Pushing toward highs

By Jani Ziedins | Intraday Analysis

Feb 14
S&P500 daily at 2:02 EDT

S&P500 daily at 2:02 EDT

Intraday Analysis

MARKET BEHAVIOR
Stocks are modestly higher as they continue adding to the recent rebound.  We are about 15-points from all time highs and back within the early January consolidation.  Support is back near 1,810 and overhead resistance is at 1,850.

MARKET SENTIMENT
Whatever the market was afraid of last week is a distant memory as the only thing traders are worried about now is being left behind.  Clearly bears are getting squeezed and doing much of the buying as they cover their shorts for a loss.  The bigger question is if a wider group of investors will support these prices once bears and chasers are done buying.  Having seen this market so decisively bounce back, no doubt it is erasing fears this market is on the verge of imploding.  Whether real or not, that perception makes traders more comfortable buying and holding stocks.  With parts of this world falling apart, the US market’s resilience is looking like an island paradise to international investors.

TRADING OPPORTUNITIES
Expected Outcome: Inside trading range, headed to upper bound
We’ve come a long way from the 1,740 lows and are no doubt closer to the end of this bounce than the start.  Anyone buying the dip here is clearly late to the party because best profit opportunities arise when everyone is filled with dread, not relief.  While momentum can continue carrying us higher, the risk/reward changed dramatically.  We are 15-points from recent highs and 85-points from the lower bound of a potential trading range.  The market will likely consolidate recent gains and the best trade continues being buying weakness and selling strength.

Alternate Outcome:
With as bad as the rest of the world has become, we could see international investors flock to US equities.  This demand could be what fuels the next leg higher.

Trading Plan:
Stocks don’t go straight up, so expect the rate of gains to slow.  At best the market will consolidate recent gains just under or just above resistance at 1,850.  Anyone sitting out of this bounce doesn’t need to chase here and can wait to buy the consolidation or dip after the frenzied buying dries up.  Swing-trades can start looking for opportunities to take profits.  We only make money by selling our winners and selling strength is the best way to avoid letting profits evaporate.  Either sell proactively or use a trailing stop to protect these gains.

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.