Category Archives for "End of Day Analysis"

Where Have the Bulls Gone?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

It was a record close for the S&P500 as we broke through the ever elusive 2,120. There was no real news driving this move, but it seems a lack of negative headlines is all we needed to push higher.

It is a powerful sign when the price-action diverges from what people think should happen. Many claimed this repeated stalling at 2,100 foretold of the rally’s imminent demise. The nuance they failed to account for is the difference between stalling and pausing.

Stalling is when the market stops rising on good news. Prices cannot continue higher when everyone who could be convinced to buy, already bought. Is that the case here? Are we topping on good news out of Asia, Europe, and the US? Are ragingly bullish headlines giving the last of the reluctant buyers the excuses they need to finally jump in? Hardly.

We find ourselves in the exact opposite situation with an endless stream of negative headlines. Looming European financial crisis, lowered earnings estimates, disappointing economic reports, crashing energy sector, we’ve seen it all. And yet here we are, at all-time highs. If this is what the market does with bad news, what is going to happen something good finally slips out?

The mistake many wannabe contrarian traders make is confusing price level with sentiment. Just because we are at record highs doesn’t mean the market is overflowing with bullishness. People scoff when I mention how bearish this market is. They cannot fathom how the crowd could be bearish when we are making record highs and they use this flawed logic to bet against the rally. Unfortunately, so many people hold this “contrarian” view that they are no longer in the minority. Doubting this strength has become the cool thing to do. The latest AAII sentiment survey backs this up, showing bullishness at a tepid 27% as compared to the long-term average of 39%. That is a stark contradiction to the widely popular assessment of how overly bullish this market is.

A resistance level can only hold a determined market back so long. We’ve been trying to break through 2,120 for four months now and if we were going to tumble lower, it would have happened by now. The smart money is sticking with this strength, at least for a little longer. We will reassess once we see the speed, size, and quality of the breakout.

Jani

If you enjoyed this article, sign up for free email alerts to receive notifications when new content is published.

Going Up?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks gave up early gains and slipped back to 2,100. We find ourselves stalled again in this 2,100-2,120 zone where no one wants to buy. While I’d love to see prices explode higher, I’m not all that concerned about this morning’s price-action. It’s understandable that few want to buy since we turned back from this level so many times before. Those with gains are defensively locking-in profits and anyone with cash is reluctant to buy near obvious resistance. But with every passing day, we are inching closer to the point where all these people will need to buy.

There are plenty of scary headlines coming from Asia, Europe, and the US. But all of them are recycled stories that we’ve been talking about for weeks, if not months. Does anyone still care if Greece stays in the Euro? I’m sure most European taxpayers and the financial markets would be happy to see them gone. Any major bank that still has unhedged Greek exposure after all these years deserves to go out of business. The US economy is growing frustratingly slow. Who could have possibly seen that coming? The Fed raising interest rates from the absurdly low 0%. That’s another shocker out of left field.

Sarcasm aside, everyone knows these things. If owners held through last week’s spate of bearish headlines, more than likely they will hold through this week’s bad news too. Prices only move when people change their mind and so far these owners are proving to be an exceptionally stubborn group.

The real pressure is going to be applied to recent sellers when they see the market take off without them. Their chasing is what will fuel the next move higher. That doesn’t necessarily mean the breakout will be sustainable, just that we are far more likely to hit 2,150 before 2,050. Depending on how many people are underweight this market and how acute the chasing becomes will determine how much further than 2,150 we go. But the longer we hold near the highs, the more likely it is we will smash through them.

Jani

Doing the Hard Thing

By Jani Ziedins | End of Day Analysis

S&P500 Daily at end of day

End of Day Update:

An ugly day in Europe spilled over to US markets. We gapped through 2,100 support at the open, triggering a wave of technical and emotional stop-loss selling that pushed us down to the 50dma. But as quickly as the selling hit us, it dried up and we bounced off 2,085. By the second hour of trade, we were safely back to 2,100 and the day felt much less ominous.

Since February, the market’s been stuck between a gently rising 50dma and 2,120 resistance. Everyone knows this ever tightening range will eventually resolve itself, the only question is which direction. Each time we reach the upper limits, buyers walk away and we stumble back into it. But just as reliably, each dip is met by indifferent owners who know we will bounce like every other time. As bears are finding out, it is frustratingly difficult to get a selloff rolling when no one wants to sell.

