Category Archives for "End of Day Analysis"

Oct 17

Why bulls need to be careful

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 closed at yet another record high on Tuesday. Never mind the fact we only moved 0.07% above Monday’s record close, which was up only 0.18% from Friday’s close. Records are records and today counts…right?

For those of us that are paying attention, this looks a lot like a lethargic wedge higher and suggests this market is running out of gas, not on the verge of exploding higher. Explosive moves are by definition explosive. A tiny trigger blossoms into in a much larger move. Sometimes it is an unexpected headline, other times a technical breakout. But something triggers a surge of buying and away we go.

Unfortunately this wedge higher is the opposite of explosive. We keep getting good news. Today the Trump administration said they wouldn’t put conditions on repatriated profits and companies could use their newly liberated cash for dividends and buybacks. More cash in shareholders’ pockets is always a good thing. Then there was the technical the breakout as we moved into record territory. The cumulative result of both of these bullish developments, a measly 0.07% gain. Something so small it doesn’t even qualify as a rounding error.

Every day bulls are trying to push us higher, but the gains are getting smaller and smaller. That reeks of exhaustion, not unbridled potential. Without a doubt it is encouraging we managed to hold recent gains. Typically markets tumble from unsustainable levels quickly. This strength comes from owners who are confidently holding for higher prices and few are taking profits. Their conviction keeps supply tight and props up prices. Unfortunately propping appears to be the best bulls can manage. We need new buyers to keep this rally going and right now those with cash are reluctant to chase prices any higher.

Everyone knows the market moves in waves and it is obvious from the chart this market is at the upper end of its range. I still believe in this bull market and am most definitely not a perma-bear predicting a crash. But I recognize when the market gets ahead of itself and needs to consolidate recent gains. Without a doubt we reached a point where we need to cool off.

The quickest way to consolidate recent gains is dipping back to support. That is a normal and healthy way to reset the clock and clear the way for a continuation higher. The slower route is trading sideways for a longer period of time and allowing the trend lines and moving averages to catch up. We’re only a couple of weeks into this sideways trade and it would take several more weeks of treading water before we come close to consolidating recent gains. As a point of reference, the 50dma is still 70-points underneath us.

Strictly looking at the market dynamics, at best we trade sideways for several weeks. Worst we dip back to 2,500 support. Either way this is not a great time to be putting new money into the stock market.

If we move beyond the market and consider looming headlines, Republicans are making good progress toward tax reform. Without a doubt this encouraging news contributed to recent gains. But it doesn’t take a political science degree to know these negotiations get ugly, often to the point of crushing all hope moments before a deal is finally reached. That is standard operating procedure for Congress and we should expect more of the same here.

Republicans are currently in the brainstorming phase where everything and anything goes. But soon they will transition to the compromise stage where opposing sides and special interests dig in and threaten to blow the entire thing up if they don’t get their way. It is only time before the current feelings of hope for tax cuts devolve into cynicism. Most likely that shift in sentiment will be the catalyst that triggers a pullback to support.

Without a doubt our politicians could unexpectedly announce fair and reasonable tax reform ahead of schedule, but I certainly wouldn’t bet my money on it. Between the price-action and the headline environment, I suspect the next few weeks will be a lot more challenging for the stock market.

Buy-and-hold investors should stick with their favorite stocks, but shorter-term traders should look for opportunities to lock-in profits and the most aggressive can think about shorting. That said, the path of least resistance is still higher and any dip should be bought. This will be nothing more than a normal and healthy dip on our way higher.

Jani

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Oct 05

What smart money is doing here

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 surged to all-time highs, making this the seventh consecutive up-day and sixteen out of the last nineteen. There was no headlines to speak of, but traders were encouraged by Republicans making progress toward tax reform.

What a difference a few weeks makes. Not long ago the market was gripped with fear and predictions of a crash were around every corner. Many traders sold defensively “before things get worse”. Luckily readers of this blog knew better than to overreact to what turned out to be benign headlines.

As I wrote many times over the last several weeks, a market that refuses to do down will eventually go up. And that is exactly what happened. A relentless barrage of bearish headlines failed to dent this bull. That told us the path of least resistance was still higher and once the storm clouds dissipated, stocks surged on “no news is good news”.

