighting its way back.  Every dip this summer was a smart buy and there is no reason to expect this time will be any different.  Trends are far more likely to continue than reverse, so the high probability trade remains betting on a continuation.  The dips in June and July were dramatic, but recent consolidations have become far more modest.

The market cannot go up every day and it often takes time to digest large gains before resuming the trend higher.  This is the hallmark of a healthy market setting up the next bull leg.  Markets that continue higher without resting are far more prone to climaxing and reversing lower when the euphoric buying exhausts itself.

MARKET SENTIMENT

Modest pullbacks are good for shaking the tree and shedding weak holders who bought late.  The weakness also tempts aggressive bears to plunge in on the short side.  But as we’ve seen over the last few months, these dips are getting smaller and weaker.  With each failed breakdown, a portion of the crowd expecting a big move lower defects to the long side and the bearish camp has less influence the further along we get.

The key to successful trading is recognizing a change in market behavior and sentiment early.  It is okay, even expected, to be wrong, but it is suicidal to stay wrong.  Bearish sentiment continues among the most stubborn, but many pessimistic traders are giving up their compelling fundamental and technical analysis and changing sides for no other reason than the market is steamrolling them.  If you can’t beat ‘em, join ‘em.  Fighting the tape is bad for your portfolio, sanity, and even health.  Too bad for many it takes a while to realize this and the most stubborn of the bunch will finally change sides, just as the market peaks and heads lower, adding insult to injury.  Always strive for nimbleness and shun stubbornness.

TRADING OPPORTUNITIES

There is no guarantee this dip will bounce, but success is managing probabilities, not predicting the future.  No doubt every successful rebound brings us one step closer to the dip that doesn’t bounce, but the smart money and risk management technique is to collect high probability profits and use those to offset the occasional low probability surprise.

A consolidation here would let some recent breakouts in individual stocks return to proper buy points, allowing anyone who missed the early part of this rally to get in at lower risk points.  Chasing is a dangerous game and those who have the patience to wait for valid entries will face far fewer nerve-wrecking whips in their portfolio.  Success in the markets is a numbers game; wait for the odds to be in your favor before putting any of your hard-earned capital at risk.

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.