End of Day Update:
Buyers jumped back in following yesterday’s minor dip. Volume was modestly higher, but still well under average as the trend of apathetic trade, or more accurately a lack of it, continues. Owners are comfortable owning and few are selling the strength. Those that don’t believe in this bounce already sold it, with the more bold going short. And most with cash are reluctant to bid up prices in anticipation of future gains. Those factors conspired to leave us slightly above the recent 1,910/1,940 consolidation. While today was technically a breakout, the lack of follow-on buying was uninspiring. Of course the more widely followed and significant level is 1,950. That has history going back to early June and will likely generate far more trading activity than a minor break of 1,940.
Tuesday evening I said Wednesday would be a big day because either we breakout to the upside, or slip back into the consolidation. And wouldn’t you know it, the market made a liar out of me by doing neither and instead creeped higher, but fell shy of a 1,950 breakout. Being so close to a major technical level is too tempting for market makers and bots to not push us through, triggering all the automatic breakout buying and short-covering that would follow. But what happens after that is what we are most interested in. Do we find support and continue higher, or is this the last gasp of the rebound before retreating back into the consolidation?
If I am right/wrong:
At this point the market could go either way. We are nearly exactly in the middle of the 1,910/1.990 trading range that began in mid-May. At the halfway point it is hard to claim we are overbought or oversold. Without an edge one way or the other, the best trade is to wait for a better trade. If forced to choose, at this point I would stick with the up-trend simply because that is where the momentum is.
Holding above 1,950 and ignoring fearful headlines is bullish. Stalling and retreating back into the trading range is not necessarily bearish, but at best it means the rally needs more time before continuing. Looking ahead, most likely the real trading opportunities will come after Labor Day and everything before then is just noise.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.