Now that we are well over 100-points above August’s lows, traders that missed the rebound are wondering what to do. The looming question if there is still time to jump aboard this rebound, or if it is too late.

To be brutally honest, only and idiot would buy the eighth consecutive up-day and seventeenth out of the last twenty. As I wrote in yesterday’s free educational piece, everyone knows markets move in waves, unfortunately most forget that fact when planning their next trade. Just as I knew August’s selloff was unsustainable, I also know this surge higher is not sustainable.

Over the last two-weeks the market has been wedging higher. This is the least sustainable price pattern. The shape is formed by desperate breakout buying and short-covering. Two of the most powerful, but least sustainable forces in the market. Once these smaller groups run out of money, most of the time there is no one left to fill the void. Big money hates chasing prices higher and almost always waits for a dip. In a self-fulfilling prophecy, big money’s reluctance to chase prices creates the lack of demand that causes prices to dip.

Without a doubt we can coast higher for a few more days, but dips are a normal and healthy part of every move higher. Without periodic pullbacks, foundations are weak and prone to failure. The higher we go over the near term, the harder we fall. I am in no way predicting a market crash and I still believe in this bull market, but I know what sustainable rallies look like and this is not it. At best we trade sideways for several weeks and consolidate recent gains. Worst case is we test 2,500 support and even dip a little under it. While not a big deal for most of us, that will be a painful ride or anyone who bought these record highs.

Friday we get the monthly employment report. It’s been years since employment moved the market in a meaningful way and this month will not be any different. In fact this month’s employment report is even less meaningful because it will be distorted by Harvey and Irma. With the two hurricanes as an excuse, traders will be able to rationalize whatever they want to about Friday’s numbers.

Buy-and-hold investors can stick with their positions, but traders should really be thinking about locking in profits, and those with cash should definitely resist the temptation to chase. Even though we might coast higher, it is only a matter of days before the market pulls back under current levels. I don’t expect a crash, but we definitely need to cool off.

Jani

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Oct 03

Is it finally safe to buy?

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

The S&P500 finished higher for the sixth consecutive day and fourteen out of the last seventeen. There was no real news driving this strength, instead we continue rallying on “no news is good news”.

August was a rough month for stocks as repeated selloffs threatened to break this market. North Korea, political gridlock, and hurricanes all weighed heavily on the market’s mood. The news didn’t get any better in September, but amazingly enough, the market stopped caring and prices firmed up. For those of us that were paying attention, this was a powerful signal life was still left in this rally.

I did my best to warn Bears in my September 7th free blog post, very creatively titled, “A warning for Bears”. In it I cautioned a market that refuses to go down will eventually go up. I also encouraged bears to cover their shorts while their losses were small. The market closed that day at 2,465. A few weeks later we find ourselves 70-points higher in what looks like a painful short-squeeze.

Figuring out what the market is going to do isn’t hard once you know what to look for. In this case a market refusing to go down on bad news. The problem is too many people arrived with a bearish bias. This rally was “too old” and had gone “too far, too fast” and “a pullback was long overdue”. Bearish headlines convinced them it was only a matter of time before they would be proven right.

Blinded by confidence, Bears failed to recognize the significance of this counterintuitive strength because they were too busy arguing how dumb the market was. Unfortunately that’s not how this game works. When the market disagrees with us, without a doubt we are the ones who are wrong and it is best to get out of the way before we get run over.

But that was then and this is now. What most readers want to know is what’s comes next. Given how many up-days we’ve had over the last three weeks, the bears might finally be partially right. We won’t see the widely predicted crash, but 70-points in three weeks is a big move for this slow-moving market. At the very least we should prepare for a normal and healthy pullback to support.

One-direction moves are often fueled by bears scrambling to cover their shorts. This creates a flurry of near-term buying, but short-sellers are a relatively small group and they don’t have the buying power to drive larger moves. After a certain level most bears have capitulated and then it is up to other buyers to keep a move going higher.

