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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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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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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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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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Why this selloff is no different

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Tuesday the S&P500 tumbled for the third time in as many weeks. Midday selling pushed us under the 50 day moving average, but fortunately we bottomed not long after and closed well off the lows. Volume was the highest in nearly a month and this was one of first above average volume days in quite some time.

North Korea was the primary culprit yet again as they tested a nuclear bomb over our extended holiday weekend. That was enough to send shudders through global markets. But the thing to remember is this was their fifth nuclear detonation over the last decade. If the first four didn’t trigger a massive selloff, then there is a good chance this one won’t either.

Last week we rallied when the flow of negative headlines abated for a few days, but Tuesday abruptly ended that reprieve. In addition to North Korea, Trump added political uncertainty when he distracted Congress from budgets and the debt ceilings when terminated Obama’s Dreamer program for underage illegal immigrants. Then attention turned to Hurricane Irma, a category 5 storm headed for Florida. Taken together, these three headlines were more than enough to ruin last week’s jovial recovery.

But is the rebound really dead? Three things tell us not to be so hasty.

First the late-day rebound put us back above key support. The 50 day moving average was a ceiling for most of the last few weeks. But overhead resistance often turns into support after we break through. Today’s late recovery suggests that is the case here. Rather than spiral out of control, supply dried up when we tested this key support level.

Second, volume was one of the highest days we’ve seen in recent weeks. All the other sharp down-days also included elevated volume. But rather than portend of worse things to come, these high-volume days were capitulation and we rebounded within a day or two.

Third, all of these headlines are recycled. There is nothing new here. If one of these stories was going to take us down, it would have happened already. Selloffs are breathtakingly fast. Hesitate for a moment and it is too late. Sell first and ask questions later is the first rule of surviving a crash. But this North Korea selloff is going into its fourth week. The market never gives us this much time to think rationally and act calmly before a punishing selloff.

Simple supply and demand is behind this market’s strength. Those that are afraid of Trump and North Korea have long since bailed out of the market and been replaced with confident dip buyers. That is why today’s dip ran out of sellers so quickly. If the current crop of owners didn’t sell the first or second North Korea scare, why are they going to sell this one? Today’s limited selloff tells us they held their ground.

Markets don’t give us this long to sell the top and this one is no different. If we were going to crash, there have been more than enough reasons for us to plummet. The fact we are still standing strong near the highs tells us this market is more solid than most people give it credit for. Keep doing what has been working. Stick with your buy-and-hold positions and keep adding on any dips.

As I’ve been saying all month, a market that refuses to go down will eventually go up. Don’t lose your nerve now.

Jani

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Why bears couldn’t break this rally

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P500 extended Wednesday’s breakout above the 50dma. Despite escalating tension with North Korea and a category four hurricane, stocks continue trading near all-time highs. As I’ve been saying all month, a market that refuses to go down will eventually go up. That is exactly what is happening here.

Even though the news flow has been overwhelmingly bearish this month, stocks have barely budged from record highs. At our deepest and darkest period in August, we were down a whole 2% from all-time highs. Bears were giddy with excitement and kept telling us to wait for it. But the crash never happened. That shouldn’t come as a surprise to anyone who reads this blog. Market crashes are breathtakingly fast, not drawn out affairs. If the initial headlines couldn’t knock us down, the follow-up headlines were even less likely to do so.

It all comes down to simply supply and demand. The first North Korea headlines scared off the traders who fear such a thing. The next time those same headlines popped up, there were fewer people left to sell the recurrence. Instead, these fearful sellers were replaced by confident dip buyers who demonstrated a willingness to hold the risk. This churn in ownership is how news gets priced in and why it stops mattering.

Tuesday North Korea launched a missile over Japan, but paradoxically that was our buy signal. Everyone who feared those headlines had already sold and the market was setting up to bounce on tight supply. We capitulated early Tuesday and have been racing up ever since.

Nervous and fearful traders were wary of what they claimed was weak market. But they got it exactly wrong. Withstanding the relentless barrage of negative headlines confirmed how strong this market was. If we were vulnerable to a collapse, any one of those headlines would have sent us tumbling. The fact we stood up so well tells us this is a strong market, not a weak one.

In all my years of trading, one of the most reliable trading signals comes from identifying what the market is NOT doing. Despite all the headline uncertainty, this market was not tumbling. That told me there was good support behind these prices and the path of least resistance remained higher. That told us the latest drop in price was still a dip buying opportunity.

The last few weeks of selling purged many weak owners from the market and replaced them with confident dip buyers. This firmed up support and this bull is even stronger than it was last month. This base building process is setting the stage for the market’s next move to all-time highs. The path of least resistance remains higher and 2,500 is easily within reach. From there we need big money to start buying to keep the rally alive.

The market is up around 10% for the year. While this has been slow this summer, I don’t expect that to last. Volatility is already picking up and that will continue through the fall. While many bears warn about downside volatility, I actually think bigger risk is upside volatility. Many cynical money managers are underweight this market and they have been patiently waiting for a pullback. The latest 2% dip is about as good as it is going to get. When they realize this market is far more resilient than they thought, they will be forced to chase prices higher or else risk explaining to their investors why they lagged behind the indexes so badly this year. That desperate chase for performance is going to fuel a strong rally into year-end.

