Market holds gains on weak employment

By Jani Ziedins | Intraday Analysis

Sep 07

MARKET SENTIMENT

“To ease or not to ease, that is the question.”  Ben Bernanke.

Jobs numbers came in lighter than expected, but the market opened higher because in its view, this weakness increases the likelihood of further quantitive easing.  Never mind that it shows the economy is weaker than expected, free money is what the market cares about right now.  But as I’ve shared before, I’m not much of a news guy because news doesn’t drive the market, traders do.  So instead of focusing on if the headlines are good or bad, it is more profitable to follow what other people think of this news.  And so far the market seems to be OK with this worse than expected employment report.  Initial support at these levels is important in holding yesterday’s big gains and new high.  A couple of weeks ago the market made a new high and then immediately reversed lower.  Ideally this time the gains will stick.  A lot of bears are saying this breakout should be shorted and if they fail to move the market lower, it indicates these levels are here to stay and potentially higher levels are in our future.

The surprising thing was to see how stubborn many of the bears are after yesterday’s breakout.  Rather than jump on board, they increased their criticism of the rally and said the new high was that much better of a place to put a short.  That is throwing good money after bad if you ask me.  The only time to add to a trade is when it is working.  If something is going against you, it is time to start reducing your exposure and reevaluating your thesis, not doubling down.  The bears might eventually be proven right, but timing is everything in the markets.  Right idea, wrong time will get you killed.  Of course I’m not on the bears side when looking down the road.  I think the world is recovering and the future is brighter than the present.  The recovery might be frustratingly slow, but they usually are.  Remember, the market is better at predicting the news than the news is at predicting the market.

MARKET BEHAVIOR

Yesterday’s breakout was big support for this rally and decisively put the 1400 level struggle behind us.  All the big days in the market have been to the upside, a fairly unconventional phenomena in the markets where typically downside days provide the greatest excitement.  Down days are normally bigger because fear is a stronger motivator than greed.  People are more inclined to rush for the exits simultaneously than try to pile into the market at the same time.  So what gives with these huge spikes higher?  It is the same phenomena except turned on its head because of how many traders are short the market.  In the current environment, the rush for the exits is bailing on short trades as all the bears are in a mad dash to cover their positions.  This is called a short squeeze and we are having one after another as bears keep getting blown out of this market.  We’ll see when the bearishness finally recedes when the market flips back to more normal behavior of creeping higher and plunging lower.  Until then, stay long because the bears will keep bidding up the market until they run out of money.

TRADING OPPORTUNITIES

No reason to quit what is working.  The market wants to go higher in spite of the fundamentals, the tripple-top technicals, or whatever else people are using to say this market is overvalued.  The market wants to go higher and it is more profitable to go with it than to fight it.

I’m out of the office today, so I won’t be able to post charts or analysis of individual stocks.   The normal routine will be back on Monday.

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.