Only big money has the resources to keep a larger directional move going. But the thing to know about big money is it hates chasing prices higher. Most of them have been doing this long enough to know that if they are patient, the desperate buying will subside and they will be able to jump in at lower prices. In many ways this becomes a self-fulfilling prophecy because if enough traders wait for a pullback, the lack of buying actually causes the pullback.

Without a doubt the path of least resistance is higher, but we know markets don’t move in straight lines. We need to mix in a few down days to keep this market healthy and sustainable. When a red-day happens, don’t freak out and start calling a top. If this market was going to crash, it would have happened weeks ago when headlines and sentiment were far more dire. Instead, expect the rate of gains to slow and for the market to spend a few weeks consolidating recent gains. We can keep going up for a few more days, but the higher we go, the harder we fall during the normal and healthy down wave. But either way, this is definitely a better place to be taking profits than adding new positions. Buy-and-hold investors can keep holding, but traders with profits should start thinking about locking them in, and those with cash should resist the temptation to chase.

Jani

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Sep 28

The bull that refuses to die

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 only closed higher by 0.12%, but that was enough to hit a new record close. Gains have been slow, but steady. There was no meaningful news driving today’s strength, simply a continuation of the recent drift higher. Given how ominous the last several weeks have been, at this point no news is good news. As I’ve been saying for a while, a market that refuses to go down will eventually go up.

It’s been several days since a North Korea headline hit the front page, but even if it did, the market has grown immune to those headlines and it will take something spectacular to dent this rally. Anyone who was afraid of North Korea sold weeks ago. When there is no one left to sell the news, it stops mattering.

The GOP released its tax reform proposal and the market is cautiously optimistic. Given how poorly Republicans handled healthcare, most traders are taking a cynical approach to tax reform. I suspect something will pass eventually, but it will look far different than what was proposed. But at this point anything is a positive since the stock market has largely given up on tax cuts. The easiest way to see the lack of hope is how little the stock market reacted to healthcare’s defeat. The market barely flinched at Trump’s and the Republican’s political humiliation. If traders had high expectations for tax reform, we would have seen a much bigger reaction to the Republican’s inability to get anything accomplished.

Volumes have been average or above since Labor Day. Big money finally returned from vacation and is getting back to work. It is encouraging to see they are more inclined to buy this strength than sell it. Fragile and vulnerable markets tumble quickly. Sticking near the psychologically significant 2,500 level for nearly three-weeks tells us the foundation under our feet is solid.

Earlier in the week we dipped under support, but rather than sell this technical violation, many traders rushed in to buy the dip. Ignore what the bears are saying, this market is healthy and poised to continue higher. August’s basing pattern refreshed the market by chasing off weak owners and replacing them with confident dip buyers. Given how long we have been holding near the highs tells us few owners are taking profits and most are confidently waiting for higher prices. As long as confident owners keep supply tight, expect the drift higher to continue.

August’s 2% pullback was quick and shallow. The market likes symmetry and as a result the subsequent rebound has also been equally unspectacular. There is nothing wrong with that, but it also isn’t a surprise or a concern how slow the breakout has been. Recent sellers are still nervous and it will take a little longer before they conceded selling last month was a mistake and buy back in. But few things calm nerves like rising prices and soon the fear of losses will be replaced by fear of being left behind.

Expect the gains to be slow and choppy over the near term, but soon underweight money managers are going to give up waiting for a larger pullback. Their chasing prices higher will give the market a boost in the final months of 2017. As long as the gains are slow and steady, they will be sustainable. I will get a lot more defensive if the rate of gains ramp up. A good opportunity to take profits could be following a pop on a tax reform agreement.

Expect these daily gyrations to continue, but the path of least resistance remains higher. Stick with what has been working and that is buy-and-hold and adding on dips.

Jani

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Sep 26

Why smart traders ignore today’s price-action

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Wednesday the S&P500 rebounded from Tuesday’s selloff but it was unable to hold those early gains and closed flat.

In a directional market, a late fizzle like this would be a big red flag. It warns us there is no follow through and support is crumbling. But this isn’t a directional market and traditional trading signals don’t apply.

We have been stuck in a predominantly sideways market most of this year and every breakout and breakdown has been a false alarm. Anyone who failed to realize this has been making the exact wrong trade at the exact wrong moment. Buying the breakout just before it fizzles and selling the breakdown just before it rebounds.

