Trade the Market, Not Common Sense

By Jani Ziedins | End of Day Analysis

May 27
S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 rebounded decisively from Tuesday’s selloff. We opened higher and never looked back, easily reclaiming 2,120 support. Volume was slightly below average and less than yesterday’s downday, but still respectable given this is a holiday shortened week.

Today’s price-action poses a serious threat to the Bearish thesis. Yesterday’s selloff was the crack Bears needed to finally kickoff the long-awaited correction. Nothing shatters confidence like screens filled with red, and we had that in spades Tuesday. But as it turned out, the selling was quite limited as we quickly ran out of owners willing to dump their stocks for a discount. This tightening supply put a floor under the market and the selloff ended as quickly as it started.

If this market was as extended and overbought as many claim, the smallest stumble would trigger cascading wave after wave of selling as panicked sellers rushed for the exits. That’s what happens when markets are unsustainably high, hence describing them as unsustainable. But the perplexing thing is rather than plunge lower, we keep rebounding to the highs. Looking only at the market’s behavior, it is fairly easy to make a compelling argument that this want to go higher, not lower.

The problem many traders have is they spend too much time thinking about what the market should do instead of looking at what it is doing. If the market doesn’t care about rate hikes, employment, inflation, Greece, and all the other jazz, then neither should we. Something will eventually take this rally down, but it will be totally unexpected and not what everyone has been talking about for months.


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About the Author

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.