AM: Day number 4

By Jani Ziedins | Intraday Analysis

Sep 26
S&P500 daily at 12:42

S&P500 daily at 12:42

AM Update

Stocks surged at the open, but turned around nearly as quickly and we are trading near breakeven by midday.  So far the market continues holding near 1700 as neither bears nor bulls have the strength or will to break this logjam.

Typically the fourth day testing support reveals which side has the upper hand.  Sucker’s rallies and temporary support is driven by a small group of dip buyers.  Within days they run out of money and the selloff resumes.  Holding support for four plus days shows investors with deeper pockets are buying the dip, or alternately bears ran out of sellers and the move lower stalled because there is no one left to sell the fearful headlines and weak trade.

While today’s trade is weak, it doesn’t seem to be shaking many out of the market.  Recent volatility chased off anyone afraid of Taper and traders had an open invitation to sell Debt Ceiling headlines over the last week.  Those who feared these events had plenty of time to get out and anyone that bought demonstrated a willingness to own risk.

Markets crash when they are caught off guard and right now everyone sees Taper and Debt Ceiling coming from a mile away.  This rally will rollover like everyone one before it, but it will take something new and unexpected.  Ignore the headlines and fear the things no one is talking about.

Expected Outcome:
The market is holding 1690 and we could see a little more weakness, pushing us down to 1675, but if the selloff stays calm and orderly, this is a buying opportunity, not a shorting one.  Selloffs are swift and violent.  Trading sideways with fractional declines is the opposite of swift and violent.  The churn is giving traders the opportunity to sell the Debt Ceiling, but expect those to rush back in when the situation is resolved.  In typical fashion, expect the market to rally in anticipation and anyone buying the news will be late to the party.

Alternate Outcome:
The market is uneasy leading into the Debt Ceiling and looming govt shutdown, contributing to this modest weakness, but most expect it will be resolved without too much fuss.  There is the risk our politicians act especially stubborn and force a govt shutdown.  While most know this will eventually be resolved, the uncertainty will pressure the market and nothing shakes investor confidence like a crashing prices.  At that point it becomes an emotional sell first, ask questions later.

Trading Plan:
There is no reason for the nimble own this sideways chop.  Hopefully many locked in profits up above and are looking to buy back in at lower levels.  Maybe we bounce off 1690, or maybe it is 1670, but keep watching for a good entry point.  Longer-term investors can ignore all this noise because in three months the Debt Ceiling and Taper will be ancient history.  As for shorts, holding near 1700 for a fourth day is not encouraging and they should look for opportunities to lock in recent profits.

FB daily at 12:43 EDT

FB daily at 12:43 EDT

Who would have thought FB  would be one of the hottest momentum stocks?  This is a perfect example of sentiment trading.  It was the biggest and most talked about IPO in a generation.  It dominated headlines and countless funds were buying shares over the counter in anticipation of a huge surge following the IPO.  Unfortunately for many, the IPO hype marked the top  and the stock crashed, eventually becoming the butt of many jokes.  The stock everyone wanted to own was soon the stock no one would admit to buying.  The most loved company quickly because the most hated company and that was finally the time it became buyable.  Don’t trade technicals or fundamentals, trade people.

Plan your trade; trade your plan


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.