Which side is going to flinch first? While there are no guarantees in this game, we can look to history for guidance. Overbought and unsustainable markets implode with breathtaking speed. They runup on euphoria, stall as the last the board the bandwagon, and collapse when everyone tries to leave at the same time. But this market is behaving in almost the exact opposite way. We have been trading sideways for months and every selloff stalls on complete indifference. Calm and confident owners are the last thing anyone betting against this market wants to see. But that is exactly what we have.

Every attempted selloff is rebuked and the longer we hold near the highs, the more inevitable it becomes that we will smash through them. This market has been given every excuse to devolve into an emotional bloodbath. Scary headlines, big downdays, violating key technical levels. Every ingredient is there……..except the selling. When the market refuses to do the easy thing, then we know we have to do the hard thing, and right now that is sticking with this pig.

Jani

If you enjoyed this article, sign up for free email alerts to receive notifications when new content is published.

Ouch!

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks sliced through 2,100 support and didn’t stop until they fell well under the 50dma. The only positive is a late bounce kept us from closing at the lows. Volume was well above average and the highest in over a month.

Thursday’s move looks intriguingly similar to April 17th’s dip under the 50dma. That’s good news for bulls because we bounced back above the 50dma the next day. Will history repeat itself? We’ll know the answer by Friday’s close.

It’s funny how pundits and gurus claimed a strengthening dollar and falling oil prices were threatening S&P500 earnings. Today the dollar tanked and oil surged. Following their logic, stock prices should have jumped higher today. Shows what the “experts” know.

The problem with this market isn’t technical or fundamental, like always, it comes down to supply and demand. Or more specifically today, the lack of demand. Few are willing to buy stocks above 2,120 and we’ve stalled at that level three times in recent months. When no one is in the mood to buy, it doesn’t matter what the fundamentals and technicals are.

Where do we go from here? While a lack of demand keeps us from breaking 2,120 resistance, we’re seeing a similar but opposite dynamic happen every time the market dips. Confident owners are completely uninterested in selling regardless of headlines or price volatility. When no one sells, prices bounce on tight supply. That is what saved us April 20th and we’ll see if owners are just as stubbornly confident Friday.

As for how to trade this, we slipped back into the middle of the 2,050/2,120 trading range. That leaves us with a fairly balanced risk/reward. But we’re not looking to trade a coin-flip, we want the odds in our favor. That means waiting to see what happens next. Strength on Friday tells us stubborn owners are winning and their refusal to sell will keep a floor under this market. However, nothing shatters confidence like a plunging prices. Another ugly day could easily push us down to 2,050 support. My gut tells me it won’t be as easy this time and we will probably see another leg lower before the selling exhausts itself.

Jani

Whole Lotta Nothin’

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks failed to hold yesterday’s gains following disappointing GDP that revealed first quarter growth was practically nonexistent. Volatility was compounded by the Fed’s afternoon policy statement. Despite these headlines and a surge in volume, we traded inside yesterday’s intraday range as the market continues searching for direction.

If anyone was surprised by this lack of a reaction to the Fed’s policy statement, they should read last night’s post explaining why it wasn’t a big deal. While there was a plethora of headlines to digest today, most bulls and bears stubbornly held their prior outlook. When no one changes their mind, prices stay where they are and is why we ended pretty much where we started.

So where do we go from here? We’re near the upper end of 2015’s trading range. Either we bump our head on the ceiling again, or finally break through and start the next rally leg. The dig against the uptrend’s continuation is while we recently set new highs, they failed to trigger wave of breakout buying and short-covering. If we were poised to explode higher, it would have happened by now. Eliminating “up” leaves us with down or sideways. Either way, expect near-term weakness as we slip back into the trading range. The difference will come later when we test support and either bounce, or not. Aggressive traders can lay on a near-term short, but collect profits early and often because this choppy market takes profits back as quickly as it gives them.

Jani

If you enjoyed this article, sign up for free email alerts and be notified when new articles are published.

Up and Down

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The difference a day makes. Monday we opened strong, yet crumbled into the close. Tuesday we fell sharply in the first hour of trade, but bounced decisively into the green by the end of the day. This is the definition of erratic and indecisive.

Bulls are pleased we bounced off of the 50dma and found support at 2,100. The morning’s 15-point plunge got everyone’s attention, but it wasn’t enough to rattle owners’ confidence and they continued holding despite the volatility. No matter what is going on, when owners don’t want to sell, we run out of supply and bounce. Clearly that’s what happened today.

