Bulls cannot get it done

S&P500 daily at end of day

End of Day Update

Market Analysis:
Even with the wind at their back, bulls could not get it done and early strength faded into yet another down-day. It doesn’t matter what the financial press attributes this weakness to because we know the truth, no one wants to buy this market.

Every day the market is flooded with hundreds of pieces of news and data. Some of it is bearish, some of it is bullish, and most of it is irrelevant. But in the short-term, none of it matters because most traders simply look for an excuse to justify their preconceived bias. If they are bullish, they will find plenty of reasons to buy. A bear will find countless number of reasons to dump his stock. Allegedly the market sold off on a slight variation of Russian and European news that’s been making the rounds for months. Who cares why the market sold off, the only thing that matters is what people are thinking and how they are positioned.

We are still in a long-term secular bull market and this is just another buyable dip on our way to record highs, but we need to exercise restraint in the near-term. The inability to escape the lower reaches of this trading range proves we are not yet oversold. We all know the market always overdose it, so we need to wait until it reaches those extreme oversold levels before calling a bottom. While some use complicated mathematical formulas to calculate overbought and oversold levels, the only thing that matters is what the market thinks. We’ll know when we’ve gone too far because, it will snap back with decisive speed and ferocity. Groping for a bottom for five days is anything but ferocious.

If I am right:
Watch out for another leg down. This slow motion crash isn’t enough to shake free those hanging on by their fingertips.  We need something more spectacular to send the last of the holdouts scurrying for cover. Breaking under 1,900 support will trigger an avalanche of technical stop-loss orders and the swiftness of that automatic selling will convince others to join in the dash for the exits.  But rather than cascade into the collapse everyone fears, this will be the dying gasp of this correction before we capitulate and bounce higher.

If I am wrong:
The longer we hold near the lows, the more likely it is we will crash through support, but there is a chance this slow motion selloff is convincing enough fearful owners to sell to more confident dip-buyers.  If we churn over an extended period of time, we might not have enough fearful owners left to trigger another emotional selloff.  This is a much more ambiguous bottom and it is impossible to pick a nearby point where it would be clear I was wrong.  I wouldn’t trust this sideways consolidation unless it stretches on for a few more weeks or finally holds above 1,950.

Trading Plan:
The longer we hold near the lows, the more likely it is we’ll see another leg lower.  Shorts can hold on for another leg lower and dip-buyers need to keep their powder dry until we have that capitulation bottom.  Longer-term investors can ride this out, but they should wait a few days before adding to their favorite positions.

Jani