Category Archives for "Intraday Analysis"

How to Trade Friday’s Employment Report

By Jani Ziedins | Intraday Analysis

End of Day Analysis:

The S&P500 extended its streak of listless summer trade Thursday as we remained stuck inside a tight trading range stretching back several weeks. Tuesday’s selloff was the biggest move in a while, but even that failed to motivate traders to trade.

Barring a calamity, we shouldn’t expect volume to pick up until after institutional money managers return to work after Labor Day. In the meantime little guys will continue ruling the roost. Their erratic trade drives these wild intraday swings, but they have so little money that these gyrations peter out hours later. Up five-points, down-five points, repeat until thoroughly seasick.

Friday morning we get the monthly employment report. Unless it is truly shocking, we shouldn’t expect much from it. The first six-months of the year we were stuck in a half-empty mood. But now that we’ve held near all-time highs for a month despite numerous bearish headlines, it seems we shifted to a half-full mindset. That means the market will likely cheer a strong employment report because it means the economy continues to improve. If July hiring is weaker than expected, that means interest rates will stay low for longer. No matter which way employment goes, owners will have the excuse they need to keep holding. When owners don’t sell, prices remain firm. The Brexit and all the other negative news we received this summer failed to rattle owners’ resolve and I don’t expect anything we hear Friday morning will change that. If prices fall in a knee-jerk reaction, that will be yet another buying opportunity.

I apologize for the two-week delay since my last free blog post, but I’ve been busy working on the backend of my website. The most noteworthy item you will notice is I changed my domain from “crackedmarket.com” to “cracked.market”. Both addresses work identically and will take you to the same place, but I’m rebranding the website “cracked.market” because I like the way it looks. Now that I have several major behind the scenes items taken care of, I’m working on the layout and you will see those changes in coming weeks. I will probably post with a lower frequency for the remainder of the summer as long as the market continues trading sideways. If something dramatic happens, I’ll be sure to share my thoughts, but hopefully the remainder of the summer will be quiet and dull. For readers that want daily analysis, don’t forget about my Premium Subscription, which includes a two-week, risk-free trial.

Jani

Trading Plan for Wednesday, June 14th

By Jani Ziedins | Intraday Analysis

End of Day Update:

Tuesday morning the S&P 500 extended its selloff, crashing through 2,080 support and the 50dma on its way to the mid-2,060s. But by late morning we exhausted the supply of sellers and closed 10-points off the intraday lows. Justifications for this week-old selloff come from two sources, oil pulling back from its highs and growing fear of a Brexit.

Last Tuesday evening I warned readers to be wary of a near-term pullback in oil and equities and that is exactly what happened. We don’t need be psychic to know what the market will do next, all we have to do follow the swings of sentiment and supply and demand. Last week traders were giddy as oil broke through $50, leading many to predict $60 oil wasn’t far away. Instead of surging higher, oil prices peaked and stumbled back into the $40s. So much for the wisdom of consensus. Stocks followed the same flight plan when it looked like we were headed to all-time highs, yet found ourselves stumbling under the 50dma instead. But that’s the way this works. One week’s giddiness gives way to the next week’s pessimism.

This week oil prices have been bumped off the front pages as the financial press fixates on next week’s Brexit vote. This was supposed to be a slam dunk for the “stay” vote, but the Brexit camp has surged in recent polls. That uncertainty is unnerving markets as traders start to fear the unknown. While this will be a hugely disruptive event if Britain votes to leave the EU, the economic consequences will be less bad than most fear. This is a referendum on refugee immigration, not trade. British citizens want to close their borders to Middle East refugees and given EU laws, the only way they can do that is by pulling out of the union. This isn’t a dispute over trade and no one wants to start a trade war since both sides are so dependent on the other. This means we should expect British and EU politicians to quickly sign into law comparable trade agreements to replace the previous EU ones. This will take place within weeks if not days because both sides want to minimize the economic disruptions. But politicians are not promoting “Plan B” because they are trying to use fear of economic calamity to persuade people to vote “stay”.

A Brexit vote would send the S&P 500 down a few percent because it is not currently priced in. But this will be a buyable dip for those who have the courage to be greedy when others are fearful. A week or two after the Brexit vote, many of the unknowns will have been ironed out and we will move forward with a plan. Norway and Switzerland survive quite successfully without EU membership and instead are part of a European Free Trade Association. Britain will do the same thing and life moves on. Since Britain never adopted the euro and still used the pound, there won’t be any of the financial entanglements that drove concern over a Grexit a couple of years ago. All the Brexit is doing is shifting from standardized EU trade agreements to ones made separately. Six one-way, half-a-dozen another. For all intents and purposes it will do the same thing no matter what the document is called.

As for how to trade this, Tuesday’s dip undercut popular technical stop-losses, purging a good bit of that supply from the market. The relentless slide under 2,070 also combined with the Brexit headlines to convinced emotional traders to get out “before things get worse”. Unfortunately for them reacting emotionally doesn’t pay very well. While the Brexit story isn’t done, we are closer to a buy-point than a prudent place to sell defensively. The best profit opportunities come from trading against an emotional crowd and the anxiety is ramping up as the VIX surges above 20 for the first time since February. Those with cash, get your shopping lists ready. Those with buy-and-hold stocks, don’t let the fear-mongering convince you to sell at a discount.

