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It Gets Worse Before It Gets Better

By Jani Ziedins | End of Day Analysis

S&P500 Daily at end of day

End of Day Update:

The S&P500 finished flat after modest moves lower and higher failed to stick. Volume continues to be below average as we slip further into the summer doldrums.

While economic indicators, corporate earnings, mergers, Fed statements, and other headlines come and go, the market remains stuck in neutral. The biggest item hanging over us is the impending Greek default if a deal cannot be brokered in coming weeks. It seems many with cash are waiting for a resolution before they feel comfortable buying stocks near all-time highs. And so we trade sideways while we wait for the situation to unfold.

A common saying is you never get hit by the bus you see coming, and that clearly applies to this Greek debacle. The Grexit has been in and out of the spotlight for years. While the global financial system was vulnerable early on, most Greek debt has since been absorbed by the ECB and other European nations, leaving the wider private sector largely immune to a Grexit. While stock prices are held back by a fear of the unknown, the Grexit will actually be a bullish catalyst once it turns out far more benign than most fear. But the market trades on perception, not reality, so we should anticipate near-term volatility as this standoff comes to a head over coming days. But when scared owners start offering stocks at steep discounts, that is our opportunity to step in and profit once the storm passes.

Individual Stocks:

$EBAY daily

$AAPL – Apple opened weak the day after its developer conference keynote failed to excite investors. But we knew this was coming. Short-term traders can trade around near-term volatility driven by broad market weakness, but the iPhone story remains intact for long-term investors as long as $122 holds. If we slip to this level, we will have to watch the situation more closely and reevaluate.

$EBAY – Ebay is testing the breakout level, giving those that missed the initial move the opportunity to get in. Of course given human psychology, it is far harder to buy the pullback than the breakout even though the real risk is actually reduced as we slip a few points from the highs. The key is holding $58/$59 support. For the breakout or dip buyer with a $60ish entry price, this represents a fairly attractive risk/reward, but for those that chased the stock up near $63, the risk is quite a bit larger.

$FEYE – FireEye is doing a good job holding recent gains, but it is up 10% from the breakout point and anyone tempted to chase only needs to look at EBAY for what can happen if you show up late to the party. Either wait for a pullback, an alternate entry point, or simply look for another trade. There is no need to chase, especially given the recent weakness in the broad market.

$ALGN – Align is also pulling back as the wider market softens. This continues to be an interesting story, but very few stocks can stand up in the face of a weak market. As soon as we get the green light from the market, these individual stocks will start trading strong again.

Jani

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

Is it Safe Yet?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The selloff continues as the S&P500 falls for the third consecutive day. This pushed us to 2,080, a level that’s acted as both support and resistance multiple times this year. While not as psychologically important as 2,100, it was meaningful enough to arrest the slide. The question now is if this puts the worst behind us.

Volume was the lightest we’ve seen in weeks, showing the technical weakness didn’t scare many owners and the dip was more due to a lack of demand than a surge in supply. While it is nice to see owners remain confident, capitulation bottoms form when owners panic and dump stock at a steep discount. Clearly that didn’t happen today. That means either we see a slow and methodical rebound from here as tight supply trumps light demand, or we plunge lower and trigger that emotional capitulation bottom. Slow climb higher or sharp selloff lower? The risk/reward seems pretty clear. But in spite of that, I continue to be bullish medium-term for all the reasons I listed in last week’s posts and am looking forward to profiting from a near-term emotional drop in prices. For those with long-term portfolios, don’t let this noise or price-action shake your resolve.

Individual Stocks:

$AAPL – Apple had their dog and pony show and just as expected, didn’t announce anything all that interesting. Minor updates to OS X and iOS and a music streaming service that will no doubt prove as wildly successful as their two-year old iTunes radio. What? You never tried iTunes radio? Yep, exactly like that. Apple is a handset maker and as long as the iPhone continues to sell well, you can ignore the iPad, iWatch, iTV, iRadio, iStreaming, iMac, iCar, and all the other side projects they have. The stock lives and dies by how many phones they sell. Which is why the most noteworthy development t0day was ATT’s decision to stop offering subsidized phones through the Apple Stores. This will be especially critical if other carriers follow suit. Between the slowing evolution of new must have features and the end of phone subsidies, we could see the phone upgrade cycle stretch from two-years to three-plus as consumers have to pay more and get less in return. Since the global high-end smartphone market is saturated (those who can afford a $600+ phone already have one), a slowing upgrade cycle will be a big headwind once the iPhone 6 upgrade surge runs its course. While not a today story, it is a material concern for long-term owners.

