End of Day Analysis:
Wednesday saw another high-volume selloff, this time triggered by unnerving comments from Janet Yellen concerning stretched equity valuations. The index sliced through the 50dma and undercut recent lows in the 2,070s.
While we finished in the red, today’s price-action is actually quite intriguing to the dip-buyer. We undercut recent lows, but rather than trigger an avalanche of reactive stop-losses, supply dried up and dip-buyers rushed in, lifting us 10-points off the intraday lows. Bears had a gift-wrapped opportunity to extend the selloff to 2,050, but the market bounced instead. Clearly there is still uncertainly swirling around the market, but this afternoon’s pause gives nervous owners time to more rationally form their next trading decision.
The last two-times we undercut the 50dma but finished off the lows, we saw strong rebounds the next day. Will tomorrow make it three in a row? If we reclaim the 50dma, there is a good chance the rebound will continue through all-time highs. There are two ways an over-extended market refreshes itself. The most obvious is by pulling back. But the second is churning sideways and grinding out the optimism. While we’re still within a couple percent of all-time highs, it’s been a trying year as the volatility chased off the weak holders. While everyone is still waiting for the widely expected correction, the longer we hold near the highs, the more likely we are to break them.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.