Why Tuesday’s early wave selling didn’t go anywhere

By Jani Ziedins | End of Day Analysis

Aug 08

Free After-Hours Analysis: 

It’s been a choppy few sessions as the S&P 500 takes a step back from 4,600 resistance.

Between a sluggish Chinese economy and renewed scrutiny of regional banks, overnight futures traders were not in a good mood Tuesday morning and the index skidded more than 1% in early trade. But as ominous as that open felt, most investors shrugged and didn’t sell. The initial wave of selling stalled 90 minutes after the open and the index bounced more than 30 points by the close. Even though the session ultimately closed down 0.4%, considering how the session started, it was a good day for bulls.

As I’ve written in previous posts, the domestic equity market hasn’t cared about China in years and the regional banking crisis is old news. If these events hadn’t taken us down previously, there is little reason to think Tuesday’s headline reruns would turn out any differently. While any headline can trigger momentary bouts of second-guessing near recent highs, we need something truly new and unexpected to flip the market’s stubbornly half-full mood.

At this point, this latest test of 4,500 support looks like nothing more than a vanilla step back following a big run higher. Without a doubt, the selling can resume, but given this afternoon’s nice bounce, it doesn’t look like this is the end of the uptrend.

For the nimble, Tuesday’s bounce was buyable with a stop under those early lows. If the bounce continues on Wednesday, add more and lift stops. If the selling returns, get out and wait for the next opportunity. This is an easy setup for those with the courage to take advantage of the market’s momentary second-guessing.

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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.