Another Failed Selloff

S&P500 daily at end of day

End of Day Update: 

As with most things in life, it isn’t how you start, but how you finish. Again the market opened weak, but found a bottom in early trade and proceeded to climb into the green by the end of the day.

There is a laundry list of reasons why we should selloff; geopolitical tensions, weak domestic growth, stalled European growth, Taper, this bull is five years old, etc. But if there are so many reasons to selloff, why do we keep trading near record highs?

The quick and dirty reason is those that don’t trust this market sold long ago and no longer have a vote in what comes next. Markets move when traders change their outlook and either buy or sell stock. Those that don’t trust this market continue staying out and those that believe in it keep holding. As long as those that own continue believing every dip will bounce, they will hold any weakness and the market quickly bounces on the resulting tight supply. Those that criticize this market from the outside gave up their right vote, so the people we need to pay attention to are stock owners. As long as they remain confident and complacent, the market will stay strong due to a lack of supply.

Today’s failed selloff shows there is no bite to the bearish thesis. Markets stretched to overbought levels will snapback within days. We’ve been hanging around 2k for nearly three weeks and had multiple invitations to selloff. This resilience demonstrates the market is not over-extended….yet. The smart play is sticking with the rally in the near-term. After 2,010, what happens is anyone’s guess. If we explode past 2,010 unsustainably, then that could finally be the top bears have been waiting for. But if the market rallies smartly and deliberately, look for this to set the mood for the remainder of the year.

Jani