Unfortunately the market fools traders with these tricks far more often than people are willing to admit. That’s because it is nearly impossible to come to the market without a bullish or bearish bias. Many traders cognitively know the market trades sideways 60% of the time, but in the moment they always think prices are either about to take off, or on the verge of collapse.

Read any blog post or social media stream and all you see is endless bickering over whether the market is about to explode higher, or about to plummet. The rarest opinion is “meh, the market isn’t doing much and I don’t think it will do anything any time soon.”

Unfortunately for most traders these bullish and bearish biases convince them to buy the breakout or sell the breakdown, moments before prices reverse. Then they either chicken out or hit their stop-loss and lock-in their losses. To add insult to injury, prices reverse hours after the trader closes his position. Almost every single person reading this blog knows exactly what that feels like.

Buy high and sell low is a horrible way to trade the market, unfortunately it happens way more often than anyone wants to admit. Directional traders make a lot of money getting here, but they give it all back in these sideways stretches.

The above was a very long-winded way of saying, ignore today’s late fizzle because it is meaningless. Just like last week’s breakout didn’t mean anything, and the fizzle before that. We are stuck in a market that refuses to go down nearly as much as it refuses to go up. Don’t fall for these tricks by reading too much into this meaningless price-action.

While we are in a mostly sideways market, the path of least resistance is definitely higher. Headlines have been resoundingly bearish over the last several weeks and the market has flatly refused to breakdown. If this market was fragile and vulnerable to a crash, it would have happened weeks ago. The fact we withstood wave after wave of bearish headlines means this market is far more resilient than most people realize. A market that refuses to go down will eventually go up.

Keep doing what has been working. Stick with your buy-and-hold positions and add on dips. Big money returned from summer vacation and they are more inclined to buy this market than sell it. Expect this demand to prop up prices over the near-term as big money keeps buying every dip. Over the medium-term expect this resilience to pressure underweight managers into chasing prices higher into year-end. This is an old bull market, but it still has life in it. Underestimate it at your peril.

Jani

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Sep 21

Don’t fear a routine and healthy dip

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P500 experienced the largest drop in over two-weeks. As dramatic as that sounds, we only lost 0.3% in a relatively benign pullback to support. This was the lowest volume day this month and the first time trade has been below average since August.

As far as pullbacks go, this one was as mild as they get. There are two ways to interpret this. Either this dip was the best bears could manage in such a resilient and strong bull market. Or these are the first cracks in what is about to become a larger selloff.

If a person thinks a bull market needs to go up every single day, they should be worried about this price-action. For the rest of us, we know markets moves in waves and down days are a normal and healthy part of moving higher. Prior to today the S&P500 was up seven out of the last eight days and a routine down day was long overdue.

The question is if this is the first signs of a larger down move? Headline wise not a lot happened Thursday. The biggest market news was a continued digesting of Wednesday’s Fed policy statement that announced the unwinding of their bond positions and the continued possibility of a third rate-hike later this year. While both of those actions are relatively bearish, the market widely expected these moves and no one was caught by surprise. We slipped a little in Wednesday’s intraday trade, but a late-day rebound put us back where we started by the close. Thursday’s dip retraced some of Wednesday’s selloff, but it didn’t undercut the lows.

If we are expecting the market to collapse on bad news, Thursday’s “news-less” day definitely won’t cut it. This market withstood a nearly constant barrage of negative headlines over the last month and barely sold off two-percent. If those headlines couldn’t break us, there is definitely nothing in the current news cycle that tops ballistic missile launches, nuclear bomb tests, and back-to-back hurricanes. That resilience means we can safely cross news-fueled selloff from the list of vulnerabilities. If this market was going to crash on bad news, it would have happened weeks ago.

The next possibility is this bull market is extended and exhausted. Markets that rally too-far, too-fast are prone to collapse because everyone who could have bought has already bought and there is no one left to keep pushing prices higher. But the thing about exhaustion tops is prices race ahead and climb at a steeper rate than the prior uptrend. Is that price-action happening here?

The last several months were a sideways consolidation that ended with a double bottom and rebound off of the 50 day moving average. That looks more like sustainable base building than overextended exhaustion.