While that is the most likely outcome, there is a chance Trump and Republicans fumble tax reform and the market uses that as an excuse to take profits. This could lead to a wave of reactionary selling that drops us near breakeven for the year. That said, this is a low probability event because the fumbling, bumbling Republicans cannot get anything done and expectations for tax reform are already quite low. I doubt many people will be surprised if Trump and the GOP get nothing accomplished this year. That lack of surprise means we won’t see much of a selloff. If we were vulnerable to high expectations, we would have seen a much stronger reaction when the Senate failed to pass healthcare reform.

This is an incredibly strong market that is ignoring every excuse to sell off. Keep doing what is working. Stick with your buy-and-hold positions and buy every dip until further notice.

Jani

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A market that refuses to go down….

By Jani Ziedins | End of Day Analysis

End of Day Update:

Tuesday was a wild ride for the S&P500. We gapped lower at the open following North Korea’s provocative firing of a missile over Japan. But rather than devolve into another spiral of relentless selling, we bounced off the early lows and actually finished the day with small gains. It was a shocking reversal for everyone who automatically assumed the bottom falling out of this market.

I’ve been saying for weeks, the path of least resistance is higher and today’s resilience confirms that outlook. Headlines have been overwhelmingly negative in recent weeks. An escalating war of words between Trump and North Korea. A revolving door of senior advisors in the Trump administration. An exchange of sharp barbs between Trump and senior Republican leadership following the Charlottesville tragedy. The worst natural disaster to hit U.S. in over a decade. And now North Korea moving beyond words by launching a missile over Japan. If anyone knew the barrage of negative headlines that was coming, they would certainly expect the market to be dramatically lower. Yet here we stand, less than 2% from all-time highs. What gives?

Most traders focus on what the market is doing. But I find it far more insightful to see what the market is not doing. That is a far more predictive indicator of what the market’s next move because it exposes the crowd’s false assumptions. In this case, that we are vulnerable to a collapse. If we were going to crash, it would have happened weeks ago. It doesn’t take much to trigger an avalanche of selling when the market is fragile. Yet the last few weeks we withstood headline after headline. We slipped a bit and nervousness definitely spread through the crowd, but prices barely budged. For anyone that was paying attention, that resilience told us we were standing on solid ground. And each day of selling further firmed up support as nervous owners were replaced by confident dip buyers. Rather than get weaker, this market has been getting stronger. And today’s flaunting of the North Korean missile story confirms that analysis.

This reversal is as bullish as it gets. While I’d love to see us race ahead, sideways churn is just as constructive. The market isn’t following anyone’s timeline, but trust me, a market that refuses to go down will eventually go up. Trade against this strength at your peril.

Jani

Why we shouldn’t fear this market

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Thursday the S&P500 lost ground for the fourth-time out of the last six-trading sessions. Fear over an armed conflict with North Korea morphed into fretting over debt ceilings and bond defaults. These latest issues were brought to the forefront two-nights ago when Trump threatened to shut down the government if Congress doesn’t fund his wall.

These relentless waves of bearish headlines over the last few weeks has weighed on market sentiment. AAII’s latest investor survey shows a 6-point loss in bullishness and a mirror image increase in bearishness. The bull-bear spread is nearly 20-points under its historical average as a large number of investors are preparing for the worst.

It is easy to see why pessimism jumped in recent weeks. Tension with North Korea, key members of the Trump administration forced out, barbs exchanged between Congressional leaders and the White House, and now swelling anxiety over a government shutdown and default on U.S. debt.

Without a doubt this market should be in freefall. Yet eight-days of losses over the last three-weeks only managed to knock us down 1.6% from all-time highs. That’s hardly the panic driven selling you would expect given the headlines. What gives?

Bears claim we are on the verge of imploding. They figure it is only a matter of time before this complacent market finally wakes up. But here’s the rub, everyone already knows about these issues because it is front page news. If a group of investors is blissfully unaware, then they have their head in the sand and are unlikely to figure it out any time soon. Not only that, the dramatic swing in investor sentiment tells us these headlines are definitely affecting people’s mood and outlook.

Is there any truth to the bear’s argument that the collapse is coming, even if it is a little delayed? In all my years I’ve never seen the market ponder headlines for several days before finally deciding to plunge. It would be great if the market gave us that much time to analyze the facts and make a thoughtful and deliberate sale before crashing. Unfortunately that’s not the way this works. Market crashes are frighteningly fast and if you stop to think about what is happening, you will get run over. Market crashes are most definitely sell first, ask questions later events.

The simple truth is if the market cared about this crop of headlines, we would have crashed by now. Without a doubt this market is complacent, but the thing conventional wisdom fails to tell us is complacent markets last far longer than anyone thinks possible. This bull market will die at some point because all bull markets eventually die. But this market’s limited reaction to these waves of bearish headlines tells us this is not that time.

