Disaster Averted

By Jani Ziedins | End of Day Analysis

Jun 26
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks plummeted out of the gate, but recovered most of those losses by the close.  Early weakness pushed us under prior support at 1,950, but the selling stalled minutes later as we bounced off 1,945.  Volume was surprisingly light for such a wild ride.

MARKET SENTIMENT
Bears who claim this market is complacent are 100% correct, unfortunately for them that complacency is working to the bull’s advantage.  After a horrific open, bears had the perfect setup for an extended and bloody two or three percent selloff.  What happened instead?  Owners shrugged and continued holding, abruptly stymying the wave of selling.  What was supposed to result in a mad rush for the exits was met with a yawn as complacent owners stayed put.  Without supply flooding the market, it was inevitable we would bounce and that is exactly what happened.  The notion of complacent owners is further evidenced by the low volume that showed how few people reacted to Thursday’s dramatic open.

Conventional wisdom says complacency is bearish, but as we saw first hand today, in the near-term complacency is quite bullish.  Only over time does complacency become a problem after most prospective buyers are already fully invested and there is no one left to buy.  As we keep making new highs, clearly that is not the case yet.

TRADING OPPORTUNITIES
Expected Outcome:
Holding 1,950 through Friday will show bulls are still in control of this market.  Failing to maintain this level means we are quickly running out of dip-buyers.  While no one knows for sure which way this will go, the market will tell us real quick what its intentions are.  Breakdowns happen shockingly fast, so if this pause stretches across multiple days, that tells us Wednesday’s selloff was little more than a head fake.

Trading Plan:
1,950 is quickly shaping up as the line in the sand for both bulls and bears.  Hold above this level, then bears should cover their shorts.  Break under it and bulls should take some profits off the table.

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.