Cleared for takeoff

By Jani Ziedins | End of Day Analysis

Apr 28
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
It was a volatile but productive day.  Stocks surged higher in early trade, imploded and sliced through support, and rebounded back into the green by the close.  The volatility saw us move more than 60-points intraday and trading volume was the most enthusiastic we’ve seen in some time.

MARKET SENTIMENT
If someone was bored Monday, clearly they were not paying attention.  The price action was as dramatic as it gets and left both bulls and bears bloodied.  It seduced dip buyers with early strength, crushed their soul with a 30-point collapse, built up the hopes of the bears before smashing them to pieces with a late day rally back into the green.

While it was tough to be optimistic midday, the strong close on high volume was as bullish of a sign as it gets.  The best capitulation bottoms undercut recent support, sending optimists scrambling for cover.  This surge of selling eventually exhausts supply and we bounce higher when shares become scarce.  That was exactly what happened today and likely means 1,900 is easily within reach.

TRADING OPPORTUNITIES
Expected Outcome:  Push toward all-time highs
Today’s move was as bullish as it gets.  We flushed out weak owners and replaced them with confident buyers willing to own this weakness.  If anyone could hold this volatility and fear, there is little that will scare them and they are in it for the long haul.  When the majority of the market becomes uninterested in selling, supply tightens and prices head higher.

Alternate Outcome:
While it is hard to be bearish given how the market traded today, failing to build on these gains will be a huge warning flag.  Undercutting 1,850 over the next couple days means the lows in mid-April are in jeopardy.  We’ve been given the green light to go higher, but if the market cannot rally following this textbook capitulation bottom, then plenty of downside remains.

Trading Plan:
The selloff is over and shorts should cover if they haven’t already.  Swing traders can hold on for a test of old highs, but I’m still not convinced this move will lead to another large rally leg.  Instead, expect the sideways trade to continue into the Fall and take profits early and often.

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.