If anything the recent bout of negativity and string of down days is firming up support. Every nervous seller is being replaced by a confident dip buyer. This churn in ownership is strengthening this market and setting the stage for the next move higher. I am definitely not a raging bull and have a lot of concerns about this market. But I have been doing this long enough to know a market that refuses to go down will eventually go up. Don’t fight what is working.

Jani

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Why we bounced

By Jani Ziedins | End of Day Analysis

End of Day Update:

On Tuesday the S&P500 bounced back from last week’s selloff. Volume was “suspiciously” light, but that was expected because the selloff also occurred on light volume. These recent moves are driven more by a lack of buying and selling, and not a surge in selling and buying. That tells us most traders lack conviction are more inclined to do nothing than rush in and out of the market. As I’ve been saying for months, confident owners are showing zero interest in selling any headlines. The same goes for those with cash who stubbornly refuse to chase record prices higher. And so the stalemate continues.

I saw a headline today that claimed we bounced today because traders felt like the prospects for tax reform were improving. Yeah, sure whatever. The thing to keep in mind is journalism majors are paid to come up with explanations for every market gyration whether it is real or not. Read the news so you understand what is going on, but don’t take it at face value.

What is the real reason we bounced? My free blog post last Thursday evening explained it before it even happened:

We could see another day or two of selling, but as long as owners remain confident, supply will dry up and prices will rebound like they have every other time this year. Without a doubt this bull market will die like all of the ones that came before it, but confident owners need a reason to change their outlook and “too high” ain’t it. We need something new and unexpected. Something that threatens corporate profits. I didn’t see anything like that in today’s news flow and is why most confident owners will brush off this dip like all the others that happened this year.

Quite simply we bounced because there was zero substance to last week’s selloff. Trump fumbling the Charlottesville situation doesn’t have an impact on corporate profits. Neither did the terrorist attacks in Spain. Last Thursday was little more than a day where nothing went right and demand evaporated. But none of the events that transpired last week have a lasting impact and is why so few owners changed their outlook. Those that believed in the market still believe in it and those that criticized it are still criticising it.

The shame about selloffs is most people manage to turn a great profit opportunity into a losing trade. Traders have been praying for a buyable dip for months. Yet the first one we get these people same people run away because they are afraid things will get worse.

The first thing to understand is all selloffs feel real. If they didn’t, no one would sell and we wouldn’t dip. There is no such thing as an easy trade and the present always feels uncertain and scary. Trades only look obvious months after the fact and with the benefit of 20/20 hindsight.

The second thing is a trend continues countless times, but it reverse only once. This market has been bouncing all year long. What were the odds that this time was the “real one”? Pretty darn low. But that doesn’t stop people from predicting the next collapse every time we slip five-points.

It takes confidence and conviction to make money in the market. We cannot be right every time, but it is important to keep your nerve when everyone else is losing theirs.

Most people are now wondering what comes next. I liked the way the market responded today and it appears like the path of least resistance remains higher. We’re not setting the world on fire with these rate of gains, but a market that refuses to do down will eventually go up.

The sharp selloffs over the last two-weeks helped clear a lot of dead weight from the market. Weak and nervous owners bailed out and sold to confident owners who were willing to buy the dip despite the bearish headlines and horrible price-action. Purging weak owners and replacing them with confident ones gives us a stronger foundation to stand on. This process is why double bottoms are such a reliable buying signals.

That said, triple bottoms are not a thing. If we stumble under Monday’s lows over the next few days, that tells us this weakness is chronic and we should expect further losses. Most likely this market is headed up to 2,500 over the next few weeks, but if we cannot hold 2,420 support, then we will tumble through 2,400 support. Trade accordingly.

Jani

Much ado about nothing

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

Thursday was one of worst days for the S&P500 this year as we plunged 1.5%. There wasn’t a clear catalyst driving the selling. Instead it was a combination of Asian weakness, D.C. dysfunction, weaker than expected earnings, and terrorism in Europe. It was simply one of those days where nothing went right. Even this “half-full” market couldn’t find anything to be positive about.

Given the size of the selloff, volume was suspiciously light. The waterfall price-action gave the impression the market was overwhelmed by a giant wave of panic selling. But the below average volume tells us that’s not what happened. Today’s weakness was more about a lack of buying than fearful selling.

The above shouldn’t come as a surprise since confident owners have propped up the market up all year long. If confident owners were not scared out of their positions through all of this year’s countless bearish headlines, was today’s news any worse? Not really. And that’s why most owners continued to hold their stocks through today’s brutal selloff. Their confidence is aided by the fact most owners are having a great year and are still sitting on a pile of profits. To them this is just another bump on the way higher and nothing to worry about. That’s why despite the gruesome price-action, few owners sold and volume was uncannily light.

Instead the damage was primarily done by the lack of demand. This is not new and has been an issue all year. Every breakout fizzled because those with cash refused to chase prices higher. That forced us into this slow grind higher. Today’s dip was larger than most, but it isn’t unusual to see sideways churn before staging the next move higher.

I’ve been defending this market all year. Every dip has been a buying opportunity and I don’t feel any different this time. Many have criticized my analysis, but so far the market has proved me right dozens of times. Can this time be different? Might this be the end? Sure. But the thing to remember is while a trend continues countless times, it reverses only once. Which side do you think has the better odds?

