Enjoy the Ride

By Jani Ziedins | End of Day Analysis

Nov 06
Source: Stocktwits $SPY Sentiment 11/6/2014

Source: Stocktwits $SPY Sentiment 11/6/2014

End of Day Analysis:

Today marked another record close. It is amazing how far we’ve come in three-weeks; from the depths of despair to all-time highs.

It’s been a volatile ride and most traders don’t know what to make of it. Stocktwit’s SPY sentiment still shows bears outnumber bulls on their stream, 55% to 45%. This is well below the 58% bullishness we saw the last time we were at these record levels back in September. While stocks have recovered, sentiment clearly has not. And even more interesting is sentiment actually trended lower while the market broke through the 50dma and 2,000. This shows a large number of traders are increasingly skeptical of this rebound.

Since this is a contrarian blog, the more skeptical the crowd is, the more bullish I become. Many traders bailed out during the plunge to 1,820 and these sellers are watching in stunned disbelief as this market keeps setting record highs. In truth, many are hoping for the the rebound to fail so they won’t feel so foolish for selling at much lower levels. But the contrarian sees these regretful sellers for what they really are, the next round of buyers. While they won’t all come rushing to the market at once, their fear of a market selloff is slowly giving way to fear of being left behind.

The risk of sitting out of this rally is especially acute for institutional managers that lightened up in October. Since the market moved so fast without them, they will start feeling the pressure to chase as we get closer to year-end and they face the prospect of yet another year underperforming the “dumb” indexes. They can only wait so long for the market to breakdown before they will be forced to start chasing.

So far the market is acting well and there are no signs we need to take profits yet. This gradual climb higher shows regretful sellers are buying back in and as long as their demand props up the market, we should continue higher. While it would be normal to see some sideways trade, failing to hold 2,000 support will be a concern. If the market continues under the 50dma, then we really need to worry. But as long as the market holds support, relax and enjoy the ride.

Jani

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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.