The challenge for the speculator is figuring out what comes next. Monday’s implosion from all-time highs was ominously bearish. Yet today’s decisive rebound off of support is reassuringly bullish.

The reason this market isn’t going anywhere is because no one is changing their mind. We rally when bears warm up to the market and buy it. We selloff when bulls get nervous and dump stock. When both sides are equally stubborn, we don’t go anywhere.

The trade of the year is betting against these moves. Earlier we’d string together several up or down days before reversing, but lately these have been one-day moves. While mostly tongue-in-cheek, the best trading advice is “If you have profits, take them. If you have losses, wait a day and then sell for a profit.”

While there is a lot of noise this week regarding the Fed’s monthly meeting, using recent history as a guild, it seems highly unlikely bulls will sell the headline or bears will buy the news. This is a stubborn bunch and most likely it will take something new and unexpected to break this logjam. When and which direction is anyone’s guess, but until then keep buying weakness and selling strength.

Jani

If you enjoyed this article, sign up for free email alerts that will notify you of future posts.

Are We Poised to Explode Higher?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks notched record highs in early trade, but few bought the breakout and we slipped into the red by lunchtime. This is the third day in a row we struggled with 2,120 resistance. The problem for bulls is if the market was poised to explode higher, it would have happened by now.

If the market is not a coiled spring to the upside, that leaves us with two alternatives. Either it is a coiled spring waiting to launch us lower. Or the market is unsprung and not particularly inclined to go in either direction.

Just over a week ago we had a steep selloff that sliced through the 50dma. If the market was vulnerable to a selloff, that would have been more than enough to trigger a multi-day decline. But it didn’t. That means we find ourselves in a situation where few want to buy the breakout, but just as few are interested in selling the dip. It seems our spring is unsprung. And that makes sense. We’ve been trading sideways since the start of the year. We run out of buyers above 2,100 and selling dries up when we dip under 2,050. Given today’s weak price-action after testing upside resistance, it looks like the pattern is continuing.

The more interesting test will come when we retreat to 2,100 and the 50dma. Can we find support at the upper end of the trading range? If so, that suggests we inch higher from here. While not as exciting as exploding higher, it pads the trading account just the same. But if we cannot hold these technical levels, a dip to 2,050 seems inevitable. Given the risk/reward of inching higher versus a 50-point selloff, this could be a good place to try a quick short.

Jani

Enjoy this post? Sign up for free email alerts and be notified when analysis is posted.

Who is Wrong, Bulls or the Bears?

By Jani Ziedins | End of Day Analysis

End of Day Update:

Stocks rebounded following early weakness and are within a dozen points of all-time highs. Bears have a million reasons prices should collapse, but the market doesn’t care. That leaves us with only two possibilities, either bears are wrong, or the market is.

Since people love to argue with the market, I’ll start with reasons why it could be wrong. Independent markets are surprisingly efficient even if the participants are irrational. When traders arrive at their opinions independently, one irrational bull is canceled out by an equally irrational bear, leaving us with an astonishingly accurate mid-point. But the key is independent. The system breaks down when groupthink creeps in and skews the results one way or the other. Bubbles are perfect examples of self-reinforcing groupthink on one end of the spectrum. This is the classic, “Their logic seems suspicious, but they’re making money so I’ll follow them anyway.” When enough people suspend their disbelief, we lose independence and the validity of the underlying price.

On the other side, how could bears be wrong? What if instead of evil “market manipulation”, a poor understanding of how markets work is causing bears to lose money? What if the market already fully factored in all of their criticisms and this is the price it arrived at because of, not in spite of, these flaws. Maybe we would be higher without these looming structural problems. Many of these criticisms are recycled headlines that have been around for months, if not years. As a general rule of thumb, if average traders are talking about it, then we can safely ignore it.

So which side is right? Why not both? In the market, being right isn’t good enough. In fact, the only thing that matters is timing. Having done this for long enough, I’d gladly take good timing over being right every day of the week. And so back to the question, most likely both sides are right, but over different timeframes. Bulls will continue being right in the near-term since prices are defying the skeptics. But over the longer-term, nervous traders will forget their fear as they see everyone on the other side making money. Once groupthink is the norm instead of the exception, then we will be ready for the next material correction.

Jani

If you enjoyed this post, retweet it and/or sign up for free email alerts.

