What doesn’t kill us makes us stronger

By Jani Ziedins | End of Day Analysis

Aug 22

Free After-Hours Analysis

The S&P 500 started Thursday with nice gains, but a midmorning selloff pushed prices into the red. But rather than trigger a waterfall selloff and crash through 2,900 support, supply dried up, and prices rebounded nicely of the early lows.

Volatility is elevated, and that means abrupt moves in both directions as traders overreact to every bump in the road. And while volatility can be unsettling, the market is actually trading well, all things considered.

Headlines have been quite bearish between Trump’s never-ending trade war escalations with China, the Fed sending out conflicting signals about interest rate policy, and technical indicators telling us the US economy could be headed into a recession. Common sense tells us the market should be down 15%, not the fairly trivial 3% we find ourselves from all-time highs.

There are two ways to interpret this reluctance for the stock market to crash. Either confident owners are incredibly nieve and the crash is coming. Or confident owners are indifferent to these headlines and their lack of selling means these headlines no longer matter (i.e., are priced in).

No doubt you picked the scenario that fits the best with your bearish or bullish disposition. But the thing to remember about stock market crashes is they are brutally quick and happen before most people even know what hit them. There is no time to debate the fundamentals and make a sensible trading decision to sell before things get worse. There is the freefall, and if you stop to think twice, it is already too late.

To put this in context of current market conditions, the big “oh shit” moment happened 21 days ago when Trump announced he was adding tariffs to the last $300 billion in Chinese imports not already taxed. The stock market imploded over the next four days. But after that initial kneejerk of reactive selling, prices have recovered a big chunk of those losses.

If a person believes stock market crashes move in slow motion and we have plenty of time to make thoughtful trading decisions, then they should be nervous. For the rest of us, a market that refuses to go down on bad news will eventually go up.

If prices dip under 2,900 on Friday after the Fed chairman speaks, bouncing back above support is our signal to buy. On the other hand, if prices don’t even slip to 2,900 support, that is our signal this market is stubbornly resilient and higher prices, not lower prices, are ahead of us.

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Tags: S&P 500 Nasdaq $SPY $QQQ

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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.