End of Day Update
Stocks found support above 1,960 and recovered most of Tuesday’s decline, but today’s up-volume was significantly lower than the selloff.
Confident owners chose not to not join the short-term traders pushing the market down the last couple days. The lack of follow-on selling by a wider group of owners cut off supply and the market bounced as we ran out of sellers.
While the wave of selling ended rather quickly, we need buyers to push us back up to record highs and it often takes several days of support for prospective buyers to regain their confidence. This period of no one selling and no one buying is what gives us the sideways chop that shows up as a base on the chart.
Baring a catastrophic open Thursday, the selloff died rather quickly. But that isn’t a surprise. In a complacent market, confident owners don’t want to sell, keeping supply tight and preventing downside moves from building momentum. While it is easy to say the selloff is dead, if buying dips were easy, everyone would be rich. We should expect the market to bounce around for a couple of days, even undercutting Tuesday’s 1,960 lows, before resuming the push to 2,000.
Today’s bounce could appear to be be the obvious buy-the-dip trade. The problem with obvious trades is they rarely work. If this was a false bottom, expect the selling to resume in short-order.
Closing above 1,960 Thursday and Friday tells us this market is headed higher. If selling accelerates after breaking 1,960, expect the slide to continue. Trade accordingly.
Plan your trade; Trade your plan
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.