Pausing or Stalling?

By Jani Ziedins | End of Day Analysis

Jul 13

End of Day Update:

It was a good day for the S&P500 as it broke above the two-week old, 2,050 – 2,080 consolidation. It seems reality in Greece and China is less bad than was feared last week. This move leaves us just shy of 2,100 resistance and a declining 50dma.

Our stock market has been flat through the first half of the year. Depending on who you ask, this is either pausing and refreshing, or stalling before rolling over. Technicals are little use in settling this debate because pausing and stalling look the same on a chart. The answer lies in sentiment and supply and demand. More specifically, understanding why the market is flat.

Are we failing to make new highs on good news? This is the classic “overly bullish” top and signals stalling because we are running out of new buyers. Or is our market failing to selloff on bad news? That points to refreshing because bearish headlines flush out weak hands and replaces them with confident owners who keep supply tight.

Everything is debatable on the internet, but for the objective crowd it is hard to claim the market has been showered with bullish headlines. Greece, China, rate hikes, lowered earnings estimates, and all the others. Bears have been feasting on almost universally bad news. If we were not allowed to look at charts and only went by headlines and sentiment, it would be easy to assume we are in the middle of a bear market. Short interest is the highest it’s been since the financial crisis and AAII bullishness is 10-points under historic averages. But yet here we are, two-percent from all-time-highs. What gives?

We could argue headlines and fundamentals don’t support these valuations and the market is on the verge of a collapse. The problem is that is arguing with the market. Right or wrong, the market is far larger than we are and will always win every single argument. In my opinion, it is quite clear. When the market doesn’t sell off on bad news, that is bullish. End of story. No doubt the we will eventually fall into a correction, it might even happen soon, but it won’t happen for all the reasons people are talking about.

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.

JasonG609 July 14, 2015

Great analysis. Really appreciate your insights.

Jeffrey Saut, over at Raymond James, has been talking about similar themes.

http://www.raymondjames.com/inv_strat.htm

Enjoy and thanks again!

j

    Jani Ziedins July 14, 2015

    Thanks. Glad you enjoy it.

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