Whipsaw

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Updates

Stocks recovered from Friday’s selloff, reclaiming the psychologically important 50dma and 2,100 level. Volume was conspicuously absent, but by itself is not automatically a reason to doubt the rebound.

Last week we crumbled as plunging overseas markets spilled over to our shores. Todays low-volume recovery shows the remaining owners are not concerned and we bounced as a lack of selling constrained the available supply. No matter what people think the market should do, the path of least resistance is higher when stubborn owners refuse to sell.

It’s been a volatile but largely unproductive year. Buy-and-hold investors are up less than one percent, but by many measures they are the lucky ones. Any bull or bear coming to the market with an agenda is getting slaughtered buying strength or selling weakness. The only ones doing well are swing-traders betting against each move.

Source: Stocktwits 4/20/2015

The trading range for the year has been ~2,000 to ~2,100 and we’ve been stuck between ~2,050 and ~2,110 since February. Today’s move leaves us near the upper end of that trading range. There are only two things that can happen here. Either we blow through resistance and launch the next rally leg, or this up-move stalls and we remain stuck inside the trading range.

While it would be nice to see the market march higher, Friday’s dip did little to reset the bullish sentiment that is creeping into the market. The most profitable upside moves are born from pessimistic ashes. Today’s low-volume rebound tells us owners remain confident and optimistic. I’d much rather see pervasive gloom and doom before betting on another rally leg. While the bounce can push us back to old highs, this is most likely another selling opportunity, not a buyable breakout.

Jani

If you enjoyed this post, please retweet it!

What to Look For

By Jani Ziedins | End of Day Analysis

End of Day Update:

Stocks woke up to early gains, but stumbled into the close. Volume was even lighter than the below average trade we’ve gotten used to. That tells us few were changing their mind and buying or selling these early gains or late losses.

Last week’s AAII Investor Sentiment survey shows an interesting result where the percentage of BOTH bulls and bears declined precipitously. That’s because both sides piled into the neutral outlook. It seems bulls have grown tired of being burned by false breakouts and bears are afraid of another breakdown rebounding in their face. We’ve been stuck between 2,040 and 2,120 for two-and-a-half months and it seems many traders are finally waking up to the realization that we don’t always go up or down. Of course the crowd giving up on a directional move means we might finally breakout out of this trading range.

Technically we reclaimed 2,100 resistance Friday but were unable to hold it through Monday’s close. The lack of breakout buying and short-covering tells us most of this buying is already behind us and we could drift lower on weak demand. It shouldn’t surprise anyone to see us dip to 2,080. The real insight will come from how the market responds to this test of support. Is this just another pause before resuming the climb to all-time highs? Or will we slice through support and crash back down to the 200dma?

We should either buy the dip or sell the weakness, but we won’t know the answer for a couple more days. Trade sideways in this area for the remainder of the week and that stability tells us it is okay to hold for higher prices. But if we crash through the 50dma and the selling shows no signs of letting up, then expect us to blow right past recent lows and continue to the 200dma at 2,020.

Jani

What Miss?

By Jani Ziedins | End of Day Analysis

End of Day Update:

Does the lousy Employment Report matter? Not if you go by Monday’s bullish response. Many traders were lucky the market was closed for Good Friday or else they would have mistakenly dumped the big miss in jobs.

While pundits are spinning their “good is bad” doublespeak, the simple truth is we ran out of sellers. Recent weakness put a damper on enthusiasm and many owners bailed before the jobs report. When the selling occurs ahead of time, there isn’t much weakness left for when the disappointing news finally breaks. Given today’s strong move, this was a classic sell the rumor, buy the news trade.

Many people complain the market is rigged, but they make the mistake of trading headlines. Those with a little more experience know only supply and demand drives prices. As I discussed in last week’s blog posts, we knew sentiment shifted heavily toward bears and prices slipped to the lower end of the 2,040-2,120 range. Even with a demoralizing miss in employment, there wasn’t a lot of downside left. That made buying ahead of employment an attractive risk/reward.

Over the near-term expect a short-squeeze to push us up to 2,100, but it doesn’t feel like this market has the momentum to finally break through 2,120 resistance. That means we are better served taking profits, not adding positions as we approach new highs.

Jani

Good to Be Back

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks plunged Wednesday, closing Monday’s gap higher and continuing to 2,050 support before bouncing. The weakness sliced through the 50dma and prior resistance at 2,065. This flushed out recent dip-buyers and technical traders using these levels as stop-losses. That autopilot selling is what pushed us off a cliff in the first 30-minutes of the day.

