The (un)common-sense explanation of why this market refuses to breakdown

By Jani Ziedins | End of Day Analysis

Jul 29

Free After-Hours Analysis: 

The S&P 500 stumbled into Tuesday’s close, shedding more than 20 points in the final hours of trade. Was this the break bears have been waiting for? As ominous as that late fizzle appeared, the index closed solidly above 3,200 support yesterday. And even more important, the selling didn’t resume today.

Despite all of the “common-sense” reasons stocks should crash, the S&P 500 continues hovering near the rebound’s highs. Oblivious stock owners remain stubbornly confident and are holding for higher prices. From the basic laws of supply and demand, when confident owners refuse to sell the headlines, the headlines stop mattering. It doesn’t get any more straightforward than that.

As is always the case, all of our current headlines can be dissected into half-full and half-empty arguments. The economy is in shambles but corporate earnings are not as bad as feared. Infection rates are spiking but deaths are not seeing the same rise. Governments are reimposing lockdowns but scientists are making good progress on vaccines. The federal government is drowning in debt but the Fed is not even considering raising rates.

Thus far, most owners continue focusing on the half-full side of this situation. That’s because all of the half-empty people abandoned ship during the initial Covid collapse and were replaced by confident dip buyers. Out with the weak and in with the strong. It shouldn’t surprise anyone why this market has been so resilient these last few months.

As long as prices remain above support, there is only one way to trade this. Stick with what has been working and that is holding for higher prices. While the gains have slowed over recent weeks, as long as there is more up than down, expect the S&P 500 to challenge all-time highs this August or September.

That said, few things shatter confidence like tumbling stock prices. Keep updating your trailing stop and be ready to pull the plug if the selling accelerates. As nimble investors, it is far easier to buy back in following a false alarm than it is to watch all of our profits evaporate because we held too long.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.