Jani

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Should we be worried?

By Jani Ziedins | Intraday Analysis

End of Day Update:

Japanese turmoil infected global markets Thursday after the Bank of Japan declined to enact additional stimulus to combat that country’s deflation. European markets tanked and the S&P 500 gapped half-a-percent lower at the open. But the panic was short-lived as we rebounded into the green by lunchtime. Japan hasn’t been on the market’s radar with most traders fixated on China and oil prices over the last six-month. Initially it seemed like that trend was continuing until a late selloff clipped 20-points from the S&P 500 in less than an hour, easily shoving us under the morning’s lows. Early relief quickly degraded into fear of owning stocks overnight and a stampede for the exits.

Fear of this market is well founded since events in Japan will likely get worse before they get better. Very rarely are 3.6% selloffs an isolated incident and most likely there is more pain in store for Japanese markets. The question is if U.S. investors will continue ignoring Japan’s problems, or if Thursday’s price-action shined a light on the next big thing for traders to fret over.

As I’ve been discussing on these pages for a few weeks now, we’ve come a long way from February’s lows and it is normal and natural for the market to cool off following such a hot run. This vulnerability means we need to be especially careful here. One false step could kick off a larger wave of selling that pushes us back to 2,000 support.

I don’t expect Japan to be any more of a problem than Chinese slowing or plunging energy prices, meaning this shall pass too. But between now and then we could experience a fairly dramatic dip. While it will feel terrifying, this is just the market’s normal two-steps forward, one-step back. Just when everyone is predicting the end of the world, we will bounce and resume our march to all-time highs.

The most nimble traders can move to cash or even short the market Friday if we continue trading weak. Most likely this won’t be a major selloff, but dipping another 70-points to support creates a great swing-trading opportunity. If prices stabilize and we finish strong Friday, then this is little more than indigestion and we should cover our shorts and position ourselves for a run to all-time highs above 2,130. For those with a longer-term horizon, ignore this noise. We will stumble and everyone will claim the sky is falling, but this is a great opportunity to buy your favorite stocks at a discount.

Jani

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Jumping on thin ice.

By Jani Ziedins | Intraday Analysis

End of Day Update:

On Tuesday the S&P500 rebounded decisively from Monday’s selloff and is again challenging 2,060 resistance. This was a welcome relief since five of the last seven-trading sessions ended near the bottom of the day’s trading range.

While the popular market truism is “it’s not how you start, but how you finish”, Tuesday’s rebound went against this popular convention. While it would be easy to feel bearish about the recent price-action, when taken in context, it is highly noteworthy that these five-attempted breakdowns failed to build momentum. It’s like jumping on a frozen pond. Never a good idea, but the risk of falling through the ice drops dramatically after the first few jumps. If you haven’t fallen in by the fifth jump, then chances are pretty good the ice beneath your feet is solid and more than enough to hold your weight. The same can be said about the stock market holding up after probing 2,040 support the last several days. If we were going to crash, it would have happened by now.

Even though I’ve been cautious the last couple of weeks because of how far we’ve come since the February lows, the market is proving incredibly resilient. This choppiness has chased off many of the weak owners and the remaining ownership base is stronger as a result. Since we haven’t fallen through the ice yet, that means the higher probability trade is sticking with the uptrend for the near-term.

While the next move is most likely higher, it is still open for debate how we get there. 2,060 has been acting as clear resistance the last couple of weeks. We could simply break through this level Wednesday and not look back. The other possibility is Wednesday we retreat back into the 2,040/2,060 trading range and retest the lower end of the range. The ideal buy-point is falling under 2,040 support but rebounding when confident owners keep supply tight.

Jani

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As Expected

By Jani Ziedins | Intraday Analysis

End of Day Update:

The S&P500 slipped 1% Tuesday, ending a streak of five-consecutive up days. Volume was average, but less than the elevated levels seen during the breakout above the 50dma. Oil gave up a big chunk of its Monday gains and was an excuse for equity traders to take profits following this nearly 200-point rebound from February’s lows.

It comes as no surprise the market’s gains slowed down after such a strong run. Big money managers hate chasing large jumps in price. Experience taught them these things inevitably cool off and they can get in at better prices if they are patient. In a bit of a self-fulfilling prophecy, big money’s reluctance to buy leads to a vacuum of demand and causes the very pull-back they are waiting for. Just like big money, we should also resist the temptation to chase. This is a far better place to be taking profits than adding new positions. If someone missed the move, chalk it up to a learning experience and wait patiently for the next trading opportunity. Better to miss the bus than get hit by it.

Last Thursday I told readers to watch for a rally that breaks 2,000 and then fizzles. So far that’s been exactly what happened. Friday’s strong employment pushed us through 2,000 resistance, but not long after demand dried up and we slipped from those midday highs. When the market fails to rally on good news, look out below. And if we needed confirmation, we got it Monday when oil popped 5% yet the S&P500 finished the day flat. Only a few weeks ago a move in oil like that would have lit a fire under equities. The lack of movement Monday tells us bulls are tapped out.

