Doing the Hard Thing

By Jani Ziedins | End of Day Analysis

May 12
S&P500 Daily at end of day

S&P500 Daily at end of day

End of Day Update:

An ugly day in Europe spilled over to US markets. We gapped through 2,100 support at the open, triggering a wave of technical and emotional stop-loss selling that pushed us down to the 50dma. But as quickly as the selling hit us, it dried up and we bounced off 2,085. By the second hour of trade, we were safely back to 2,100 and the day felt much less ominous.

Since February, the market’s been stuck between a gently rising 50dma and 2,120 resistance. Everyone knows this ever tightening range will eventually resolve itself, the only question is which direction. Each time we reach the upper limits, buyers walk away and we stumble back into it. But just as reliably, each dip is met by indifferent owners who know we will bounce like every other time. As bears are finding out, it is frustratingly difficult to get a selloff rolling when no one wants to sell.

Which side is going to flinch first? While there are no guarantees in this game, we can look to history for guidance. Overbought and unsustainable markets implode with breathtaking speed. They runup on euphoria, stall as the last the board the bandwagon, and collapse when everyone tries to leave at the same time. But this market is behaving in almost the exact opposite way. We have been trading sideways for months and every selloff stalls on complete indifference. Calm and confident owners are the last thing anyone betting against this market wants to see. But that is exactly what we have.

Every attempted selloff is rebuked and the longer we hold near the highs, the more inevitable it becomes that we will smash through them. This market has been given every excuse to devolve into an emotional bloodbath. Scary headlines, big downdays, violating key technical levels. Every ingredient is there……..except the selling. When the market refuses to do the easy thing, then we know we have to do the hard thing, and right now that is sticking with this pig.

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.

Martin May 12, 2015

Nicely said. The only thing I am cautious is that we can say the same about the market trying to go higher and every time it stalls too. That looks like a distribution to me. Who is selling at those highs and who is buying at those lows? That’s the question.

    Jani Ziedins May 12, 2015

    Distribution is typically more erratic and we would see incrementally lower highs if bears were taking control. This seems like a nice, slow consolidation to me. The fearful profit takers will have to buy back in later this year and is what will fuel the next leg higher.

      Martin May 13, 2015

      But weren’t the recent sell offs erratic? The market climbed up slowly and then bang, two days of huge sell offs erased it all. Of course there were a few erratic rebounds too, but mostly and painfully we saw every new ATH sold off. That’s what’s makes me frustrated about this market.

      Well, I hope you are right, as I have a few long trades and unfortunately somewhat extended, so if this market crashes, I am doomed. So I want this market to go up and stay above 2100 for a while, but it looks like it doesn’t want to go there and stay there.

        Jani Ziedins May 13, 2015

        In the grand scheme of things 1% moves are fairly benign. They only feel erratic because this has been such a calm market.

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