Don’t Fight the Tape

By Jani Ziedins | Intraday Analysis

May 19

End of Day Update:

The S&P500 did a lot of nothing Tuesday as we consolidated Monday’s modest breakout. It stayed inside a 10-point range and closed lower by less than a tenth-of-a-percent. The benign trade tells us most owners are not taking profits and continue holding for higher prices, while those with cash don’t feel compelled to chase the breakout.

When few change their mind, prices don’t move and that is what happened today. Every other time the market challenged 2,120 this year, we quickly retreated from the highs. Today’s close marks the fourth day in a row we finished above this widely followed resistance level, making this time different.

While there are plenty of negative headlines making the rounds, none of them are new as we’ve seen versions these recycled headlines for months. Anyone who fears these issues sold a long time ago and is why periodic flare ups here or there no longer dent this bull market. Many claim this strength in the face of so many worries is irrational, but it makes perfect sense if you understand how markets work. When there is no one left to sell, we stop going down.

If prices remain above 2,120, expect recent sellers and shorts to come crawling back as the fear of being left behind overcomes their fear of gloomy headlines.

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.

Jon Linden May 20, 2015

Jani,

You focus on the equity markets, but is there any reason why your type of analysis would not be applicable to commodity markets like gold and oil?

    Jani Ziedins May 20, 2015

    Psychology and laws of supply & demand are the same across all markets, but each asset has its own personality, risk profile, and fundamental drivers. It takes time to develop a good feel for the way something behaves.

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