End of Day Update
Stocks recovered a portion of last week’s losses in one of the lowest volume sessions of the year. We reclaimed 1,850 support and remain above the 50dma.
The market didn’t bounce Monday because dip buyers flooded the market, but because existing owners were uninterested in selling and the resulting tight supply supported prices. While nothing improved over the weekend, things didn’t get worse either. Sometimes no new bad news is enough to calm nerves. Given the low volume rebound, this only reassured owners and kept them from selling while most prospective buyers continue waiting for more clarity before rushing in to buy. Even though tight supply can slow the slide, we need conviction from buyers to push us back to new highs. So far buyers are not feeling it and we need to be suspicious of this rebound.
Expected Outcome: At the upper end of the range and vulnerable to a pullback as geopolitical risks loom large
Sometimes the market blows risks out of proportion, others it under appreciates the dangers. Given the market is 1.3% from record highs, the market is many things, but panicked over current events is not one of them. While this situation could play out exactly as the market predicts, we are vulnerable to a selloff if anything unexpected comes up. We only get paid to own risk when we buy at a discount and it is hard to justify owning here for a measly 1.3% discount.
Selloff or not, if people are talking about something, it is priced in. While we are barely off the highs despite this geopolitical risks, we could be significantly higher without them. Once the market moves past this headline cycle, it could easily pop as we catch up to where we should have been. We don’t need to selloff in order for there to be attractive values.
While the situation will most likely resolve itself as the market expects, we are not getting paid to own the risks near all-time highs. We could go higher from here, but the risk/reward is not in our favor and doesn’t setup a favorable trade.
Plan your trade; trade your plan
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.