End of Day Update:
The S&P500 managed to finish in the green for the second day following last week’s brutal kickoff to 2016. In just over a week we erased 150-points as a struggling China and plunging oil reignited fears of a global slowdown and financial contagion. Similar headlines triggered August’s 10% correction and the sequel proved nearly as damaging. The question on everyone’s mind is if this is the capitulation bottom or just a dead-cat bounce on our way lower.
Oil briefly slipped under $30 Tuesday for the first time in over a decade. Only a few months ago predictions of $30 oil were met with skepticism and ridicule, but the market has a nasty habit of pushing us to the “obscene number” before the crowd capitulates. Thirty-dollars was that obscene number and we finally tagged it following a nearly two-week free fall. But just when it seems like there is no end in sight, we run out of sellers and bounce. That happen today when the market rebounded almost immediately after flirting with the high $20s. This modest rebound in oil was enough to lift the S&P500 off the intraday lows, allowing us to finish just under 1,940. And the party is continuing in the overnight futures markets with the S&P500 up another 15-points in Asia.
At the very least we should expect a few day bounce as the market recovers from a near-term oversold condition. Expect this scramble to push us back to 2,000 resistance. From there we will see if short-squeezing and chasing transitions to real buying. Or if we stall continue the global slowdown selloff. The key to surviving this market is trading proactively. Take profits often and don’t get married to a position because it will likely reverse days later. Be pragmatic, not dogmatic.
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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.