The S&P 500 finished Thursday’s session essentially unchanged, but anyone who only saw that flat close would have no idea of the wild ride the market took us on.
Before the opening, we got the latest CPI data that showed inflation trucking along at a 3.2% rate in July. Not good, but also not bad. In fact, this initially appeared to be the Goldilox number many investors hoped for, and prices surged more than 60 points shortly after the open. So far, so good. Unfortunately, the market had other plans.
Rather than attract a follow-on wave of buying, big money started selling the early strength until it was all gone, and we finished the day right back where we started.
While we should resist the urge to get overly pessimistic following a session that closed flat, it is hard to find much good to say about Thursday’s price action.
This was the third time in recent weeks the market took a strong open and fumbled it into a disappointing close. Remember, how we close matters far more than how we start. And by that measure, it is hard to get excited about the market’s mood. We’ve passed up multiple opportunities to bounce back to the highs because the sellers keep taking over.
I’m not going to give up on this market just yet because trends are far more likely to continue than reverse, but we can only give it so many free passes before we have to take a far more critical look. 4,450 has been acting as support this week and the 50dma is quickly catching up. Stay above these key technical levels and smart money is still giving the uptrend the benefit of the doubt. But fall under these levels and all bets are off.
As crazy as it sounds, I will be happy to buy a bounce off of 4,450 Friday, but I will start small and keep a nearby stop because if the selling returns, it will get ugly and we shouldn’t expect 4,450 to save us again.
On the other hand, if a violation of 4,450 turns devolves into a waterfall selloff, that becomes a nice short entry with a stop just above Thursday’s close.
The market is at a tipping point and about to break strongly in one direction or the other. While bulls and bears are busy arguing over who is right, I’m waiting for the market to reveal its hand so I can jump aboard the next move. As long as I’m making money, it doesn’t matter to me who is right.
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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.