If this market is not vulnerable to negative headlines and the recent consolidation looks more supportive than threatening, do we really think Thursday’s dip is the start of something bigger? Or just one of those normal and healthy down-days that accompany every increase in prices?

As I’ve been saying for over a month, if this market was fragile and vulnerable, we would have crashed by now. While the rate of gains is nothing to get excited about, a market that refuses to go down will eventually go up. I see no reason to think anything has changed in the last several days. That means keep doing what has been working. Continue holding your favorite positions and adding more on the dips.

As I write this, overnight futures slipped on Asian weakness. But as I said above, testing support is a normal and healthy part of moving higher. There is nothing to worry about if we dip under 2,500 support. A wave of selling might hit us as recent buyers’ stop-losses are triggered. But that selling will quickly dry up like it has every other time this year. Confident owners didn’t sell far more dire headlines last month and there is no reason to think they will start bailing out now. Confident owners keep supply tight and prop up prices. That has been happening all year-long and there is no reason to think something has changed here.

Jani

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Sep 19

Stick with this Bull

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

The S&P500 added to last week’s breakout and continues its steady ascent into record territory. A tenth-of-a-percent is definitely not setting the world on fire, but these slow and deliberate gains tell us there is strong support behind these prices.

Rather than take profits near prior resistance, most owners are confidently holding for higher prices. While conventional wisdom warns us about complacent markets, what it fails to mention is periods of complacency last far longer than anyone expects. Confident owners don’t sell dips and the resulting tight supply props up prices. That description fits this market to a tee and I don’t see a reason for that to change anytime soon.

Several weeks of bearish headlines failed to dent this market and Trump was at it again Tuesday, telling the UN he will “Totally Destroy” North Korea. But by market standards, this is already old news and it barely reacted to those provocative headlines. Clearly these headlines matter to geopolitics, but they no longer affect the market because anyone who fears these North Korean headlines sold weeks ago. These nervous sellers were replaced by confident dip buyers who demonstrated they are not afraid of these headlines. When no one is left to sell the bad news, it stops mattering.

A market that fails to go down on bad news creates a powerful buy signal. It means the path of least resistance is higher and prices will pop once the flow of bad news abates. That is exactly what happened last week when we surged to record highs. While it is easy to say this after it already happened, readers of this blog knew this rebound was coming several weeks ago.

Going against the crowd and buying when everyone else is running scared is hard to do, but that is the best way to make money in this business. Keep your cool by carefully analyzing the headlines and price-action. The thing to remember is trends continue countless times, but they reverse only once. Keep that in mind every time someone tries to convince you this time is different. Without a doubt they will eventually be right, but they will be wrong an awful lot before that happens.

As we saw today, the North Korean rhetoric no longer matters to the market and we can safely ignore it. Next item coming up is the Fed’s policy statement on Wednesday. Consensus is the Fed will start winding down its balance sheet. This is an anti-stimulus move, but the market is largely ready for it. Yellen and the Fed have done a great job telegraphing their moves to minimize disrupting financial markets. While we should expect a brief bout of volatility, it’s been years since a Fed decision affecting the market in a significant and lasting way. I don’t expect tomorrow to be any different.

If this market was fragile and vulnerable to a crash, it would have happened by now. Last month’s dip and consolidation refreshed the market and gave us a solid foundation to build on. That said, the market likes symmetry and last month’s small and short dip will lead to an equally unimpressive rebound. We’re already most of the way there and it will take something new to keep prices rising.

Luckily there are a lot of recent sellers and underweight money managers under pressure because they are missing this rebound. Soon the fear of a selloff is going to be replaced by fear of being left behind. Expect this chase for performance to fuel a strong rally into year-end.

As I said previously, if we were going to crash, it would have happened by now. Markets don’t move in straight lines and expect volatility to continue, but the path of least resistance is definitely higher. Stick with what has been working: buy-and-hold and jumping on each dip.

