LA: Buyers keep buying

By Jani Ziedins | Weekly Analysis

Apr 28
S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead

MARKET BEHAVIOR
Elevated volatility continued for the third week as the market rose 1.75% and extended the bounce off the 10wma.  We remain inside the recent trading range between 1540 and 1597, but are above previous resistance at 1570.

MARKET SENTIMENT
Increased volatility is often seen in market tops as the debate between bulls and bears intensifies.  This week’s rebound was the third largest weekly gain since the start of the year, but for all the criticism thrown at this market, we are still within 1% of the highs.  Believe in this rally or not, we live and die by price and right now prices are near all-time highs.  This rally is fueled by an abundant supply cynicism and is why we continue heading higher.

Markets go down because people stop buying and start selling.  No matter how far this rally came, holders keep holding and buyers keep buying.  Until this changes, expect the rally to keep going.  Every dip is a buying opportunity because large institutions use the weakness to build their positions.  It is anyone’s guess how long this can continue, but we need to stick with that is working until it stops.

TRADING OPPORTUNITIES
Expected Outcome:

We remain inside the trading range between 1540 and 1597.  Recent volatility could signal the last gasps of the rally before we roll over, or the volatility is flushing out weak hands and clearing the way for another leg higher.  Elevated volatility accompanies market tops and we have that in spades, but market tops are due to a lack of buying.  So far we have an endless supply of buyers willing to rush in and buy every dip.  As long as we keep making higher highs, the stick with the market.

The best thing about being small and nimble is we can respond to the market’s moves and don’t need to anticipate them.  If we don’t know comes next, we simply wait for the market to tell us.

Trading Plan:
Until we have evidence to the contrary, assume the rally is alive and well.  The market is stuck in a range between 1540 and 1595.  Setting new highs shows there are ample buyers willing to chase.  If we stall and break through support at 1570, look for continued selling to the lower end of the trading range.  As long as we stay above 1540, the rally is still intact and the dip is buyable.  But there are only so many times we can test a level before failing, so be extremely cautious and use tight stops under this level.

Plan your trade; trade your plan

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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.