We could see another day or two of selling, but as long as owners remain confident, supply will dry up and prices will rebound like they have every other time this year. Without a doubt this bull market will die like all of the ones that came before it, but confident owners need a reason to change their outlook and “too high” ain’t it. We need something new and unexpected. Something that threatens corporate profits. I didn’t see anything like that in today’s news flow and is why most confident owners will brush off this dip like all the others that happened this year.

Holding through a dip is not easy but this is a better time to be buying stocks than selling them. The best trades are the hardest ones to make. That means holding when you don’t want to hold and buying when you don’t want to buy. Maybe this time is different, but the odds are against it.

Jani

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Why this market refuses to go down and what it means for us

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 traded flat Tuesday. While it would have been nice to extend Monday’s rebound, holding ground is still constructive. If traders remained nervous, another round of selling would have hit the market today as owners took advantage of this strength to lock-in profits. Instead most owners remain confident and choose to keep holding for higher prices.

Conventional wisdom tells us complacency is bad. What it fails to mention is periods of complacency last far longer than anyone expects. Confident owners don’t sell and that keeps supply tight. In a self-fulfilling prophecy, when confident owners don’t sell a dip, we stop dipping. Tight supply has propped up this market all year-long and it doesn’t look like last week’s headlines and volatility changed that.

Last week I told readers “North Korea still doesn’t matter and how to profit from it“. Those that listened are a little richer this week. I don’t have a crystal ball and I wasn’t predicting the future. There is no magic in this, it is simply a matter of using common sense. This was not the first time a war of words broke out with North Korea and it won’t be the last. But these things never go anywhere because neither side can afford to escalate it beyond words. And that is exactly what happened this time. Reactive traders who acted without thinking were simply giving money away to those who better understood the situation.

Something will eventually break this bull market. Every bull market eventually dies and this one will be no different. While it is okay to be cautious after eight years of strong gains, being bearish just because we’ve “gone too far” is a great way to give away money. Don’t fight what is working.

Confident owners keep supply tight and the only way this market will crack is by convincing these stubbornly confident owners to sell. So far Brexits, rate hikes, and a dysfunctional Congress haven’t spooked owners. Over the last several years, every time an owner got nervous and sold a dip, he came to regret it. After making that mistake one too many times, most owners have now swung to the other extreme and are not selling anything for any reason. And for the time being this supreme confidence is working. Markets don’t dip when no one sells bad news.

As a trader, I enjoyed last week’s bout of volatility and am hoping more is on the way this fall. While this calm has been nice for many investors, it would be foolish to expect this period of historically low volatility to last much longer. I expect a return to more normal levels later this fall when big money managers return from summer vacation and start positioning for year-end.

But thing to remember is volatility can occur in either direction. At this point nothing is convincing confident owners to sell and I doubt there is much that will change their mind. That means the likely outcome is we will see underperforming managers be forced to chase stocks higher into year-end. There is a smaller probability that further dysfunction in D.C. could finally get to this market when we don’t get the promised tax reform. But so far this market doesn’t seem to care about politics and is why I think this outcome is less likely than a chase higher into year-end.

The great thing about being an independent traders is our account size allow us to enter and exit full positions with the click of a mouse. That means we don’t need to know what will happen this fall and can instead wait for the market to tells us what it wants to do. Until then expect this slow creep higher to continue for a few more weeks. Markets that refuse to go lower will eventually go higher. Keep doing what is working and enjoy the ride

Jani

North Korea still doesn’t matter and how to profit from it

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 sold off for a third day following Trump’s “Fire and Fury” threat to North Korea. The first two days of selling were relatively benign, but today’s defensive selling crashed through 2,460 support and the 50dma. This was the biggest single-day loss since mid-May and it puts us back to levels not seen in a month.

Thursday’s selloff felt especially dramatic since it came following a period of historically low volatility. Many traders assumed there was nothing to worry about and we would coast into the end of summer. Unfortunately for them today’s steep selloff reminds us there is no such thing as easy money in the market.

It is hard to talk about what is going on in the stock market without first dipping into geopolitics. This isn’t the first time we’ve gotten into a war of words with North Korea and it won’t be the last. But this situation is unique because no one knows how far Trump or Kim Jong Un will take it since both leaders are new to this high-stakes game of chicken. One miscalculation by either side could escalate this situation from words into something far more deadly.

Kim Jong Un’s primary “Trump” card continues to be the thousands of artillery cannons armed with chemical and biological weapons pointed at Seoul’s ten-million plus citizens. There is nothing North Korea can do to prevent us from bombing their nuclear program, but they can retaliate by attacking the civilians in Seoul.

Millions of hostages are what makes this situation so much different from the ones we face in the Middle East. Trump can talk a tough game, but unless he is willing to sacrifice millions of South Korean civilians, his hands are tied just like they were for all of his predecessors.

Most of the time these situations with North Korea diffuse themselves over a few weeks and things return to “normal”. There is a 99.9% probability this is what will happen here too, but that hasn’t stopped traders from reacting strongly to these headlines.

