Slow and Steady Wins the Race

By Jani Ziedins | End of Day Analysis

Dec 18
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Wow. What else is there to say about this monster rebound? Buyers haven’t been this desperate to own stocks over a two-day period since 2011. But is this aggressive buying good for the market? Is it sustainable? Does it give us a stable foundation to build on?

As kids learn from the Tortoise and the Hare, slow and steady wins the race. By that measure it is hard to get excited about the speed and size of this rebound from the 1,970 lows. The biggest concern I have is choppy trade is often a symptom of changes in trend. We’ve had three material dips since summer and now this uncharacteristically sharp up-move. The bull rally turned five this spring, making it fairly mature as far as bull markets go. And there is little fear priced into the market since it has largely ignored bearish geopolitical and economic headlines from around the world as it keeps setting record high after record high. US large cap stocks are the last-man standing in a world where almost all other markets and asset classes have seen material selloffs. How much longer can this continue?

Anyone taking the time to look through the CrackedMarket archives will see I’ve been a resolute buy-the-dip guy since I started this blog in early 2012. Greece, Cyprus, Euro breakup, Fiscal Cliffs, Govt Shut Downs, Taper, etc. It didn’t matter what the headline, I embraced the fear and saw every negative headlines as an excuse to pick up stock for cheap. But we all know this must come to an end at some point. Buying the dip has become so routine now that everyone is doing it. Good employment, bad employment, strong GDP, weak GDP, Russia invading sovereign nations, nothing matters to this market. That is until it does. We might finally be arriving at that point where it does.

While I’m not ready to say tomorrow is the first day of a 20 or 30 percent bear market, all these factors lining up here are enough to make a buy-the-dip guy far more cautious going forward. The market has enough momentum that it can coast into year-end, but what happens in January is anyone guess. Markets typically look ahead six to 12 months, which means if the market suspects we will see inflation/deflation/increasing interest rates/currency contagion/recession/or anything else next year, it will start pricing it in starting in January. If the rate of gains slows down and becomes more sustainable, then this can continue. But if we retreat back under key support levels in the near-term, I wouldn’t be so quick to buy the dip this time.

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.

Ben December 18, 2014

Been on Wall St. For 25 years. I really like forward to hearing your views.
Keep up the excellent work.. I am very appreciative of what you do.

Regards,
Ben C.

Douglas Gammons December 20, 2014

Hi. I completely agree with these comments. So how should people position? Short stocks, long bonds?

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