This is the kind of market where if you have profits take them. If you have losses, wait two days and then sell for a profit. Since February we’ve been stuck in a trading range between 2,050 and 2,120. Buying the breakout or selling the breakdown has been the exact wrong trade, but most people come to this with a bullish or bearish bias and cannot help themselves. The profitable trade has been betting against these swings and now we find ourselves at the lower end of this range. Either the pattern continues and we bounce, or we start a new one and continue the move lower. 

Bears have a laundry list of reasons this market should collapse, but these are recycled headlines that have been with us for months. Rate hikes, strong dollar, lethargic economic expansion, plunging oil, euro drama, Middle East unrest, etc. Despite the noise, we are within 3% of all-time highs. When everyone is aware of something, that tells us it is already price in because everyone already had the opportunity to trade it. Without a doubt we could continue lower, but it won’t be for the reasons everyone is talking about.

Source: Stocktwits 4/1/2015

We have employment on Friday. While a lot of people look forward to this “market moving” news every month, it is far less useful than the talking heads would have us believe. Over the last several months, sometimes good news is good, but other times it is bad. Same goes with bad news; sometimes it is bad, other times it causes prices to jump. While this contradictory behavior seems confusing, the takeaway isn’t that employment drives the market, but that the market does whatever it wants regardless of the headline. Sometimes it wants to go higher. Other times it wants to sell off. This is supply and demand at work, not headlines moving markets.

Recent weakness put sentiment in the gutter, meaning most likely good news is good again. It also means bad news could be good news too. We’ll have our answer soon enough.

Jani

Short but Sweet

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks gave back some of the Fed pop Thursday, but remain well above prior resistance at 2,080. We cannot read too much into today’s pullback because it is healthy to give back a little of Wednesday’s huge move. The encouraging thing is the market traded sideways near 2,090 for most of the day and only showed modest profit taking. Holding this level through Friday’s quad-witching means owners and buyers believe in this market and we will likely retest all-time highs near 2,02. But if we cannot maintain these gains, watch out below because that tells us this pop exhausted all available demand.

Jani

Finally an Upday

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks bounced impressively and retook the 50dma. The one dig against today’s move is it happened on lower than average volume. But regardless, this is the biggest up-day in weeks and nervous bulls are breathing a sigh of relief.

It seems we are back in bizarro land since this sharp rebound was kicked off by abysmal retail sales. Traders addicted to easy money cheered the prospect of a weak economy and delayed rate hikes. Funny the world we live in where blowout employment tanks the market and pathetic economic news launches us higher.

Yesterday I said we should be wary of a rebound without a high volume capitulation bottom. And that is exactly what we got today. While the market can change the rules on us at any time, every dip over the last year bottomed on the highest volume of the move down. But Tuesday’s plunge was on lower volume than Friday’s leg down. That tells us more owners chose to hold the dip than sell it and we are missing the traditional purge that is a common trait of typical “V” bottoms.

This means 1) the market changed the rules on us, 2) this is a bull trap and it will fail soon, or 3) this is the first bounce in an extended sideways basing pattern. One possibility that the worst is behind us and two that we will retest Tuesday’s lows. While not scientific, 2 to 1 against this rebound sticking says we should be careful. But price is truth and we need to watch how it behaves in coming days. A bull trap can last two or three days before crumbling. But if the market is holding strong by early next week, then this is the real deal. Anything less and look out below.

Jani

Another Placeholder

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Wednesday was little more than a placeholder. We traded inside a 10-point range on less than average volume. The unfortunate thing for bulls is we saw similar price-action Monday, hours before Tuesday’s 1.4% plunge.

The only positive thing out of Wednesday is the loss was limited to 0.2%. Few buyers are attracted to these discounts, meaning we need to fall further before value investors and swing traders start buying the dip. It was also a fairly painless decline, meaning we didn’t flush out the last of hopeful. Only two things will turn this around, buyers snapping up irresistible discounts or a soul crushing slide chases off the last of the sellers and we bounce on tight supply. So far neither condition is met, meaning this move is not done making new lows.

The headlines are obsessing over rising rates and the surging dollar. But do we really need to worry about these things?

