Misfortune

End of Day Analysis:

Stocks ended flat following Friday’s record close. The lack of profit-taking and defensive selling is encouraging, especially if it continues through Wednesday.

The market feels dramatically different than it did two-weeks ago. The fear that consumed it and lead to a series of dramatic down-days largely disappeared. Traders shifted from fixating on negative headlines to cheering every nugget of good news. But it is wrong to say sentiment made a U-turn this quickly. Much of the anxiety remains, the difference is those who are sacred no longer own stocks. After they finished jumping out of windows, we ran out of sellers and the resulting tight supply launched us higher. Basic supply and demand at work.

What makes this a bullish setup is we have confident owners that either held the 10% dip, or had the courage to jump in and buy the plunge. This is both a brave and stubborn group, meaning they are extremely reluctant sellers. That tight supply is why prices have risen as quickly as they have. On the demand side, there is a huge number of regretful sellers that bailed out during October’s panicked move lower. Many of these sellers will come crawling back to the market in the next few weeks and months as the fear of a market crash is replaced with the fear of being left behind. Their misfortune selling low and buying high is what will keep this old bull market going even longer.

It is unreasonable to expect the market to continue the recent rate of gains, so plan on a sideways consolidation. A dip back to 2,000 or even 1,990 is healthy and constructive given how fast the rebound moved. If selling spirals out of control and undercuts the 50dma, then all bets are off and there is a good chance October’s selloff was only a preview of worse things to come. But for the time being, the outlook remains cautiously optimistic.

Jani