Do Over

End of Day Update:

It was another frustrating day for the S&P500 as early strength faded into the close. We opened 1% higher following a monstrous rebound in the Chinese stock market. But rather than embrace the strength, nervous and regretful owners quickly jumped on the opportunity to sell higher prices. While we didn’t dip under Wednesday’s lows, we came darn close.

Shortly after our markets closed, all of Thursday’s price-action became irrelevant when Greece finally produced a palatable proposal that includes most of the austerity measures European leaders demanded. By itself that was enough to push index futures up three-quarters of a percent. But then the news got even better as China kicked off Friday’s trade with another gangbusters open. That nudged our futures above one percent.

Futures are often misleading and plenty of glitches can occur in China and Greece while the Western Hemisphere sleeps. But for the moment, the situation in China and Europe are looking less bad than was feared in recent days. This is a great example of why we should trade against the herd. Sell when people are confident like they were two weeks ago, and buy when they are fearful like they were today. It is against our natural instinct to go against the crowd, but there is a big difference between the skills that allowed us to thrive in the wild and what it takes to be successful in the markets.

Barring an overnight calamity in the Eastern Hemisphere, we should have another nice open Friday morning. Hopefully it sticks this time. But if sellers take over again, that is not a good sign and it tells us the bottom is not in yet. That doesn’t mean we need to join the panicked selling, but at least be prepared for a little more volatility.

Jani

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