Holding 1,870

By Jani Ziedins | End of Day Analysis

Mar 10
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks recovered to flat after slipping modestly in early trade as they continue finding support at 1,870 for the fourth consecutive day.

MARKET SENTIMENT
The market remains near all-time highs because owners and buyers keep believing in these levels.  We’ve seen multiple headlines that could have sent us tumbling if this rally was fragile and over-extended.  Instead it ignored this “noise” and suggests we are standing on firm ground.  Today’s trade was on light volume, showing this strength was due more to reluctance by owners to sell than buyer’s enthusiasm to buy.  Since price is derived from both supply and demand, as long as owners remain confident and reluctant to sell, the resulting tight supply supports prices.

TRADING OPPORTUNITIES
Expected Outcome: Upper end of trading range
Markets often oscillate around the “right” price.  Sometimes they are too high, and others too low.  Since there is virtually no fear in the markets, that suggests it is more likely we are too high, rather than too low.  This makes it a riskier time to own stocks since the upside is more limited than the downside.  Momentum is clearly higher, but the risk/reward of owning here not great.  The best profit opportunities come from buying fear and selling confidence.

Alternate Outcome:
The recent dip to 1,740 cleared many weak holders and left us with a confident ownership more willing to hold risk and volatility.  When no one is interested in selling headlines or weakness, markets march higher.

Trading Plan:
Stocks are the most risky to own when it feels the safest.  Be careful with long positions here as the potential upside is dwarfed by the risk below.  Long-term owners can continue holding, but they should wait for better prices before adding to positions.  Short-term traders should lighten up and bears can jump on violations of support.

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.