We are fooling ourselves if we think the Fed controls interest rates. They stopped buying bonds nearly a year ago. When everyone expected rates to rise, they fell instead. If long-term rates wanted to go higher, they would have done so already. This means we can safely cross increasing interest rates off the list of things to worry about.

The other fear is a strong dollar. But why is the dollar surging? Obviously because we are the strongest investment grade economy in the world. Hard to argue with that, I mean really, Europe? China? Asia? South America? We’re it. And as long as we look better than everyone else, expect foreign investment to continue flooding our markets and propping up prices.

And now I’ve given you two pieces of contradictory information. Price-action that tells us that we are headed lower, but rational analysis of the fundamentals that say we have nothing to worry about. How do we settle this discrepancy? Easy. Time. Everything in the market is about timing. Expect the selloff to continue until we have an incredibly painful, high-volume capitulation. Then we buy the rebound before everyone realizes things are not as bad as the fear-mongering lead us to believe.

It would be nice to see high-volume plunge Thursday morning that reverses midday and finishes near flat. That is the all-clear for us to get back in on the long side. Be very wary of any bounce that comes before a capitulation bottom, since that is likely a bull trap before the capitulation bottom.

Jani

Is the Worst Already Behind Us?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks bounced modestly following Friday’s bloodletting. We ended higher by 0.4% on less than average volume. The big headlines came from Apple’s product launch and the broad market followed AAPL’s lead higher, but it also peaked when investors were underwhelmed by the final version of the Apple Watch.

Today’s low-volume bounce was largely a placeholder for what comes next. We need to go back to last Friday’s price-action to get a feel for where the market stands. As we discussed last Thursday, the market needed a capitulation bottom before it could continue higher. Was Friday that day? We clearly smashed through 2,090 support in a very painful intraday selloff. It was also the first day in nearly a month with above average trading volume. While both of those traits are what we were looking for, was it enough?

Selloffs are rarely one day events and while the volume was elevated, it was well short of those that formed February’s capitulation bottom. Both of these factors suggest Monday’s bounce is not the all-clear bulls are hoping for. While sentiment came in quite a bit, one last plunge under the 50dma would do a far better job resetting sentiment and clearing the way for a move higher.

For this to be a “V” bottom, we need to rebound quickly and Tuesday is that day. If we don’t recover 2,090 tomorrow, expect this to correction to drag on a bit longer, either falling further, or at best trading sideways. There is no need to rush in and buy the dip. Let others gamble away their money trying to pick a bottom.

Jani

Waiting for Capitulation

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks finished modestly higher, hugging 2,100 support for most of the day. The low-volume gain was good enough to snap a two-day selloff as traders sat on their hands ahead of Friday’s employment report.

While the financial media loves to hype up non-farm payrolls every month, it’s been years since the report materially affected the market beyond a couple of hours of volatility. Good numbers, bad numbers, and everything in between haven’t been enough to slow down our six-year old bull. And I don’t expect Friday will be any different. While pundits speculate about the risk of too much or too little, barring a black-swan catastrophe, employment will be ancient history by lunchtime.

I’ve been rooting for the breakout, but its inability to mount any kind of follow through is concerning. Trading inside a tight, 20-point range shows both bulls and bears are stubbornly sticking to their positions. That leaves the rest of us wondering which side has more staying power.

I gave the benefit of doubt to bulls because the market didn’t flinch in the face of bearish headlines from Greece, Ukraine, and China. It even rallied as the Fed’s rate hike chatter heated up. Markets that disregard bad news are the best ones to buy. But then we kept hitting a ceiling at 2,120. Demand completely dries up every time we approach this level and we slip back to 2,100 support. While confident owners who refuse to sell keep supply tight, we need fresh demand to keep pushing this higher.

It appears like February’s strong performance sucked in all the potential buyers and now there is no one left to extend this move. While this would be a lot easier if the market went up every day, we know periodic pullbacks are normal and healthy. We shouldn’t fear a dip to the 50-dma at 2,060.

Two red flags hinting at further weakness are the absence enthusiastic dip buying and lack of a painful capitulation bottom. The importance of enthusiastic dip buying is self-explanatory, but to find that bottom, we also need a brutal dip that flushes out the last of the hopeful. This is a relentless intraday selloff that punishes bulls by methodically marching lower until they cannot stomach the thought of watching another dollar evaporate. Only after the hopeful are flushed out and replaced with courageous dip buyers will we find the bottom.