What started out as a little uneasiness earlier in the week turned into a mass exodus Thursday. This weakness was compounded by all the technical traders using stop-losses to automatically get them out of the market. While this strategy sounds good in theory, it can be tricky in practice because people often use similar support levels to trigger their stop-losses. That means any dip through a widely followed level will trigger another wave of autopilot selling.

2,460 has been support for several weeks and we violated that this morning. That lead to the first cascade of selling that pushed us down to the 50dma. Then Trump told the world his “Fire and Fury” threat wasn’t strong enough and that was enough to extend the selloff under the 50dma.

While this selloff feels scary, the thing to remember is risk is a function of height. Last week when we were trading at record highs and everyone was in a cheery mood was actually a far riskier place to own stocks than jumping in and buying this dip. While it definitely doesn’t feel like it, the discounts sellers are offering make this a safer place to buy stocks because a big chunk of the selloff has already been realized.

For months I’ve been saying this is a buy-and-hold market. Holding is an easy thing to do when the market is gently gliding higher, but holding through a dip hard to do when everyone around us is selling. Our natural instinct is to join the crowd and get out before things get worse, but then that is no longer buy-and-hold.

Every dip this year bounced and this time will be no different. If you don’t think the U.S. will start a war with North Korea, then this is a better place to be buying stocks than selling them. It takes courage to go against the herd, but take comfort in knowing it is a lot safer to buy this fear than last week’s complacency. Many of us have been praying for a buyable dip, here it is. Don’t lose your nerve now.

Jani

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Why NK doesn’t matter and what the next big trade will be

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

Tuesday was one of the most volatile sessions in months. A small opening loss rebounded into a breakout to record highs. But the good times didn’t last long before Trump announced to the world he was willing to go to war with North Korea. That threw a bucket of cold water on the bulls’ party and we finished well off the midday highs.

As dramatic as that description sounds, the actual price moves were not all that impressive. At our highest we were up 0.4%, and after the “big” selloff we end up closing down 0.24%. The only reason it felt so volatility is the market has been hovering lifelessly between 2,470 and 2,480 for the last three-weeks.

This war of words with North Korea is certainly something new and unexpected. For a while I’ve been saying that the summer’s slow drift higher will continue until something new and unexpected happened. Is this war of words between Trump and Kim Jong Un that thing? Probably not. While consequences could be quite dire, the odds of this grudge match escalating to a nuclear war are almost non-existent. Neither side can afford to let it go that far.

This will keep the talking heads on TV busy for weeks, but I doubt many stock owners will take this seriously and even fewer will sell the news. So while it is new and unexpected, it isn’t really material and unlikely to derail this bull rally. Any near-term weakness should be viewed as a buying opportunity. But given how modest today’s dip was, I wouldn’t expect this to go much further unless the threats from both sides escalate significantly.

Until further notice, expect the path of least resistance to remain higher. Stock owners are stubbornly reluctant to sell their stocks and that tight supply is propping up prices. Of course their stubbornness is only matched by the reluctance of those with cash to chase record highs. But keep in mind any gains will be slow coming, it took us three weeks to rally from 2,470 to 2,480. Don’t expect that rate to increase any time soon. This is a buy-and-hold market and keep doing what is working.

That said, things will get more interesting in a few weeks when big money managers return from vacation. They have the firepower to move us out of these summer doldrums and most likely their buying or selling will drive the market’s next move. Most likely we will see underperforming managers chase record prices into year-end as they desperately try to catch up. But there is a small chance air could come out of the Trump rally if Congress fails to deliver the promised tax reform.

The best part about being an independent investor is we can buy and sell full positions with the click of a mouse. That means we don’t need to decide ahead of time what will happen. Instead we can wait for the market to reveal its intentions and then we hop on the band wagon and enjoy the ride. Enjoy the slow climb higher over the next few weeks, but start looking for a bigger trade to come along in September or October.

Jani

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Why the bears are wrong

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 slipped for the fourth-time out of the last six-trading sessions and lost ground seven out of the last eleven-days. As bearish as that sounds, you cannot measure the percentage decline without using a decimal point. When looked at that way, this has actually been a bullish couple of weeks. All these days of selling can do little more than knock us down a fraction of a percent from all-time highs. A market that refuses to go down will eventually continue higher.

But many traders are not seeing what I’m seeing. Bearishness on AAII’s sentiment survey jumped nearly 8-points this week and sentiment on StockTwit’s $SPY stream is in free fall and near two-month lows. Who’s right? The market’s right. Not because it is smarter than we are, but quite literally because it sets the prices we buy and sell at.

But there are very real supply and demand reasons why it is better to stick with the market here. People trade their outlook. Most of the traders who have grown more bearish over the last few weeks have been the ones selling and causing this modest bout of weakness. But now that they are out of the market, who is left to sell? Given the trivial declines, not many owners have joined the selling. While conventional wisdom tells us to fear complacency, the thing it forgets to tell us is periods of complacency last far longer than anyone expects. This bull market will end like all the ones that came before it, but this price-action is telling us it isn’t ready to go yet.

