Bouncing back

By Jani Ziedins | Intraday Analysis

Jan 15
S&P500 daily at 1:16 EDT

S&P500 daily at 1:16 EDT

Intraday Analysis

Stocks broke 1,850 for the first time as the market fully recovered Monday’s selloff.

We are in the early days of earnings season and so far traders are happy with what they hear.  The market was spooked on Monday, but that selling appears impulsive since we rebounded so quickly.

As we’ve seen in recent months, complacent owners are not concerned by modest weakness.  Their confidence in the future keeps supply tight and prevents selloffs like we saw on Monday from gaining momentum.  Selling pressure stalls quickly when most owners are not interest in selling.

Contrary to popular opinion, complacency is often bullish.  Running out of new buyers is what we need to fear.  Weakness in the bond market over the last nine months is flushing money out of those securities and they are pumping those funds into equities.  As long as people keep throwing new money at the market, it will continue defying gravity.

Expected Outcome:
Hard to fight what is working.  The market has been given multiple invitations to breakdown, but every time this weakness fails to trigger wider selling.  This rally is long in the tooth and it is realistic to expect the rate of gains to slow.  The most vocal in the marketplace are debating between big gains or a correction.  More likely the answer lies between these two extremes.

Alternate Outcome:
With little fear left in the market, it is vulnerable to a large wave of selling if complacent owners are spooked by an unexpected bad headline.   While we can continue marching higher on the back of complacency, stay near the exits and get out quickly if it appears like a wave of fear and uncertainty is infecting the market.

Trading Plan:
If the market wants to consolidate recent gains, the best trade is buying weakness and selling strength.


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.