Jani

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Sep 14

North Korea still doesn’t matter

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P500 slipped modestly, but it is hard to call a 0.1% dip a material loss. This is the third close above 2,490 and continues the strength following Monday’s breakout. These record highs are a long way from the fear and uncertainty that dominated headlines over the last several weeks. As I’ve been saying for a while, a market that refuses to go down will eventually go up. And that is exactly what happened here.

It is constructive to see the market hold Monday’s breakout. Bears have been unable to break this bull market even through multiple waves of bearish headlines. This shows most owners are more inclined to hold for higher prices than take profits or succumb to fearful selling. The last several weeks of consolidation firmed up support and built a solid base for the market’s next up leg.

But just as things were starting to look good, North Korea launched another missile over Japan after Thursday’s close. Fortunately the stock market is reacting less and less to each successive provocation. In after-hours trade the S&P500 only dipped 0.2%. That’s because stock owners who fear this story sold weeks ago. These nervous owners were replaced by confident dip-buyers who demonstrated a willingness to hold these headlines. If there is no one left to sell the news, it stops mattering.

Even though this latest North Korean threat is unlikely to trigger an avalanche of selling, it is enough to keep buyers sitting on their hands. Their lack of buying could weigh on prices tomorrow. But just like every other dip over the last few weeks, any weakness is a dip-buying opportunity. If the previous North Korean provocations couldn’t break this market, there is no reason to think this episode will end any different. If we were going to crash, it would have happened by now.

Once we traverse this latest North Korean speed bump, expect the slow drift higher to continue. Confident owners don’t want to sell no matter what the headlines say and their conviction is keeping supply tight. Conventional wisdom warns us about complacent markets, but what it often forgets to mention is these periods of complacency last far longer than anyone expects.

Few things calm nerves like a rising market. Expect these steady gains to shift the focus from fear of a crash to being afraid of being left behind. Recent sellers and underweight money managers will start realizing the dip they predicted isn’t going to happen and they will be forced to start chasing prices higher. Last week’s seller will be next week’s buyer. And that’s how the slow grind higher will continue.

Keep doing what has been working and that is sticking with this bull market.

Jani

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Sep 12

Why bears got it wrong

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Tuesday the S&P500 extended Monday’s breakout to record highs. While the gains were modest, traders were more inclined to buy these highs than take profits. But this is no surprise to regular readers of this blog. Last week I warned bulls to close their shorts proactively and take losses while they were small.

Quoting Thursday’s free blog post:

Anyone who is still short this market is probably only a little in the red. Rather than hope and pray for the selloff that isn’t happening, a smart trader admits defeat and takes his losses while they are small. This bearish trade has been given every opportunity to work, but this simply isn’t the right environment to be short. Be proactive and close a trade that isn’t working when the losses are small, rather than wait until the pain of losing money gets so strong it forces you out.

There is no magic to this. Basic market psychology and supply and demand told us the path of least resistance was still higher. In early August we tumbled when Trump and North Korea fell into a war of words that quickly escalated into North Korean missile and nuclear bomb tests. Then the Trump administration endured a rash of turnover in its senior ranks and at the same time exchanged barbs with senior Republican leaders. And finally two hurricanes did their best to pummel the Gulf Coast. Any one of those things would have crushed a vulnerable market. Put them all together and it creates a storm only the strongest market could endure. Yet that is exactly what we did.

The thing to remember is market crashes are breathtakingly fast and the only way to survive them is to sell first and ask questions later. But this latest selloff occurred in slow motion. In nearly a month of selling we only managed to dip 2% from all-time highs. That was after an endless string of negative headlines. Bears had their perfect storm, yet the market was still standing. That was the clearest warning possible that bears were on the wrong side.

As I’ve been writing for months, confident owners are keeping supply tight. While conventional wisdom tells us complacent markets are prone to collapse, what it forgets to mention is these periods of complacency last far longer than anyone expects. That’s because confident owners keep supply tight when they refuse to sell every headline and dip. If owners don’t sell the news, it stops mattering. That is exactly what was happened over the last month.

Since early August, nervous owners were bailing out of the market and selling to far more confident dip buyers. These new owners showed a willingness to own this uncertainty. In a bit of a self-fulfilling prophecy, those that confidently bought were willing to own the risk and uncertainty. Because they didn’t sell the fear, supply dried up and we bounced. News gets priced in once those that are afraid of it sell to new buyers who don’t fear it.