While one day of weakness doesn’t automatically make this the start of a bigger pullback, we will know real soon if it is. Selloffs develop quickly and if we are consolidating recent gains, expect a dip to at least the 50dma to develop over coming days. On the other hand, if prices firm up instead, expect the rebound to continue to at least the 200dma. If someone shorted a break of 2,000, the trade is working and you should continue holding until at least 1,950. But now that the weakness started, move your trailing stop down to 2,000 because if this is the real deal we shouldn’t retest that level.

Jani

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1,900: Now What?

By Jani Ziedins | Intraday Analysis

S&P500 Daily

End of Day Update:

Tuesday the S&P500 continued its rebound from last Thursday’s lows and is now just shy of 1,900 resistance. Not a bad turn of events given how awful things looked last week. This strength came on the coattails of a bounce in oil prices due to a rumored OPEC meeting and prospective supply cuts. The meeting happened, but they only agreed to cap production levels, not cut supply as hoped. Failing to live up to expectations sent oil prices tumbling Tuesday, but amazingly enough, the S&P500 closed at the day’s highs despite oil’s reversal. This is highly noteworthy because it was one of the few days this year where oil finished at the lows but stocks managed to close at the highs. Are stocks finally breaking this unhealthy correlation to oil prices? One datapoint doesn’t create a trend, but it is certainly a good start.

In last Thursday’s free blog post I caught flack from hecklers for suggesting that was the wrong time to sell defensively. Luckily for me hecklers are the most bold just before a reversal. While I am in no way suggesting we are out of the woods, a person who resisted the urge to bail out last week was rewarded with a nearly 100-point rebound from the lows. If a person wanted to sell defensively, today was a far better opportunity to do it than at any point last week. Everyone knows markets move in waves, unfortunately most forget that in the heat of the moment.

While I wrote about a rebound to 1,900 last week, I sure didn’t expect it to happen over two-days. But that is the way the market works. Either it takes so long to make a move that it convinces us we are wrong before proving us right. Or it does it so quickly we barely have time to register what happened. Clearly this bounce off of Thursday’s lows falls into the latter camp.

It is nice to talk about what happened, but what everyone wants to know is what comes next. For those that cannot handle this volatility, selling proactively near 1,900 makes a lot more sense than reactively selling near 1,800 and isn’t a bad decision for anyone needing a timeout from this chaos. A few weeks ago I wrote about us falling into an 1,800 to 1,940 trading range and I haven’t seen anything yet to suggest this has changed. Even though we might continue higher in the near-term, this rebound will likely fizzle and almost without a doubt there will be another opportunity to get in near 1,900 in the future. Sideways markets are the worst for longer-term owners because they hold the risk of a larger decline but are not getting paid for it with an appreciating stock price. This isn’t a problem for the resolute buy-and-hold owner, but those with less conviction are at a greater risk of reacting poorly to the choppiness inside a trading range.

Those of us that have a little larger appetite for risk, Tuesday’s price action was encouraging. As I already mentioned, it was a significant development when oil finished at the day’s lows and equities at the highs. Historically oil prices and the broad equity market have a very weak correlation and at some point this unhealthy relationship will end. Could this be the start of that? While OPEC didn’t give us what many were hoping for, production caps are a good start. Much of the fear fueling this plunge in oil prices was producers ramping up volumes to offset their declining incomes. A break from this runaway ramp in supply is a good start. If oil stabilizes around $30, while not a healthy number, at least equities can price it in and move on. As I shared in a previous post, we have fallen far enough that we shouldn’t plan for a v-bottom and instead expect this sideways choppiness to persist through at least the end of the quarter. But for the nimble swing-trader this presents a trading opportunity. Buy weakness and sell strength until something new comes along.

Jani

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Three Ways to Trade this Volatility

By Jani Ziedins | Intraday Analysis

End of Day Update:

Choppiness in the S&P 500 continued Tuesday when we recovered most of Monday’s selloff, the day that erased most of Friday’s gains. Three-days of nearly equal and opposite moves, but the one constant through all of this has been the driver: oil.

Equity traders cannot make a move until they first see what oil did overnight. Then, and only then, can they decide if they should buy or sell stocks. This trading mentality lead to a nearly perfect 98% correlation between oil and equities since the start of the year. This is the tightest link in more than 25-years, far eclipsing previous periods of elevated correlation that only approached 80%. Clearly this an abnormal link that cannot last, but as long as equity traders think the only thing that matters is the price of oil, that is the card we have to play.

The most impressive thing about today’s 1.4% pop is it came on the heels of a Chinese stock market meltdown. Shanghai fell more than 6% Tuesday and their bear market rout is carving out new lows. Chinese weakness triggered our January meltdown, but it seems traders have moved on to obsessing over oil prices and are increasingly indifferent to Chinese stocks. But this divergence might be short-lived since China, oil, and S&P 500 futures are tanking in overnight trade. If this weakness persists, the fourth whipsaw will unwind the bulk of Tuesday’s gains.