One thing most of us can agree on is sharp selloffs are breathtakingly fast. But here we are, nearly two-weeks into a “selloff” and we have fallen little more than a handful of S&P500 points. If we were standing at the edge of a precipice, the last two-weeks of selling would have fed on itself and we would already be dramatically lower. If the bears couldn’t break this market by now, then they are not going to break it. This is not a set-it-and-forget-it market, but we need to do what is working and right now that is buy-and-hold.

When will that change? Good question. It will change when something new and unexpected happens. Traders who fear a Trump presidency or rate hikes have long since abandoned this market. The next time Trump makes an incoherent 2am Tweet, don’t expect the market to react because everyone who cares about that stuff already sold. Same goes for the next rate hike. Anyone who fears rising interest rates is long gone and they no longer have a vote in what the market does next. That is how bad news gets priced in and why it stops mattering. Ignore what everyone else is talking about because it is already priced in. Instead stay on the lookout for the obscure thing no one see coming.

Not long ago I thought this market would tumble when the GOP failed to cut taxes as aggressively as the stock market hoped, but given how little it reacted to Trumpcare’s appalling failure, the market is telling us it doesn’t care about politics. You’d have to be living under a rock at this point if you still had faith in Congress’s ability to get something done. If everyone expects the tax legislation to fail, then it won’t matter to the market when it does because it is already priced in. Maybe these things will start mattering at some point, but this is not that point.

That said, this is the most nervous I’ve been since the 2009 bottom. Something is coming. I don’t know what it is or when it will happen, but I know something will be worse than most people are prepared for. The market’s half-full outlook has given us this smooth ride higher and it is foolish to fight what is working, but we should be standing next to the doors so we can be one of the first to get out when things turn south. Stick with this bull market for the time being, but be on the lookout for the thing no one sees coming.

Jani

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Keep doing what is working

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday. This strength largely puts last week’s “collapse” in the rear-view mirror. Sharp selloffs are breathtakingly quick and this is the fourth day we’ve held 2,460 support. If this market was vulnerable, we would have tumbled by now.

This resilience won’t surprise regular readers of this blog. Confident owners have ignored every other reason to sell stocks this year and nothing changed last week. In fact there really wasn’t any news driving Thursday’s dip. It was simply a case of reactive traders overreacting to each other. Once this brief bout of weakness passed, hours later dip buyers were back at it. If confident owners showed zero interest in selling rate-hikes and political dysfunction at home and abroad, why would they all of a sudden be spooked out of the market for no reason at all? Answer is they weren’t and that’s why Thursday’s selling reversed so quickly.

While conventional wisdom tell us to fear complacency, what it often leaves out is periods of complacency last far longer than anyone expects. Without a doubt this bull market will die like every other that came before it. But that doesn’t mean we cannot go higher in the meantime. These failed selloffs tell us the path of least resistance remains higher and smart traders keep doing what is working.

That said, this is the most nervous I’ve been since the 2009 lows. Last year’s paranoid, half-empty outlook has given way to this assume everything will work out, half-full outlook on the world. Markets are normally nervous and tend to fear the worst, but this market is anything but nervous. But this doesn’t come as a surprise. After years of regretting every defensive sale, traders have learned to ignore the outside noise. If sequesters, Greek collapses, Brexits, rate-hikes, Chinese bubbles, and all the other noise didn’t matter, then surely nothing going on right now is worse than that. Right now most owners are more afraid of being left behind than they are of losing money. While this cannot last forever, as long as confident owners don’t sell, supply stays tight, and prices remain firm.

Assuming everything will work out is typically the right decision and is why I’m a big fan of buying dips, but eventually we come across something that turns out worse than feared. I have no idea what will take us down, or when it will happen, but I know it is coming. I’m not ready to give up on this market because it is acting so well, but I am standing close to the door and ready to jump at the first signs of trouble. Normally a nervous market is priced at a discount and that compensates us for taking the risk of owning stocks. Unfortunately this market is priced for perfection and that leaves little margin for error. The path of least resistance remains higher, but this is the most dangerous the market’s been in nearly a decade.

The biggest advantage of being a small trader is we can close our positions in minutes. We don’t need to predict what will happen ahead of time because we have the luxury of being able to wait for the market to tell us what it wants to do. While it is tempting to argue with an overvalued, complacent market, resist that urge. Keep doing what is working, but stay vigilant and be ready to react when something changes.

Previously I thought Trump’s inability to enact meaningful tax reform would be the undoing of the Trump rally. But given how little the market reacted to the GOPs inability to agree on anything makes me think the market really doesn’t care about tax reform. If legislative progress was important, Trumpcare’s crash-and-burn would have taken some air out of this market. Instead we continue hanging out near the highs. Same goes for the expanding Trump/Russia investigation. Maybe these will matter at some point, but right now the market doesn’t care and neither should we.

Keep doing what is working. Stick with your buy-and-hold positions. These minor fluctuations are too small to swing-trade effectively, but it is wise to keep some cash ready for the next big trading opportunity. Even though this market is painfully boring, I expect things will liven up when big money managers return from summer vacation and start positioning for year-end.