But that was then and this is now. What most readers want to know is what comes next. Plain and simple, expect more of the same. If we were going to breakdown, it would have happened by now. The path of least resistance is still higher. Nothing calms nerves like rising prices and this breakout to record highs is making the fears of the last several weeks fade from memory. Fear of the unknown is quickly being replaced by fear of being left behind. Big money managers are returning from summer vacation and they will start positioning their portfolios for year-end. Many of the underweight managers are coming to the realization that the dip they were waiting for isn’t going to happen. The pressure of being left behind will force them to chase prices higher into year-end.

This is a slow-moving market and I don’t expect us to launch higher, but expect the slow rate of gains to continue. A market that refuses to go down will eventually go up and that is what is happening here. Recent sellers will realize their mistake and fuel the next round of buying. I expect volatility to pick up this fall, but every dip is a buying opportunity. Stick with your buy-and-hold positions and keep adding when prices slip. This bull market will eventually break like every one that came before it, but we are not at that point yet. If you are out of the market don’t chase prices higher, but if you want to get in, be ready to jump on any dip.

Jani

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Sep 07

A warning for Bears

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 finished Thursday mostly unchanged. Even though we find ourselves inside a holiday shortened week, volume picked up and has been above average the last three days, something that hasn’t happened in over a month.

Summer is winding down and big money managers are finally returning to work. For most of the summer we’ve been stuck in neutral because smaller traders don’t have the firepower to drive a sustainable move. nstead every directional move fizzled and reversed because big money wasn’t there to join the buying and selling. Now that they are finally back at work, we should finally see some life come back into this market.

The big question is if institutional managers will keep throwing money at these record highs, or if they will chicken out and start taking profits ahead of the widely forecast tumble.

As a contrarian I get suspicious every time I hear something from too many different sources. And this includes current predictions of doom and gloom. It’s been a really rough few months. Healthcare reform failed in a spectacular way. There’s been a revolving door at the Trump administration. Trump’s frequent criticisms of Republican leaders is not helping either. Then there is this North Korea thing that just won’t go away and keeps getting worse. And finally two hurricanes to cap it all off.

Any one of these items is more than enough to takedown a fragile market. Combined they are as formidable as a hurricane. Yet here we stand, less than 1% from all-time highs. Surely something isn’t right.

One of the most effective ways to study the market focusing on what it is NOT doing. What should the market be doing, but it isn’t? Given this flow of overwhelmingly bearish headlines, clearly this market should be in freefall. But it isn’t. What gives?

There is a lot of headline uncertainty surrounding this market, but it doesn’t care. The thing to remember about headlines is they get priced in over time. That’s because anyone who is afraid of those headlines sells to dip buyers who are not concerned. This turnover in ownership replaces weak with strong, creating a robust foundation.

For nearly a month this market has withstood one bearish headline after another. We slipped under the 50dma for a brief period. All of this selling cleared out most owners who could be convinced to sell. Now all that is left is people who don’t care about these headlines. No matter what people think “should” happen, when there is no one left to sell a headline, it stops mattering.

This is an important thing for bears and most especially shorts to understand. You have been given a golden gift in this relentless barrage of negative headlines. There has been more than enough to cripple a vulnerable market. But the thing to keep in mind is selloffs are breathtakingly quick. Sell first and ask questions later is the only way to survive a market crash. Yet here we stand nearly a month into this “selloff”. If we were going to crash, it would have happened by now. If this relentless barrage of headlines couldn’t scare owners into selling, I don’t know what it will take.

Anyone who is still short this market is probably only a little in the red. Rather than hope and pray for the selloff that isn’t happening, a smart trader admits defeat and takes his losses while they are small. This bearish trade has been given every opportunity to work, but this simply isn’t the right environment to be short. Be proactive and close a trade that isn’t working when the losses are small, rather than wait until the pain of losing money gets so strong it forces you out.

Keep doing what has been working and that is sticking with your favorite stocks and adding on weakness. Bears need to admit their short trade isn’t working while the losses are small because the biggest risk remains to the upside. If we were going to crash, it would have happened by now.

Jani

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