$FEYE daily at end of day

$EBAY – Ebay was smacked down by the broad market and shows why it is risky to chase a stock extended from the breakout. But in spite of today’s nearly 4% dip, the breakout is still intact and isn’t under threat unless we fail to hold $58.

$FEYE – FireEye had a strong open but gave up those gains through the day under the weight of the weak broad market. The breakout still looks good, but with a sky-high valuation it is subject to more volatility if the entire market hits a rough patch.

$ALGN – Everything I said about Ebay equally applies to Align, even coincidentally enough, the $58 price level.

It seems like the broad market and individual stocks could see some near-term weakness, but this will be yet another buyable dip. Those with stock should buckle down and prevent their emotions from getting the better of them. Those with cash should remain patient because we will likely see better prices in coming days.

Jani

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

Is it Time to Sell?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The indecisiveness continues as yesterday’s attempted breakout becomes today’s breakdown. Early strength on Wednesday convinced many the market was finally ready rally, but this morning’s dip under 2,100 spins the exact opposite story. Can we believe this is the start of the real selloff, or is it just another head-fake?

Cutting through the 50dma and closing under 2,100 will prove insightful over coming days. Either it triggers an expanding wave of emotional, technical, and stop-loss selling, or it bounces as quickly as Wednesday’s upside breakout fizzled.

The thing to be careful of with these intraday moves is they are primarily driven by the small subset of day-traders. What they lack for in size, they more than make up in volume. But their limited account size prevents them from driving sustainable moves. While they can kick things off, they don’t have deep enough pockets to keep them moving. Only big money managers have the dollars behind them to keep the ball rolling. And so far this year big money hasn’t flinched following these countless breakouts and breakdowns. When the institutional bulls stay bullish and the institutional bears stay bearish, every attempted move fizzles and we quickly return to the status quo.

To answer the original question on if we should believe in this breakdown, it all comes down to how stock owners respond. Is this selloff dramatic enough to spook previously confident bulls that ignored every other attempted breakdown this year? Is there something bigger this time? In my opinion, it really feels like this weakness is more of the same and is just as likely to bounce as all the other failed breakdowns this year. (For those pointing to the imminent collapse of Greece, read yesterday’s blog post for my analysis of that situation.)

While today’s dip didn’t feel like capitulation and we likely have a little more downside left, we should be getting ready to buy the dip, not joining in the herd’s emotional selling.

EBAY daily

Individual Stocks:

$AAPL – Apple’s selloff today was less than the market’s and shows owners want to continue holding ahead of next week’s developer conference. The thing to be wary of is if this turns out to be a buy the rumor, sell the news event. There is no reason for the long-term holder to worry about these minor gyrations, but a more nimble trader could take profits ahead of the conference and buy back in at a discount a few days after.

$EBAY – Ebay’s breakout is on firm ground as it bucked the broad market’s weakness and finished in the green. That strength tells us this breakout is the real deal and we should keep holding.

Jani

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

Biggest Bullish Catalyst

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

It was another meaningless day for the market as it remains stuck in neutral. The S&P500 finished inside a 20-point range for the seventh consecutive day. While some claim this is boring, listless trade. Reality is a lot of passion is hiding under the surface. Given the headlines out of Europe, Asia, Fed, and our economy, plus stocks at record levels, there are few traders yawning from boredom. Most are passionately arguing their opinion that this market is either overvalued and on the verge of crashing, or in the early stages of another 90’s style bull run. The market isn’t idling in neutral because nothing interesting is going on, it is stuck because bulls and bear are pulling so hard from both ends.

If we listed of all the reasons this market should selloff, it would take several sheets of paper. But I suspect most would struggle coming up with more than a handful of fundamental drivers for us to continue rallying. Yet here we are at record highs. For many investors, this obvious skew is all the reason they needed to dump their stocks ahead of the imminent correction. But as the contrarian, I’m left wondering why this market is so strong when the news is so obviously bad. The thing most people forget is markets don’t trade news, fundamentals, or technicals, they trade opinions. No matter how bad the news, if we run out of sellers, prices rally. Opposite is true when we run out of buyers. Trade people, not news.