We are up approximately 10% year-to-date, but I don’t expect us to finish here. Volatility will pick up this fall, I just don’t know whether that means underperforming money managers will be forced to chase price higher into year-end, or if the wheels will fall off the Trump rally and we come crashing back to earth. Most likely we will witness a chase into year-end, but remain wary of anything that doesn’t go according to plan. Complacency means most owners will be slow to react to changing conditions. That will give us plenty of time to get out before things get ugly.

Jani

Fixed Link: Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

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Enjoy the calm, but don’t expect it to last

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 added modest gains Tuesday, easily erasing the last three days of nominal selling and pushing us back into record territory. Earnings reports were good enough and the Senate voted to allow debate on healthcare reform. That put traders into a buying mood and pushed us closer to the psychologically significant 2,500.

While today’s strength broke a three-day losing streak, a 4-point dip over three days hardly qualifies as a selloff. In fact the last three days of restrained selling is actually quite bullish. The market opened the door and gave owners an invitation to take profits, yet the vast majority chose to stay put. They don’t want to sell because they are patiently waiting for higher prices. No matter what the pundits tell us should happen when complacency is this widespread, when confident owners don’t sell, supply stays tight, and prices remain firm. This calm cannot last forever, but it will last far longer than most people expect.

While it is still early in earnings season, if there was a major problem with the economy, it would have shown up by now in the companies that have already reported. The same goes for the other side, if we were going to have a blowout quarter, we would know that by now too. Instead earnings have been good enough to keep our slow climb higher going, but not so great as to launch us higher.

Politics in D.C. is a circus as usual, but it hasn’t been bad enough to affect the markets yet. In fact the market seems to be largely ignoring politics. I’m not sure if that’s because traders are giving Trump and the GOP benefit of doubt and assume everything will work out in the end. Or the market has such low expectations for Trump and Co. that this shit show is hardly a surprise. Either way the market is ignoring politics for the time being and so should we. It will matter at some point, but this is not that point and a trader can lose a lot of money jumping on a good trade too early.

For most of the last eight years people have been saying buy-and-hold is dead, but paradoxically this has been one of the greatest times to buy-and-hold. This is especially true over the last few months. This half-full market simply won’t selloff and that makes it hard find swing-trading opportunities. Only the most nimble day-trader can take advantage of these five-point, two-hour long dips. The rest of us are better off sticking with our positions. That means continuing to hold our buy-and-hold stocks, or sticking with cash while waiting for a better trading opportunity. (Ideally a diversified trader has a bit of both.) The choppy nature and quick reversals in this market make trading dangerous because it is far too easy to get tricked into buying high and selling low. The key to long-term success doesn’t come from our winners, but avoiding giving back all of our profits during slow times. It is hard for a trader to sit on his hands, but that is the best call here.

The path of least resistance remains higher. Trade accordingly. 2,500 is easily within reach, even if it takes us a little while to get there. Things will get a lot more interesting this fall once big money managers return from vacation. The S&P500 is up 10% for the year, but the chances of us finish the year at these levels is highly unlikely. Either everything will go according to plan and Trump’s policies will shift the economy into the next gear. Or our leaders will fail us and the air will come out of the Trump rally. While I don’t know which way we will go, I do know good trading opportunities are just around the corner.

Jani

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Don’t fight what’s working

By Jani Ziedins | End of Day Analysis

End of Day Update:

Even though the S&P500 traded flat Thursday, holding near the highs was a win for bulls. We opened the day with modest losses, but little more than an hour later traders were enthusiastically buying a five-point dip. Selloffs that used to last multiple days and set us back several percent are now being bought within hours and a handful of points. But this shouldn’t come as a surprise. Any defensive sale over the last 12-months was a costly mistake and traders have learned their lesson. Hold no matter what. Headlines stop mattering when no one sells them.

Conventional stock market wisdom warns us about this type of complacency, but what conventional wisdom fails to mention is that these periods of complacency can last a long, long time. Confident owners don’t sell and that keeps supply tight. It is really hard for any selloff to build momentum when so few owners sell the weakness.

More recently this market transitioned from a fearful, half-empty outlook to today’s everything is fine, half-full attitude. Rate-hikes? Political dysfunction? Expanding investigation into our president? Meh, whatever. The market is giving the benefit of doubt to Trump, Congress, and the Fed. Since we trade the market we are given, we need to give them the benefit of doubt too. But that doesn’t mean we trust absolutely.

I get nervous when everyone else is calm and confident. And right now this is the most nervous I’ve been since the 2009 market bottom. This market used to be afraid of its own shadow and that uneasiness kept prices in check. But that is no longer the case. Risk is a function of height and these record highs make this the riskiest place to own stocks since the 2007 top. The path of least resistance remains higher and it is definitely premature to fight this market, but we need to be careful.

As small traders we have the nimbleness that allows us to jump in and out of the market at a moment’s notice so we don’t need to adopt a defensive strategy prematurely. Unlike big money managers, we can wait for the market to tell us it is time to take profits and start trading the other direction. But we are not there yet. This remains a buy-and-hold market at least until the end of summer. After that things will get a lot more interesting. Until then enjoy the slow climb higher.

Jani

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Is it Time to Worry?

