Intraday Volatility Continues

By Jani Ziedins | End of Day Analysis

May 07
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
It was another whipsaw day.  We gapped higher at the open, crashed through the 50dma within an hour, bounced back into the green by midday, and finally closed at the high of the day.  We covered over 50-points in this back-and-forth and continue the trend of violent intraday moves.  This was the third dip under the 50dma in the last 30-days.  Each time we bounced back, but there are only so many times a bull can tempt fate.

MARKET SENTIMENT
While it is encouraging to see the market bounce off the 50dma, sustainable rebounds typically explode higher and don’t look back.  This one keeps stalling after the brief dip-buying frenzy abates.  Lack of follow through suggests few with cash are willing to spend that money near record highs.  The market has been buoyant on the confidence of owners who are unwilling to sell regardless of headline risk or weak price-action.  The lack of owners rushing for the exits keeps supply tight and makes it easier for modest dip-buying to prop up the market.  But if we keep running out of new buyers every time we approach 1,900, even tight supply will not be able to save this bull.

This market feels fragile.  We had the best employment report in two years, but prospective buyers were unimpressed and instead focused on the half-full fine print.  If they wouldn’t buy that headline, I cannot think of anything else that would get them excited enough to bid up prices.  If good news leaves us flat, it makes me nervous to think about what would happen when we get bad news.  With so few active buyers, it wouldn’t take much selling to send prices tumbling lower.

TRADING OPPORTUNITIES
Expected Outcome: Stalling near the highs of the trading range
Limited upside and huge downside is a great place hold cash.  Making money in the markets is easy, the hard part is keeping it.  The key to long-term success is not giving back our profits by forcing a trade when we don’t have an edge.

Alternate Outcome:
The longer we hold these levels, the more likely this consolidation will breakout to the upside.

Trading Plan:
It feels like we are skating on thin ice and it is best to leave this market to the gamblers.  The disciplined trader will wait for the odds to fall in his favor.  If something spooks this market, that could finally trigger the selloff everyone’s been waiting for.  But since momentum is higher, it is best to wait for the first cracks to form before trading against the up-trend.

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.