A lot of the reasons we keep stalling above 2,120 is because those with cash are afraid of Greece dropping the Euro. We’ve been conditioned by years of articles about what a disaster that would be. But here’s the thing, markets are only vulnerable to the unknown. Since every wannabe investor hanging out in Starbucks is talking about what’s going on in Greece, we can safely ignore it. That doesn’t mean these events won’t drive near-term volatility, but that we can take comfort in knowing it won’t cause the next market meltdown because there are so few left to sell the “surprise” headline.

I’ve been constructive on this market for a while, but stalling near the highs for over a month is a concern. Those with cash are not in a mood to buy because they are afraid of Greece, rate hikes, and a sluggish economy. But clouds of uncertainty always dissipate and the best time to buy is when everyone is most uneasy. The biggest bullish catalyst in front of us, and yes I said bullish, is Europe finally kicking Greece out of the Euro. By the time traders realize Greece is the catastrophe that never was, it will be too late to buy the dip and all those reluctant buyers will be forced to chase this market higher. Long-term investors should ignore all the noise, but more nimble traders can make money buying discounted shares from panicked owners if prices stumble in the near-term.

Individual Stocks:

$AAPL – Lacking any headlines, AAPL is mirroring the indexes. There is a chance we could see a small pullback next week after Apple fails to announce anything new and exciting at its developers conference. But the disappointment will likely be short-lived.

FEYE weekly

$EBAY – It was a flat day for EBAY as it continues digesting the recent breakout. But the longer we hold above the breakout, the more likely it will stick and continue higher once all the new-high profit-taking is behind us.

$ALGN – Added nicely to its recent breakout. The big psychological and technical test will come when it runs up against $65, a level it failed to overcome at the start of the year. While we should expect a pause, or even pullback, as many sell and short the highs, there is no reason to join the selling as long as we stay above the buy-point.

$FEYE – Keeps edging higher, but this one has a longer road to hoe since it is well off the highs. It will continue to encounter selling pressure from regretful owners as it climbs higher, but this recent breakout pushed us clear of the post-IPO consolidation and all those buyers are now sitting on profits. While we are still 50% off the highs, most owners are sitting on profits and more comfortable waiting for higher prices.

Jani

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

Another Head-Fake

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

It was another head-fake for the S&P500. Early weakness pushed us down to 2,100 support, a midday rebound challenged 2,120 resistance, but ultimately we finished smack-dab in the middle of the range…again. Option sellers love this mind-numbing trade, but they are the only ones. Buying strength or selling weakness has been a path to financial ruin as every move reverses hours later.

I am encouraged by the continued support at 2,100, but just as concerned by the inability to clear 2,120. Half the market refuses to sell at a discount while the other half refuses to pay a premium. This is nothing more than a battle of wills and whichever side proves more stubborn will ultimately be the victor. While our departure from this overly restrictive trading range is imminent, there is a high probability the first breakout / breakdown will be the most painful head-fake to date. This market brutalizes anyone making directional trades and it isn’t done yet.

Greece is the looming catastrophe everyone is afraid of, but that is exactly why it won’t be a big deal. This will be the market’s Y2K. In the late 90’s there was a real reason to be concerned about computer problems when clocks rolled over to 2000, but that fear drove preparation, and that preparation made it a non-issue. We’ve been talking about a Grexit for so long that most have had enough notice to hedge the risk. And that’s why for the rest of the world, the Grexit will be a non-issue and the market will rally when it finally happens. But until then, the fear of it keeps hanging over us, making it difficult to push to new highs.

Individual Stocks:

$AAPL – Apple is mirroring the S&P500 and there is no change from yesterday’s analysis. Ignore the Developer’s Conference and AAPL will rally or fall along with the broad market.

$EBAY – Ebay finished in the red, but we are still well above the breakout point and this weakness nothing to worry about. The previous three days were up strongly and it shouldn’t surprise anyone to see this cool off as long-term owners get nervous at these new highs and lock-in profits.

$FEYE – Everything I said about EBAY applies equally to FEYE’s price-action today.

ALGN daily at end of day

$ALGN – Align Technology is another breakout worth keeping an eye on. Similar to EBAY, it is challenging multi-year resistance near $60. The Great Recession is quickly fading from memory and many consumers are finally warming up to big-ticket purchases again. Premium teeth straightening systems fall into that category and the stock is challenging the highs as customers who previously lacked job security are finally making those deferred purchases and others are opting for ALGN’s more expensive products. It would be reassuring to see volume pick up in coming day, but as long as the stock holds above $58, the breakout is in good shape.