But as I warned in my last few blog posts, we should expect and be prepared for this type of volatility. Corrections larger than 10% rarely result in v-bottoms that rebounds to recent highs. Instead we see choppy trade as dip-buyers, regretful owners, and over-confident bears fight for control. One day we are saved, the next day the world is ending. And so the cycle continues until the market has battered, bruised, and humiliated bears, bulls, and everyone in between.

In normal, trending markets buy-triggers and stop-losses work well, but these are clearly are not normal times. Trading predetermined levels is the quickest way to give away money in choppy basing patterns like this. If you set a stop-loss 20-points under the market, you pretty much guaranteed yourself a 20-point loss. That doesn’t make a lot of sense, so how do you trade this market?

The simple answer is you don’t. The safest approach is to wait for normalcy to return where traditional risk management techniques protect you instead of guarantee losses. The other approach requires an iron stomach as you buy the dip, watch the market move against you, and rather than get scared out, buy even more. Every dip in the history has bounced and this one will be no different. Buy when other people are fearful is easy to say, but far harder to do.

That being said, the market is most likely forming a trading range between 1,940 and 1,820. Baring brief excursions we should expect to trade inside this range through the remainder of the quarter. Earnings were the one thing that could have saved us, but so far it hasn’t worked out that way. On the other side, runaway selloffs happen over days, not weeks. It’s been a week since we bounced off 1,810 and at this point the panicked rush for the exits abated. While we will almost certainly retest those lows, the second time we approach a level is less scary than the first. The initial dip triggered a surge of automatic stop-losses and flushed out the weak, but all of that selling already behind us and second retracement will have a harder time building critical mass.

For the ambitious, trading against this range is a third possibility. But since we are near the middle of this range, the prudent move is to wait until we approach one extreme or the other before trading against it.

Jani

Free blog posts Tuesday and Thursday evenings. Weekend video recaps coming soon!

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Is the Bottom In?

By Jani Ziedins | Intraday Analysis

End of Day Update:

It’s been a dramatic couple of days. Wednesday the S&P500 cratered over 3.5% in midday trade. But just when things looked their worst, we bottomed and recovered a majority of those losses with a powerful, 50-point rebound into the close. Volume was staggering and the second highest level in several years. The only day when more shares traded hands was August’s 5% bloodbath, a day also noteworthy for forming the bottom of the Fall selloff.

Thursday morning we slipped into the red but the situation changed decisively when the ECB hinted more stimulus is on its way in March. Then a less bad than feared U.S. oil inventory report sent crude spiking 5%. Between the apparent capitulation volume on Wednesday, more easy money from Europe, and rebound in oil, have we put in a bottom?

While Wednesday’s massive selloff did a lot of damage, it also purged most of the weak supply between here and 1,810. If anyone had a stop-loss, it was triggered when we plunged well beyond August’s lows. If an owner could have been spooked out, they were spooked out. But for every person who went running for cover, their was a bold buyer willing to take advantage of these emotional discounts. Removing weak owners and replacing them with confident dip-buyers is a very constructive development. Since we cleared most of the stop-losses under 1,850, it will be far harder for another dip under this level to trigger a runaway selloff.

But before we get too excited and start buying with reckless abandon, this correction fell well past the point where a V-rebound to previous highs can save us. This 10% selloff pushed us back into correction territory for the second-time in six-months and nerves are frayed. That means we should expect this erratic trade to continue as we carve out a base. Similar whipsaws occurred during the September bottoming and we should plan for the same choppiness here. In the near-term that means selling strength and buying weakness as we settle into a multi-month trading range. Be prepared for a retest of Wednesday’s lows at some point and expect regretful owners to flood the market with supply everytime we try to rally above 1,900. While it is tempting to trade our bullish or bearish bias every time the market feigns a breakout or breakdown, the best money over the next couple of months will come from trading against these moves.

Jani

Free blog posts Tuesday and Thursday evenings. Weekend video recaps coming soon!

If you want more check, out my premium subscription that delivers this analysis every day during market hours.

What’s a good trade worth to you? How about avoiding a loss?
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One-Step Back

By Jani Ziedins | Intraday Analysis

S&P500 daily

End of Day Update:

The S&P500 sliced through the 200dma as it slumped 1.4% Wednesday. This move leaves us just above 2,040 support that comes from earlier in the year. Volume was barely average, telling us there wasn’t a lot of reactive and emotional selling today.

Nothing like a little selloff to revive bears’ hopes and dreams. Whether you were watching TV or reading online streams, plenty of people believe this is the “BIG ONE”. But here is the thing, dig back in your memory and recall a time when all the pundits successfully predicted a big selloff before it happened. If you are struggling, don’t worry, it’s not your memory that’s failing you, it’s the pundits. Now don’t get me wrong, most of these people are exceptionally intelligent and insightful. There is also a lot of truth to what their ideas. But what trips them up is the basic laws of supply and demand. When the crowd is convinced we are headed lower, how do you think they are positioned? Once a pessimist sells, they lose their vote and are merely cheerleaders. And right now it feels like we have a lot of people rooting for the market to go lower. The reason people are so quick to jump on the “this is it” bandwagon is because memories of September’s fear and regret are so fresh in their mind.