By Jani Ziedins | End of Day Analysis

End of Day Analysis: 

The S&P500 collapsed Tuesday in one of the worst selloffs in over a month. Of course “collapse” is a relative terms since today’s weakness didn’t even knock a full percentage point off of the S&P500. But given how benign the stock market has been recently, 0.8% is shocking enough to grab everyone’s attention. The tech heavy NASDAQ took a bigger hit, shedding 1.6%, but to put things in perspective, both indexes are still within a few points of all times highs.

The headline that turned early weakness into a waterfall selloff was the GOP abandoning the planned health care vote because they didn’t have to votes to pass it. Health care is not that important to the market, but that the lack of unity on this issue puts the entire Republican agenda in jeopardy. The post-election stock market rally was built on expectations of tax cuts and today’s legislative logjam is not the narrative the market was hoping for.

The question traders have to answer is if today’s weakness is the first hints of a much larger selloff. Or if this is simply another dip on our way higher. On the surface these headlines don’t seem any worse than the ones the market brushed off previously. Brexit? So what. Rate hike? Who cares. Special investigator looking into the president’s administration? No big deal. If the market didn’t care about those things, why should it care about this health care vote? In fact this isn’t even the first time a health care bill failed to pass. The House stumbled several times before they finally passed their version of Trumpcare. There is no reason to think the Senate won’t be able to do the same.

Most likely today’s weakness will turn out to be a false alarm. Traders have been burned countless times every time they defensively sold weakness, only to see the market rebound even higher not long after they bailed out. It’s gotten to the point where so few people are selling headlines that dips barely last more than a few hours and go further than a handful of points. Right or wrong, headlines no longer matter if people stop selling them. Without supply, it is hard for any dip to build momentum. And that has been the story of this half-full market. No matter what the headlines have been, traders assumed everything will turn out fine and to this point that has been the right call.

As a trader I love a little uncertainty and volatility. These create great trading opportunities because someone else’s fear becomes my payday. Unfortunately this has been a painfully boring market and I don’t think today’s headlines changes that. I fully believe this market is skating on thin ice, but this isn’t the headline that is going to take us under. The market will continue to give our politicians the benefit of doubt and Tuesday’s botched vote will be forgotten by Thursday. If we find support Wednesday, the selloff is done and we can go back to our summer naps. I wouldn’t be concerned until this market crashes through 2,400 support and keeps going. But even then I still think it is simply creating a larger buyable dip. Trends continue countless times, but they only reverse once. Fight this bull at your own risk.

Jani

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Why nothing matters to this market

By Jani Ziedins | End of Day Analysis

End of Day Analysis:

The S&P500 rebounded from Friday’s early selloff and finds itself right back near all-time highs. Anyone who sold Friday’s dip is kicking themselves for overreacting to that weakness. If they were paying attention to the way this market has been behaving, they would have known better and not made that mistake.

Last Thursday I wrote:

“While this market makes me nervous, the path of least resistance is clearly higher. If we were vulnerable to a crash, it would have happened by now. There have been plenty of excuses for traders to sell defensively. But when no one sells the headlines, they stop mattering. These things rarely end well, but they also last longer and go higher than anyone expects. I don’t trust this market, but it will most likely continue creeping higher for the foreseeable future.”

A few hours the market “crashed” in one of the biggest dips in nearly a month, but that was clearly a place to be buying the dip, not selling the weakness. To be honest, I cannot even remember what traders were so spooked over Friday morning it was that trivial. If interest rate hikes, a presidential scandal, and the U.K. government in disarray didn’t bother the market, why should some nominal headline Friday morning make a difference? And a few hours later, it turned out those headlines didn’t matter and we find ourselves right back near the highs.

Risk is a function of height, meaning this is the riskiest the market been in quite some time. But just like skating on thin ice, it’s only dangerous if you fall through. Right now the market continue skating on thin ice without a care in the world. The path of least resistance remains higher…….until it doesn’t.

While I’m skeptical of this market and don’t trust it, it will keep going higher until is has a good reason not to. So far it has refused every reason we’ve thrown at it. That’s because this market is built on high hopes for generous tax cuts. At this point it is clear nothing else matters. The market doesn’t care that a special counsel has been appointed to investigate our preside. That doesn’t have anything to do with tax cuts, so it doesn’t matter…..right?

But if this market is built on a foundation of tax cuts, that is also the thing we are most vulnerable to. If the Republican coalition in Congress devolves into party infighting, or this looming Russia/Trump scandal erodes all of the president’s political capital, expect this market to give back a big chunk of the post-election gains. At this point that is the only thing that will kill this rally. But until this happens, enjoy the slow glide higher and ignore all the other noise along the way.

Clearly this is a buy-and-hold market. Anyone trying to trade this crap is getting their ass kicked. Traditional breakout and breakdown signals mislead us when they fail hours later. The only trade to make is either sticking stocks, or staying in cash. Anyone trying to outsmart this market by jumping in and out is doing nothing but accumulating losses. There are trading markets and there are buy-and-hold markets. This is definitely a buy-and-hold. But don’t despair. This won’t last long and great trading opportunities will come to those who are patient enough to wait for them.

Jani

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