Jani

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

Bringing Back Individual Stocks

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

It was another range-bound day for the S&P500 as we bounced off 2,100 support in early trade, but failed to clear 2,120 resistance. Volume was light, but not all that noteworthy given we are slipping into the slower summer trading season.

Previously I was expecting an upside breakout, but it concerns me that we cannot get the job done. There is a fuzzy line separating a healthy consolidation from far less productive stalling. We’ve been struggling with 2,120 resistance since late April and the market’s inability to build on May’s breakout exposes a material lack of demand every time we creep up to highs. While every selloff bounces because confident owners refuse to sell their stock for a discount, those with cash are proving just as stubborn.

At this point I can easily agree with both the bull’s and bear’s point of view. Meaning this could as easily break one way as the other. Sometimes we have to admit we don’t have an edge and simply wait for the next trade. No doubt this will either surge higher, or plunge lower, but I would be flipping a coin if I tried to predict which one given all the contradictory signals coming from the market. As a trader, sometimes the hardest trade to make is to not trade.

Individual Stocks:

$AAPL – Apple is just as range bound as the S&P500, currently stuck between $125 and $132. While the developer’s conference is right around the corner, it’s been a long time since a big announce hasn’t leaked out ahead of time. Don’t expect headlines to trigger the next breakout/breakdown and AAPL’s destiny largely lies in the hands this broad market consolidation.

EBAY weekly

$EBAY – While rumors of a Paypal spinoff have been around forever, we are quickly approaching the day when it will become a reality. Since traders largely expected the spin-off, the acquiesce by management failed to triggered a large upside move, but in recent days the stock finally broke through $60 resistance. It repeatedly stalled at this level over the last two years, and while that could easily happen again, this time feels different. Keep an eye on this one. Ideally it will stay above $60, but all bets are off if it slips under the 50dma.

$FEYE – Cyber security is making a strong case to be the next big thing and is what propelled FireEye near an eye watering $100 last year. But like every other premature, overhyped story, the air quickly came out of this one too. The stock fell nearly 75% as momentum traders threw the baby out with the bath water. While fear drove many to sell at huge discounts, the cyber security story is real and the stock is making a comeback, up nearly 100% from the lows. More recently it cleared a cup with low handle on strong volume. This pattern has a higher failure rate given the larger number of traders praying to get out at breakeven, this presents an interesting opportunity for the courageous trader. Just like EBAY, it would nice to see the stock hold $45, but we really have to question the sustainability of the breakout if it slips under $42. Because of the high beta nature of FEYE, it is way too dangerous to hold it through a market dip. Bail on this trade if the S&P500 starts breaking down. There will be plenty of time to buy back in later.

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY EFEYE

Trade the Market, Not Common Sense

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 rebounded decisively from Tuesday’s selloff. We opened higher and never looked back, easily reclaiming 2,120 support. Volume was slightly below average and less than yesterday’s downday, but still respectable given this is a holiday shortened week.

Today’s price-action poses a serious threat to the Bearish thesis. Yesterday’s selloff was the crack Bears needed to finally kickoff the long-awaited correction. Nothing shatters confidence like screens filled with red, and we had that in spades Tuesday. But as it turned out, the selling was quite limited as we quickly ran out of owners willing to dump their stocks for a discount. This tightening supply put a floor under the market and the selloff ended as quickly as it started.

If this market was as extended and overbought as many claim, the smallest stumble would trigger cascading wave after wave of selling as panicked sellers rushed for the exits. That’s what happens when markets are unsustainably high, hence describing them as unsustainable. But the perplexing thing is rather than plunge lower, we keep rebounding to the highs. Looking only at the market’s behavior, it is fairly easy to make a compelling argument that this want to go higher, not lower.

The problem many traders have is they spend too much time thinking about what the market should do instead of looking at what it is doing. If the market doesn’t care about rate hikes, employment, inflation, Greece, and all the other jazz, then neither should we. Something will eventually take this rally down, but it will be totally unexpected and not what everyone has been talking about for months.