The biggest headline these days is December’s looming rate hike. In a WSJ survey, 92% of economists predicted the Fed will boost interest rates next month. For all practical purposes it appears like there is universal belief the Fed will finally act. Monetary tightening for the first time in nearly a decade has people predicting doom and gloom for our economy. Of course many of these same people also called for runaway inflation and $10k gold because of the Fed’s “reckless” money printing. If they got the first call wrong, there is little reason to believe they will get it right this time. Further, the conversation shifted to rate hikes as soon as Quantitative Easing wrapped up last Fall. If anything, Janet Yellen has been dragging this out, so it should not be a surprise or shock to the systems when it finally happens. People don’t get hit by the bus they see coming, so this rate hike will be a non-issue.

While people are scared by this selloff, this is just another buyable dip on our way higher. In my November 5th post, I warned people that we should be preparing for a very typical pullback following a large rebound. Sixty points later, that is exactly where we find ourselves. Two-steps forward, one-step back. Technicians frequently find Fibonacci patterns in directional moves. This would be a retracement of 24%, 38%, 50%, or 62%. Following a 225-point rebound, these are pullbacks of 55, 85, 112, or 140-points. We’ve already passed the 55-point mark and 85 isn’t very far away. While we don’t want to catch a falling knife, an interesting entry would follow the market slicing through support and recovering those losses on huge volume. This would be the capitulation day that chased of the last of the sellers. Traders who miss a big run always hope for a pullback that will let them get in, but all too often they lose their nerve when the market gives them what they were asking for. Embrace discounts, don’t fear them.

Jani

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The “No Hike” Selloff Continues

By Jani Ziedins | Intraday Analysis

S&P500 daily

End of Day Update:

Stocks continued the “no hike” selloff as the S&P500 lost another 1.25% and closed fractionally above 1,940 support. Volume was restrained, not even reaching average levels.

Investors were hoping the Fed would keep rates near zero and in order to avoid further spooking fragile markets, the Fed acquiesced when they decided not to hike last week. But rather than cheer, waves of traders have been selling the news ever since. We are still well within the heart of the 1,900 to 2,000 trading range, so stock owners are not panicked yet, but you can feel the uneasiness growing with each leg lower.

There was no real headline driver for Tuesday’s global selloff, but overseas markets were hit hard and that selling spilled over to U.S. shores. And as I write this, it looks like we will have more of the same Wednesday because Asian and S&P500 futures are sharply lower. While we are still well within the trading range, it won’t take much to push us down to recent lows where the uneasiness will give way to fear and panic.

When the herd is panicked and we see our screens filled with red, it is hard avoid being infected with the same feelings of dread and despair. But a further selloff is actually the most bullish thing that can happen. The two most common reversals are the v-bottom and the double-bottom. V-bottoms are sharp and fast. We’re nearly a month into this correction, well past the window of opportunity for a v-bottom to save us, so we can eliminate that as a trade setup. The next best savior is the double-bottom. For those that are not familiar, a key attribute of the double-bottom is having the second dip undercut the first dip’s lows. That means the most bullish thing that could happen to us involves us falling under 1,860. This is something we should be bracing ourselves for, but rather than fear this capitulation bottom, we should welcome it and even trade it to our advantage.

Of course we might not go straight to 1,850, or even get there at all. The next likely level to bounce off of is the 1,900-1,910 region. We could easily see an intermediate support at these levels. Where we go from there largely depends on how traders respond. If we see full panic and volume is off the chart, that could be our capitulation bottom. But if the bounce is feeble and fails to recover 1,950, the new lows under 1,850 are likely. While it will be uncomfortable, if we know what is coming, then we will be better prepared to trade it well.

Jani

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How to Respond to a Crisis

By Jani Ziedins | Intraday Analysis

End of Day Update:

I’m changing things up a little tonight. Normally I write about the daily fluctuations in the stock market, but given the dramatic and emotional moves in recent days, a bigger picture analysis is warranted. This blog post is for all the nervous owners out there that are not sure how to respond to these uncertain times.

As I write this, overnight stock futures are plunging nearly two-percent because of continued Asian weakness. No doubt this will carryover to our shores Tuesday morning and compel many owners to sell their stocks at even greater discounts. Their rationale is to sell now before things get worse.

But as investors and traders, the first questions we should ask ourselves is if we want to buy stocks when they are cheap or expensive? The natural follow-up is if we want to sell when they are cheap or expensive? While the answers are obvious, this isn’t consistent with the way most people trade.

Many owners are desperately selling their stock right now because they want to get out before things get worse. “What if this is another 2008?” they are asking themselves. Surely we all want to avoid that type of disaster again. Not so fast, some of the best buys I made over the last 20-years were in 2008. Not as a trader, but as an investor.

