WR: Big weekly gain

By Jani Ziedins | Weekly Analysis

Mar 09
S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

Strongest weekly gains in two-months as holders refuse to sell and keep supply scarce.

MARKET BEHAVIOR

Stocks had their best weekly gains since the start of the year, setting multiple-new highs along the way.  Weekly volume was unremarkable on this 2% up-week.  The market is 45-points above the 10wma and 124-points above the 40wma, both fairly reasonable levels for a bull market.

We are 14-points shy of the all-time closing high and 24-points from the intra-day high.  This rally set numerous records already, is all-time S&P500 highs next on the todo list?

MARKET SENTIMENT

Markets moved past recent volatility and rallied six-days in a row, gaining 50-points in just over a week.  This finally produced the large weekly gains we have looked for as a potential signal of impending exhaustion, although volume was modest and shows chasing has not hit a fever pitch yet.

We are within arm’s reach of all-time highs.  Can the market really come this far and not take them out?  Everyone is watching these levels and recent strength is emboldening holders.  They are less likely to sell when all they can think about is how smart they are and much money they are making.   Expect their confidence and greed to keep supply tight.

Losing shorts last week is a major development since they have been instrumental in powering the market higher with their short-covering.  The lack of pop on Friday shows their numbers are dwindling because the gap-up on strong employment was the perfect setup for another powerful short-squeeze.  The reason it didn’t happen is because bears are finally growing wary of shorting this market and were sitting this one out.

TRADING OPPORTUNITIES

Expected Outcome:
The market is drawn magnetically to record highs and no doubt all-time highs are on the todo list.  There are three-weeks left in this quarter and the market has a little more upside left in it.  Strength early in the week, pushing us to 1565 and beyond should be sold.  We’ve come a long way and the market needs to rest, even if it is just a few days.  If the market dips early in the week, finding support above 1530 signals a continuation and record highs before the end of the quarter.  Violating 1530 likely means we ran out of buyers and the pullback is happening.

There is no good reason to hang on much longer in this market.  We have 20-points of upside and 100-points of downside.  That doesn’t create a favorable risk/reward.  Once we are in cash, that frees us to look for the next trade.  Maybe that is shorting the correction, or maybe buying the continuation.  Either way the clear head from being in cash is what let us see the next profit opportunity.

Alternate Outcome:
Six-consecutive up-days isn’t even close to the record and we could string together another six.  But just because it is possible doesn’t mean it is likely.  We are here to make the high-probability trade and that often means getting out early.  Maybe we proactively sell into strength or alternately use a trailing-stop , but at some point we have to say good enough.  If this market has a lot more upside in it, it will slow down and rally at a sustainable pace, meaning it will be easy enough for us to recognize and correction our mistake of selling too soon.

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.