Finishing flat

By Jani Ziedins | End of Day Analysis

Jul 28
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update

MARKET BEHAVIOR
Stocks recovered early losses to finish flat.  Volume was below average, even by summer standards.

MARKET SENTIMENT
Last week we failed to breakout; today we failed to breakdown.  Seems those with cash don’t want to buy new highs and those with stock are uninterested in selling weakness.  Until someone decides to do something we will continue trading sideways in this developing trading range between 1,960 and 1,990.

Wile bears are pointing to a dozen different reasons we should selloff, the market already knows them and doesn’t care.  Free-markets are exceptionally efficient at pricing in new information and events in Ukraine and Palestine are ancient news.  While either of these situations could deteriorate dramatically, it would take something even more shocking than downing a civilian airliner to get the market’s attention.

While there is little doubt this market will pullback at some point, the hard part is figuring out when.  Some are making seemingly bold predictions of a 20% pullback in the next 12-months, but what happens if we go up 30% before the expected correction?  Knowing what the market will do next is easy, getting the timing right is where all the money is made and a “sometime over the next 12-month” prediction isn’t worth the paper it’s written on.

TRADING OPPORTUNITIES
Expected Outcome:
Given the opportunity to both breakout to new highs and test support in recent days, the market instead chose to do nothing.  It seems like it wants to consolidate in this 1,960 to 1,990 trading range over the near-term.

Alternate Outcome:
This morning’s bounce could be little more than an automatic buy-the-dip reflex, but if we are running out of dip buyers, the market will let us know when it fails to hold 1,960 support.

Trading Plan:
The market is not giving us a lot to trade.   Since we are still in an uptrend, we should give bulls the benefit of the doubt, but as far as risk/reward goes, it feels like a coin-toss and we should wait for better odds.

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.