Monthly Archives: August 2016

The Next Big Move is Coming

By Jani Ziedins | End of Day Analysis

It’s been a painfully slow summer. The last time I blogged was 26-days ago when the S&P500 finished at 2,164. Today we find ourselves 12-points higher at 2,176. Holding nearly three-weeks of market risk netted owners an average of 0.02% profit per day.

This year the market gapped lower 20-points or more at the open on multiple occasions. This means owners have been risking a 20-point loss for a measly 0.5-point per day gain. Over this period the potential downside has been at least forty-times the gain! All risk and almost no reward makes this a very poor time to be invested. Big money knows this and is why they have largely been absent as noted by the extremely low trading volumes. They haven’t been wasting their time on this mindless chop and neither should we. Stay in, stay out, but don’t try to trade this.

While the market netted a measly 12-points, we witnessed far more intraday volatility. Ten, fifteen, twenty-point intraday moves and reversals have been common. Even though the market gained 12-points over three-weeks, very few active traders made that much because they have been faked out by these phony breakouts and breakdowns. Trading mindless chop makes it way too tempting to buy high when things look good and sell low when second-thoughts creep in. That’s why I’ve been in cash for the last several weeks. The hardest thing for a trader to do is not trade, but that’s been the right call.

But that was then and this is now. We are quickly approaching the market’s next directional move. Big money managers will return from summer vacation after Labor Day. With just a few months left in the year, they will start positioning their portfolios for year-end. That either means chasing these record highs even higher, or cashing in and taking profits. Since big money hasn’t been active the last several weeks, we don’t have enough information to discern if they are more inclined to chase, or alternately are in the mood to take profits. By mid-September we will have more data and a better indication of their intentions.

Over the near-term, since the market has stubbornly held near record highs in the face of falling oil prices and the threat of rate-hikes, that shows most owners are confidently holding for higher prices. If we were over-bought and vulnerable, we would have fallen by now. That means the market wants to test the psychologically significant 2,200. Expect this slow, choppy grind higher to continue for the next couple of weeks. But what happens after that is anyone’s guess. That is when underweight big money will get desperate and start chasing prices higher. Or they will get cautious and start taking profits.

The most likely outcome? Both! Four-months in the market is an eternity and plenty of time to have crisis in confidence, dip to 2,100 support, and rebound to all-time highs before year-end. Or maybe it happens the other way, desperate traders chase the 2,200 breakout up to 2,300 where we run out of demand and slip into year-end.

The great thing about being a little fish is we are nimble enough that we can wait for more information. If the market does something unexpected, we can cash-in, evaluate, and adjust. While this mindless summer trade is putting us to sleep, this is the time to wake up and start looking for the next big trade because it is just around the corner.

Jani

How to Trade Friday’s Employment Report

By Jani Ziedins | Intraday Analysis

End of Day Analysis:

The S&P500 extended its streak of listless summer trade Thursday as we remained stuck inside a tight trading range stretching back several weeks. Tuesday’s selloff was the biggest move in a while, but even that failed to motivate traders to trade.

Barring a calamity, we shouldn’t expect volume to pick up until after institutional money managers return to work after Labor Day. In the meantime little guys will continue ruling the roost. Their erratic trade drives these wild intraday swings, but they have so little money that these gyrations peter out hours later. Up five-points, down-five points, repeat until thoroughly seasick.

Friday morning we get the monthly employment report. Unless it is truly shocking, we shouldn’t expect much from it. The first six-months of the year we were stuck in a half-empty mood. But now that we’ve held near all-time highs for a month despite numerous bearish headlines, it seems we shifted to a half-full mindset. That means the market will likely cheer a strong employment report because it means the economy continues to improve. If July hiring is weaker than expected, that means interest rates will stay low for longer. No matter which way employment goes, owners will have the excuse they need to keep holding. When owners don’t sell, prices remain firm. The Brexit and all the other negative news we received this summer failed to rattle owners’ resolve and I don’t expect anything we hear Friday morning will change that. If prices fall in a knee-jerk reaction, that will be yet another buying opportunity.

I apologize for the two-week delay since my last free blog post, but I’ve been busy working on the backend of my website. The most noteworthy item you will notice is I changed my domain from “crackedmarket.com” to “cracked.market”. Both addresses work identically and will take you to the same place, but I’m rebranding the website “cracked.market” because I like the way it looks. Now that I have several major behind the scenes items taken care of, I’m working on the layout and you will see those changes in coming weeks. I will probably post with a lower frequency for the remainder of the summer as long as the market continues trading sideways. If something dramatic happens, I’ll be sure to share my thoughts, but hopefully the remainder of the summer will be quiet and dull. For readers that want daily analysis, don’t forget about my Premium Subscription, which includes a two-week, risk-free trial.

Jani