I rarely write about the buy-and-hold portion of my portfolio because there really isn’t much to talk about. Every month I add to my long-term investments and then forget about them. Through thick and thin, they just sit there. Sometimes they go up in value, other times they go down. But every month I keep adding to them because I believe in the US economy and that our stock market is the best place to grow my money until I need it 20 or 40 years from now.

While we only recently climbed out of the “lost decade” where our market was flat from 2000 to 2013, those were actually fantastic years for the long-term investor who dollar-cost-averaged into the market over that entire period. When everyone was selling and reducing their 401k contributions because of the dotcom bubble and financial crisis, I kept buying more. Those buys in 2002, 2003, 2008, and 2009 have more than doubled. All my buys in 2004, 2005, 2010, and 2011 are up in the high double digits. While the stock market had a “lost decade”, my buy-and-hold account had a phenomenal decade because I continued buying when other people were selling.

Think about that tomorrow as you contemplate selling your stock or decreasing your 401k contributions because of this Asian uncertainty. Personally I’d love to see another 2008 because that would be another fantastic buying opportunity for the buy-and-hold portion of my portfolio.

Jani

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A Day to Remember

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

This was a day traders won’t soon forget. Contagious overseas selling dragged the S&P500 down nearly 1.5% before lunchtime. By itself this was a striking move, but the day was only half over and the second act was even more impressive as we rebounded to close in the green! We’ve grown accustomed to daily moves that measure a quarter of percent in this dull and slow market. We haven’t even moved outside a 5% range all year-long, but somehow we managed to slide across 3% in one day! Amazing.

Unfortunately for many traders this wasn’t the good kind of amazing because it convinced them to trade reactively, a.k.a. sell-low and buy-high. And honestly I cannot fault anyone who was fooled by these dramatic moves. Sometimes the market gets the better of us and this was easily one of those days.

After this move made both bulls and bears look foolish, we are left wondering what comes next. Clearly the selling could have spiraled out of control because nothing shatters confidence like screens filled with red. But supply dried up near 2,050 support and we bounced. This rewarded those that held the dip and Pavlov would tell us they are even less likely to sell the next one. This was yet another example of a market that simply refuses to breakdown. While the obvious interpretation of today’s bullish reversal is, well bullish, nothing in the market is ever that clear-cut.

A breakout above all-time highs is extremely likely given this market’s refusal to breakdown, but emotion is sky-high and chances are this will be anything but a smooth ride. While confident owners are keeping supply tight, it will take a bit of time before recent sellers warm back up to this market. Whether is it lingering fear, or a refusal to admit making a mistake, many of these sellers will stay in cash until prices climb so high they stop fearing a correction and start fearing being left behind. Often we see prices snap back aggressively from extreme oversold levels, but it is hard to claim a 2.5% dip from all-time highs qualifies as extremely oversold. Today’s rebound tells us the path of least resistance is higher, but it will probably continue to be a bumpy ride.

Jani

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Calm and Orderly Selling

By Jani Ziedins | Intraday Analysis

End of Day Update:

The S&P500 slipped modestly following disappointing earnings from AAPL and MSFT, but it wasn’t all bad. Even though these titans of tech shed billions in market cap, the selling didn’t spread much further than the tech sector. If the market was overbought, this was more than enough of an excuse to breakdown. How contained the selling was shows owners remain confident and are supporting these prices. This resulting tight supply makes it easier for the rebound to continue to new highs.

It is no surprise that we pulled back following a 89-point run from 2,044 to 2,133. There is nothing concerning about this move because it is normal and healthy. Finding support at 2,100 and the 50dma is the obvious level, but chances are we won’t make it that far given how benign today’s selling was.

Jani

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Another Meaningless Fed Day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

It was a volatile Fed day with strong intraday moves in both directions, but the S&P500 only managed to hang on to a four-point gain by the closing bell. Volume was the highest in a week, but still repressed by the typically slow summer season.

The Fed didn’t say anything that surprised us and is why we finished near where we started. It would have been foolish to expect anything else since every other Fed statement this year failed to break us out of this trading range. The policy remains accommodative, but expect a token rate increase before the end of the year. While many speculators are afraid of rate hikes, the far bigger shock to the system was ending the Fed’s bond buying program last year. Not only did we survive that, but the market is up more than 15% from when the Taper started. Going from 0% to 0.25% in short-term interest rates is trivial in comparison to ending a trillion-dollar money printing operation.

The game of chicken in Greece continues as their politicians refuse to compromise and European leaders are reluctant to call their bluff. Some analysts claim the probability of a Grexit is now up to 50%. This is weighing on European markets, but the S&P500 is less than 2% from all-time highs. Similar headlines five-years ago sent shockwaves through the market, but this time the risk is far less since the financial system has had plenty of time to manage and hedge the risk posed by a Greek default. While we should expect some near-term volatility, the market holding near the highs tells us these problems in Greece are already priced in.

Individual Stocks:

$AAPL – Apple continues to underperform the broad market, closing in the red on a day where the indexes finished in the green. It seems some of the anticipation built up ahead of the Apple Watch’s release and the developer’s conference is slowly leaking out. The stock slipped under its 50dma and is more than 5% off of its 52-week highs. While there are no signs of an impending collapse, the stock might be settling into a sideways trading range.

