Stalling or Consolidating?

S&P500 daily at end of day

End of Day Update:

Stocks were unable to break through 2,100 for a fourth day. Should we be worried?

There are two ways to interpret this price-action. If demand dries up above 2,100, that tells us this rebound is running out of steam. The more bullish interpretation is we are consolidating recent gains before making the next leg higher.

How do we know which scenario applies here? Technicians claim all we need is price, but price alone doesn’t give us the answer. We need to dig deeper into the market’s psyche to figure out what traders are thinking and how they are positioned.

We would be stalling if the market was unable to break 2,100 with bullish headlines blowing at our back. When things are as upbeat as they can get, yet the market fails to make further progress, that tells us we ran out of buyers. With headlines screaming Greece, Ukraine, rate hikes, falling oil prices, and slowing global growth, it is a big stretch to claim this rally has a tailwind.

It is far easier to make the argument we are stubbornly holding up in the face of a tidal wave of bad news. Bears are dumbfounded by how “stupid” this market is for not breaking down when there are so many obvious reasons we should be plunging. But here’s the thing, these bearish headlines have been around for weeks. Anyone who fears these stories sold weeks ago to buyers willing to own these risks. Once everyone who is afraid of an event leaves the market, then it can no longer hurt us because there is no one left to sell it. And that is exactly what happened. Greek and European negotiations blew up in a spectacular fashion Monday, yet Tuesday we set record highs. Strength in the face of bad news tells us this market still wants to go higher. Short this market at your peril.

Jani