AM: Impressive bounce off the 200dma

By Jani Ziedins | Intraday Analysis

Nov 28

S&P500 daily at 1:05 EST

Bulls are eating bear lunch today as the market bounced smartly off of the 200dma on a failed selloff.  The market will selloff, just not yet.

MARKET BEHAVIOR

The markets attempted a selloff in the first hour of trade, but rebounded just as sharply after getting close to the 200dma. The market tried a second selloff during an Obama press conference, but the market bounced back and is now trading in the green.

Clearly there are people trying to takeout this market, but the market is unwilling to go along and bounces back each time.  All is not well with the world, but you have to respect the market’s resilience here.

MARKET SENTIMENT

Little doubt this early selloff seduced many bears into jumping on the short bandwagon, but this quick rebound shows the market is not ready to selloff yet.  The short trade isn’t working because it is failing to trigger wider selling by other holders.  The recent dip to 1350 shook out most of the weak holders and the current crop of owners is more comfortable holding and less likely spooked out of the market.  In addition, these recent shorts are creating the fuel for yet another short-squeeze.  All of this makes for a tough short.

TRADING OPPORTUNITIES

A pullback is in our future, the market just isn’t ready yet and we have to respect this supportive price action.  This is a perfectly acceptable place to take some long profits off the table, but it is still a little too early to short the market as many bears are finding out….yet again.

While I expect we might see more upside here, the risk/reward is not very favorable for owning stocks here.  There is limited upside remaining in this move accompanied by quite a bit of downside exposure.  But this is just for the short-term trader.  Medium- to long-term traders should expect some near-term volatility but will be rewarded for sitting through it.

INDIVIDUAL STOCKS

AAPL is turning into a high-beta proxy for the markets.  It saw the same early selloff but is now at the day’s highs, although not quite in the green.  A little retracement here is a good thing because the recent run was a little aggressive and unsustainable.  Some churn here makes the rebound more likely to stick.

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.