ALGN daily

$ALGN – It was a dramatic day for Align as some of their patents came under threat. This dropped the stock $5 from the opening highs. While I’m not in the industry, I suspect ALGN’s branding and relationships with orthodontists are more of a moat than its technical patents. Long-term this won’t be a big deal and healthy competition is always good for business. But in the short-term, anything is possible as traders react emotionally. It is nice to see the price rebound and finish well off the lows. Three more closes above $60 and the storm will have passed, with the added benefit of scaring off the weak and emotional owners. Shakeouts like this improve the upside potential. But until then, treat this stock with extreme suspicion. There is a good chance today’s afternoon rebound will fizzle in coming days and we retest that $60 support.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $ALGN

The Greek Rally

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

It was an interesting day as the S&P500 rebounded from yesterday’s selloff. The chart doesn’t suggest this bounce is any different from all the others that failed. The gains were modest, we closed under 2,100 resistance, volume was below average, and we continue making lower-highs. The notable exception is the situation in Greece deteriorated materially, yet the market rallied.

We easily could have crashed a couple dozen points as Greece’s politicians refused to negotiate with European leaders. That’s what common sense says should have happened, so why didn’t it? The thing many speculators fail to understand is headlines, fundamentals, and technicals don’t move markets. Only people changing their outlook and making adjustments to their portfolio drives price. It doesn’t get any more simple than that. Shifting expectations and the resulting buying and selling move prices, period, end of story.

Puting today’s move in context, stock owners read the Greek headlines, shrugged and went about their business. The reason we didn’t see the “common sense” selloff is every owner who fears the Grexit is already out of the market. When there is no one left to sell the news, it no longer matters.

Today’s price-action is telling us Greece isn’t a big deal anymore. Without a doubt these headlines will continue to drive volatility, we could remain range-bound, and will likely see a kneejerk selloff when Greece finally defaults and gets the boot, but today’s trade tells us this will be a short-lived move since most of the Grexit sellers are long gone. The way to trade the volatility is to continue buying the dip. While this market will eventually crash, it won’t be because of something everyone is talking about. Remember, people don’t get hit by the bus they see coming.

Individual Stocks:

$AAPL – Apple is mirroring the indexes and it’s fate rests with the rest of the market. Last week’s developer conference came and went without a major catalyst and it will be a while before we have another one. There is no reason to sell the stock, but there isn’t much to get excited about either.

$EBAY – Fairly dramatic move today. The day started with a bang as the stock popped a dollar and a half at the open, but the move quickly fizzled and we finished with a much more modest fifty cent gain. While I’d prefer to see more constructive price-action than this intraday reversal, we remain above support and today’s pop shows the explosive potential remains to the upside. We are close to the breakout point and we need to watch this one closely, but it isn’t time to pull the ripcord yet. Failing to hold $59 and we will be forced to reconsider.

$ORCL daily

$FEYE – FireEye continues to ramp up. While it is exciting to see these gains pile up day after day, owners should be shifting to a more defensive posture. We’re close to a 20% gain from the breakout point and it wouldn’t be a surprise to see the stock pause near $55. While it could easily continue racing higher, only a fool would be disappointed by locking in a 20% gain over a few weeks. A more aggressive stance is moving up a trailing stop and letting it ride. We have modest support near $50, but there is a good chance a near-term pullback will under cut $50 for no other reason than chasing off all the owners with a stop under $50. The proactive trader that locks in profits near $55 could reenter following the $50 undercut and bounce.

$ALGN – Align is marching ahead and pennies away from eclipsing January’s intraday highs. At that point virtually everyone in the stock will be sitting on profits and excited to see them continue growing. Confident owners keep supply tight and prop up prices. An Ebay style pullback to $60 is possible so it is riskier to chase if someone isn’t involved yet.

$ORCL – In the big-cap space, Oracle is getting interesting. Today’s 2% gain on 60% above average volume makes this worth a look. We’re on the verge of breaking through the upper end of the $45 trading congestion. After that, the only thing holding us back is last December’s $46 highs. Clear this and we’ll be making multi-year highs. While not as exciting and fast-moving as some of the smaller growth stories, profits are profits and some slow money offsets the volatility from more speculative holdings.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $ALGN $ORCL

Is it Time to Panic?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

It was a dramatic day as the S&P500 plunged 1% in the first session back from the long weekend. As unnerving as it felt, volume was below average and we are only 1.4% off of all-time highs. Hard to claim this was a crash by any stretch of the imagination, but in the market perception is reality, and today felt a whole lot worse than it looks.

Before the open, bullish sentiment on Stocktwits $SPY stream already fell to 41% and AAII’s bullish sentiment hovered near 5-year lows. As much as people try to correlate record prices and bullishness, we are anything but bullish at these highs. But this is actually a common phenomena. Every rally feels extended and fragile at the far right edge of the chart. Only months later do buy-points become obvious. If this were easy, everyone would be rich.

