Holding the 200dam

By Jani Ziedins | Intraday Analysis

Nov 20

S&P500 daily at end of day

Markets traded flat in this low-volume holiday-week session.  Today’s action supported Monday’s rebound and we’ll probably see higher prices before lower prices.

MARKET BEHAVIOR

Stocks traded sideways after Monday’s tremendous rally.  Volume was light during this holiday week, but it is supportive to see the market close above the 200dma for the second consecutive day.  Light volume makes the market susceptible to manipulation, but the cynical bears were unable to dent yesterday’s big move.

MARKET SENTIMENT

Clearly the last 50 S&P points were primarily driven by late shorts rushing for cover.  Most often the obvious trade is the wrong trade and when your neighbor is telling you how he sold all his stocks because the market is going to collapse, you know the market is becoming a safer place.  And that is exactly what happened here.  All the emotional sellers sold, there was no one left to sell, and prices rebounded as soon as supply dried up.

But the thing any bull needs to remember is short-squeezes are not sustainable by themselves.  We need follow on buying from big money managers to continue this rebound.  And chances are they will take a wait-and-see approach, especially through the remainder of this week because most senior traders are out for the holiday.

TRADING OPPORTUNITIES

The markets are especially sensitive to headlines out of D.C.  There is probably more room to the upside and that remains the high-probability trade, but any bad headline could crush the markets.  No doubt our politicians are sensitive to this and are weighing their words carefully.  That doesn’t mean someone won’t make an off-the-cuff comment that spooks the market, but it is more likely our leaders will deliberately measure and parse each word carefully, fully cognizant of what will happen if they don’t.

We very well could retest 1350 in the near future, but we’ll probably push up to 1400 first.  Currently the market is split between passionate bulls and equally passionate bears.  This is a recipe for volatility and we should expect some wild swings as the market oscillates between one extreme and the other.  But this presents a beautiful trading opportunity for anyone willing to buy the dips and sell the rallies.  In this environment take your profits early and often because the market will snap back before you know it.  We’ll probably see several failed breakouts/breakdowns before this finally moves out of this range for good.

The optimist in me continues to believe all the bad news is already priced in and this will resolve to the upside as the world continues to dig itself out of this hole.  Many people want to argue with this view, but their cynicism is what will fuel the rally.  If everyone was excited about the future, then there is nowhere to go but down.

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.