End of Day Update
Stocks gave up early gains and finished in the red for the second consecutive day. We broke under recent support at 1,870, but the “free-fall” only pushed us down a few more points before bouncing off 1,865. Volume was higher than yesterday, but still below average.
Without any real headlines to attribute today’s weakness, the media blamed “profit-taking”. Despite breaking recent support, we didn’t see sellers flood the market as volume remained constrained, meaning today’s weakness was more due to a lack of buying than wave of selling.
Most owners remain confident and are waiting for higher prices. Every time they sold weakness in the last couple years was a mistake and traders have become conditioned to hold weakness and buy dips. While it’s worked to this point, we need to be more careful the less fearful traders become.
Expected Outcome: Near upper end of trading range
Momentum remains higher and so far today’s weakness doesn’t look like anything more than the normal ebb and flow of supply and demand. Down days are a normal part of going higher and without fearful headlines, expect any weakness to be short-lived as owners confidently hold through modest dips.
Markets often move as a herd. Typically it takes something to spook the herd into a stampede, but sometimes selling begetting selling is all that is needed. Journalists always invent reasons after the fact, but sometimes people sell for no other reason than other people are selling.
Some weakness here helps keep the market fresh, but the downside risk of owning sill out weights the upside reward of a grind higher. Long-term owners can continue holding, but intermediate traders should consider locking in recent gains.
Plan your trade; trade your plan
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.