May 08
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks took investors on another wild ride.  This time we surged higher midday but gave it all back by the close.  We are seeing enthusiastic moves, but few last more than a couple of hours as we remain stuck between 1,860 and 1,890.  So far the market is holding above the 50dma, but there are only so many times we can test it before it gives way.

MARKET SENTIMENT
This market has everyone chasing their tails and reactive traders are getting carried out in body bags.  The problem is most of the market is trading with a bias.  Bears sell every dip and bulls buy every rally.  With these whips, that guarantees buying high and selling low.

The reason we are stuck in this range is each side is so entrenched that war with the worlds largest energy producer or the best employment report in years is enough to convince people to change their stubborn outlook.  Bulls are bullish and bears are bearish regardless of what is going on around them.  Why this matters to the rest of us is markets only move when people change their mind and start buying or selling to reflect that new outlook.  I have no idea what will break this logjam, but it needs to be bigger than war or the strongest hiring binge in years.

TRADING OPPORTUNITIES
Expected Outcome: Stalling near the upper end of the trading range
Summer is often a slow time of year because most big-money decision makers are on vacation and the junior traders don’t have the authority to initiate large positions.  Expect the sideways trade to last until everyone comes back in the fall.  But since we are at the upper end of the recent trading range, sideways could include a 100-point dip to the 200dma.

Alternate Outcome:
As turbulent as recent trade has been, the longer we hold these levels, the more likely it is the resolution will be to the upside.

Trading Plan:
Anyone who’s been reacting to these swings has been getting chewed up.  Without an exploitable edge, the best trade is to not trade.  Unless buyers step in to save this market, expect it to fall back into the heart of the trading range, but without a fundamental catalyst this won’t lead to the larger correction many are calling for.

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.

fleischut May 8, 2014

Tell IWM, QQQ, TSLA, FEYE, etc etc that we’re in a logjam! This is like the stock market crash that no one ever noticed. Kind of fascinating.

Michael McCreary May 8, 2014

We are in a classic 1-2-3 top formation and it also looks like a nice head and shoulders formation and I see the s&p dropping below 1700 by Sept.

Ron May 9, 2014

Strongest hiring binge in years, seriously… more distortion, take out birth death model scam and estimate that some of those that lost jobs opened businesses and hired employees with savings they don’t have plus more giving up looking for jobs and dropping off and not counted…

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