The five months of sideways churn since the start of the year cooled off any overbought condition that crept into the market. While we could easily extend Tuesday’s selloff on Wednesday morning, using bearish sentiment as a guide, we are far closer to the end of the selling than the start. Once the last of the hopeful bulls bailout, supply will dry up and we will bounce. The best trades are the hardest to make and today it felt a lot easier to sell this weakness than buy it.

Jani

Don’t Fight the Tape

By Jani Ziedins | Intraday Analysis

End of Day Update:

The S&P500 did a lot of nothing Tuesday as we consolidated Monday’s modest breakout. It stayed inside a 10-point range and closed lower by less than a tenth-of-a-percent. The benign trade tells us most owners are not taking profits and continue holding for higher prices, while those with cash don’t feel compelled to chase the breakout.

When few change their mind, prices don’t move and that is what happened today. Every other time the market challenged 2,120 this year, we quickly retreated from the highs. Today’s close marks the fourth day in a row we finished above this widely followed resistance level, making this time different.

While there are plenty of negative headlines making the rounds, none of them are new as we’ve seen versions these recycled headlines for months. Anyone who fears these issues sold a long time ago and is why periodic flare ups here or there no longer dent this bull market. Many claim this strength in the face of so many worries is irrational, but it makes perfect sense if you understand how markets work. When there is no one left to sell, we stop going down.

If prices remain above 2,120, expect recent sellers and shorts to come crawling back as the fear of being left behind overcomes their fear of gloomy headlines.

Jani

Another Buy Signal?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Analysis:

Wednesday saw another high-volume selloff, this time triggered by unnerving comments from Janet Yellen concerning stretched equity valuations. The index sliced through the 50dma and undercut recent lows in the 2,070s.

While we finished in the red, today’s price-action is actually quite intriguing to the dip-buyer. We undercut recent lows, but rather than trigger an avalanche of reactive stop-losses, supply dried up and dip-buyers rushed in, lifting us 10-points off the intraday lows. Bears had a gift-wrapped opportunity to extend the selloff to 2,050, but the market bounced instead. Clearly there is still uncertainly swirling around the market, but this afternoon’s pause gives nervous owners time to more rationally form their next trading decision.

The last two-times we undercut the 50dma but finished off the lows, we saw strong rebounds the next day. Will tomorrow make it three in a row? If we reclaim the 50dma, there is a good chance the rebound will continue through all-time highs. There are two ways an over-extended market refreshes itself. The most obvious is by pulling back. But the second is churning sideways and grinding out the optimism. While we’re still within a couple percent of all-time highs, it’s been a trying year as the volatility chased off the weak holders. While everyone is still waiting for the widely expected correction, the longer we hold near the highs, the more likely we are to break them.

Jani

Taketh Away

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

The market giveth, and the market taketh away. Stocks tanked and gave back all of Friday’s rebound. This puts us right back on top of the 50dma and 2,090 support. Volume was elevated, but short of the high-volume down-days we saw last week.

Conventional wisdom says we should give more credence to high-volume moves, meaning recent down-days are more important than the corresponding up-days. And like most conventional market wisdom, it is true………half the time. Meaning it is as reliable as flipping a coin.

More than just volume, we need context. The market’s been stuck in a trading range all year. Originally we were holding between ~2,000 and ~2,100, but more recently it inched higher to ~2,150 and ~2,120. It’s been acting this way long enough that anyone who’s paying attention caught on, becoming a self-fulfilling prophecy. Every time we hit the bottom, swing-traders jump in and ride the elevator up to the top, where they promptly jump off. This style of trading props up dips and stymies rebounds. But like all good things, it will eventually come to an end.

Bears gleefully point to the market’s inability to break 2,120 resistance. But there comes a point when this stops being stalling and starts becoming basing. There is a reason double-tops are a common reversal pattern, but we rarely hear about triple- or quadruple-tops. These are not reliable technical signals because holding a level for three or four attempts means we are more likely to break through than turn lower. So while it is frustrating to see the market stall at 2,120 yet again, the longer we hold these levels, the more inevitable it is we will eventually smash through resistance.

The test comes Wednesday. If we bounce, cover shorts and go long. If the market cannot get out of its own way, then look out below because we have a date with 2,050 and the 200dma before finally breaking through overhead resistance.

Jani

Between the Lines

By Jani Ziedins | Intraday Analysis

S&P500 4/21/2015 intraday chart

End of Day Update:

Stocks gave up early gains and finished near the lows of the day. The daily chart leads one to conclude this is weak, bearish price-action. But the intraday chart tells a different story. Most of the selling occurred in the first couple hours of the day after the market hit its head on 2,110 resistance. But, following the initial 11-point slide, we largely trade sideways for the remainder of the day and closed only one-point under the lows hit at 10:30am. The intraday chart contradicts the daily because it shows supportive price-action as few owners joined the morning’s selloff. When the market is given a perfect invitation to selloff, yet hold firm, that is bullish price-action even if we finished in the red.

While we cannot read too much into one day, it suggests the next few points will be higher. That is as far as this analysis can take us. We will have to reevaluate sentiment and price-action once the market tests prior highs near 2,120 before deciding to buy the breakout or sell the strength.

Jani

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