Jani

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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

Stick With It

By Jani Ziedins | End of Day Analysis

End of Day Update:

Opening weakness in the S&P500 quickly rebounded and turned into a decent gain for the index. Overnight worries about Chinese manufacturing and European weakness faded as soon as we opened. While it was nice to finish in the green, we struggled with 2,130 again as we find ourselves stuck in a very narrow range between 2,120 support and 2,130 resistance.

Headlines have given this market has every excuse to sell off, yet we keep making new highs. Too often the novice contrarian confuses price with sentiment. They assume high prices automatically equate to overly bullish sentiment and is why they want to bet against the trend. But the truth is price and sentiment are completely independent. Just as surprising, the contrarian trade is most often sticking with the trend while every else is convinced it’s gone too far and is about to correct. That is how we find ourself at record high prices while the AAII’s bullish sentiment remains 14% under historic averages and near five-year lows. It seems the crowd developed a fear of heights.

The most compelling signal the market can give us is not doing what everyone thinks it should. When we’re supposed to crash on Greece, weak GDP, rate hikes, and all the others, but we rally instead, that tells us to grab on and enjoy the ride. Don’t fear these headlines, instead fear the day when all the news is good and the market stops going higher

Jani

Good Enough?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 ended modestly lower in a day that saw it trade primarily between 2,125 and 2,130. There was an early dip to 2,122 that quickly bounced and a brief jump to 2,135 following the release of the Fed minutes. But neither divergence stuck and we finished inside the day’s range.

The market moved higher following Fed minutes that pointed to a delayed rate hike, but we quickly returned to this morning’s levels once everyone realized we already knew that. For all the build up, the minutes were forgotten barely two hours later.

But this retreat from the highs is giving bears something to crow about. It is surprising how vocal they are on a day that saw us set fresh highs. They complain about bullish optimism, but getting excited over a 0.4% dip is definitely stretching for something to gloat over.

This was the market’s fifth consecutive close above the widely followed 2,120 resistance level that stretches back to February. What was resistance becomes support and that appears to be the case here. Previous attempts at breaking 2,120 saw us retreat days later, so holding these levels for a week is encouraging. It’s not as great as seeing the market surge to new highs, but it shows we are not being overrun by a wave of profit taking since the current crop of owners appear far more content holding on for higher prices. Their conviction keeps supply tight and makes it easier for us to keep going higher.

While this breakout feels different, we need to see it continue making progress. If we close materially under 2,120, that shows the lack of demand is even more powerful than owner’s confidence. Since confidence is so fragile in the face of falling prices, we need to be wary if we cannot hold support. The other risk is if we cannot escape 2,120 and continue trading sideways. The longer we over above support, the more likely it is we will slip under and trigger a wave technical and stop-loss selling.

Jani

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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

Let the Melt-Up Begin

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 finished the week on a positive note. While Friday’s gain was less than 0.1%, it was enough to set another record close. We’re only up 0.3% for the week, but it was impressive because it includes recovering from Tuesday’s test of the 50dma.

A couple of months ago we had a right to be concerned when the market failed to extend a breakout to record highs, and these thoughts were justified as we watched prices retreat from the highs in following sessions. But like everything in this game, sometimes a certain behavior means one thing, while under different circumstances it tells us the exact opposite. This time around, pausing at 2,120 actually feels productive. We saw early distribution, but it was fairly muted and we recovered into the green by the close. Obviously demand remains weak near widely recognized resistance, but we climbed this high because most owners are confidently holding for higher prices. And at least to this point, tight supply trumps weak demand.

The interesting opportunity for bulls comes as we close in on the tipping point where reactive buying will boost demand for stocks. When the widely expected correction instead turns into a breakout, it forces pessimists to decide between buying in or being left behind. And that’s how melt-ups start.

Seeing the market pause, or even pull back modestly here is constructive. What we don’t want is a retest the 50dma so soon after bouncing off of it. Keep holding for higher prices as long as we stay above 2,100. On the other side, be wary of a sharp move higher next week since that signals buying capitulation and leads to exhaustion.

Jani

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Where Have the Bulls Gone?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

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

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

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

Jani

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Going Up?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

Doing the Hard Thing

By Jani Ziedins | End of Day Analysis

S&P500 Daily at end of day

End of Day Update:

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

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

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

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

Jani

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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

Ouch!

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

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

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

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

Jani

Whole Lotta Nothin’

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

Jani

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Up and Down

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

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

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

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

Jani

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