While the market sold off in recent days and undercut support, most of this weakness happened at the open and prices rebounded into the close. That price action is fairly easy to hold through since the afternoon bounce reinvigorates the spirit of the hopeful. It doesn’t feel like we’ve had that completely demoralizing day where everyone gives up hope and decides to sell before it can get any worse. Buying the high-volume capitulation is a great way to capitalize on other trader’s emotions.

The market could bounce on Friday, but I need to see enthusiastic buying before I’ll be convinced. More likely this weakness continues until we refresh the bullish skew carried over from February’s strong performance.

Jani

The 5k Hangover

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks slipped half-a-percent Tuesday, but it was actually a productive day. There was no headline driver for the opening weakness and it appeared like selling for selling’s sake. Monday’s “NASDAQ 5,000” headlines probably spooked a certain contingent and they placed overnight orders to sell the “obvious top”. The cascade of selling continued into mid-day where the market undercut 2,100 support. But just as things appeared to be spiraling out of control, supply dried up and we recovered half of the earlier losses.

While this would be more fun if every day ended in the green, I was actually impressed with the market’s resilience. If we were at overbought levels, today’s technical weakness would have been more than enough to trigger a wider wave of selling. When the market is poised to move one direction, all it takes is the smallest of excuses to get things rolling. If the market wanted to go lower, this was the perfect invitation. But we bounced instead. This tells me we are not excessively overbought and on the verge of collapsing.

While we struggle to find buyers above 2,120, we also cannot shake free sellers under 2,100. One of these day’s we will move out of this tight trading range. The market’s non-reaction to recent bearish geopolitical headlines and looming rate hikes tells us owners are confident and reluctant to sell. Right or wrong, it doesn’t matter. When no one sells, supply remains tight, and prices inch higher.

But all of this is null and void if we cannot climb out of this range. The longer we hold near 2,100, the more likely it is we will come across a dip that doesn’t bounce. I need to see today’s supportive trade continue. Another test of support probably won’t end as well for bulls.

Jani

5,000

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Stocks bounced back from recent weakness as the NASDAQ closed above 5,000 for the first time since the peak of the dot-com bubble. While it is natural to draw comparisons to those go-go days, the underlying economics couldn’t be more different. Fifteen years later we finally grew into those lofty valuations and almost all the biggest tech companies are now boring dividend investments.

But since everyone wants to talk about bubbles, the one thing we all can agree on is they go waaaaaaaaaay too far before bursting. Markets don’t correct after getting a little carried away, they cross state lines and end up in Mexico before slowing down. While it is getting harder and harder to find good deals in this market, there is still plenty of room to go before this market screams of frothy excess.

Shorter-term, recent headline fear-mongering and weak price-action opened the door to wider selling, but bears just couldn’t get it done. When markets have every excuse to sell off, but hold steady instead, we have to respect that behavior and cannot fight it. While bears might ultimately be right, bulls are making all the money. It’s cliché, but I’d rather make money than be right.

I remain concerned about the elevated bullishness, but the price-action tells us this move isn’t done. Watch for either further sideways consolidation before moving higher, or a quick run up before pulling back to support. Tuesday will give us an indication of what the market intends to do next.

Jani

Time to Get Nervous?

By Jani Ziedins | End of Day Analysis

Source: Stocktwits.com

End of Day Update:

Stocks slipped modestly on below average volume as the trend of tight trade continues. We remain above 2,100 support, but breakout buying is noticeably absent. I’ve been inclined to give the market time to make its next move, but this anemic wedge higher is a concern.

This resilience in the face of materially bearish headlines shows owners are reluctant to sell regardless of the economic and geopolitical news. The resulting tight supply has been propping us up. While this conviction is providing stability in an uncertain world, we need broader buying to keep pushing us to the next level. Short covering and technical breakout buying got us this far, but now we need a larger pool of buyers to step up. If few are willing to buy record highs, then it doesn’t matter how tight supply is.

My biggest concern is the swelling bullishness without much price appreciation. Stocktwits’ SPY stream has gone from 40% bullish in January to 62% bullish tonight. In recent months 60% has been the magical sell signal and is why it feels like this rebound is stalling due to a lack of new buying. When everyone believes in something and is fully invested, there is no one left to keep bidding up the price.

Depending on a person’s timeframe, they could hold through the dip to support that purges this excessive bullishness. But anyone with new money should hold off buying and wait for better prices in coming weeks.

Jani