End of Day Update:
Today’s low-volume gyrations confused traders by sending off multiple false signals. The morning’s breakout convinced us this would be yet another routine, record close. Then the intraday plunge pushed us down to levels we haven’t seen in a week. Early highs fading into a weak close is never a good sign. But afternoon buyers swooped in and bought the 10-point “dip”, pushing us back to break-even. What could have been a very insightful day, instead turned into a whole lot of nothing.
The last few days saw a decent amount of churn with buyers and sellers equally represented near 2,040. Trading sideways typically leads to a continuation because markets retreat from unsustainable levels quickly. Every move to new highs is met with suspicion. Many take profits or short the breakout. These traders make their moves in the first couple of days following a breakout, but if the market can withstand this early wave of selling, then it will resume uptrend once the supply from the doubters dries up. Already four days into this 2,040 consolidation, we can confidently assume the wave of profit-taking and shorting is already behind us. With another supportive day on Friday, 2,050 is all but assured.
But everyone knows markets move in waves, so don’t let a pullback to support catch us by surprise. Maybe the rally fails Friday. Maybe we smash through 2,050 before slowing down. Only time will tell. On the other side, maybe we bounce off of 2,020. Maybe it is 2,000 or 1,980. As long as we see it coming and plan accordingly, we can respond intelligently, deliberately, and most importantly, profitably.
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.