Apr 16

What Happens Next?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The market closed short of all-time highs for a second day. Depending on your outlook, this is either pausing or stalling. Volume is finally making a comeback. Yesterday’s up-day occurred in enthusiastic trade while today’s modest dip hit the average mark, something that’s been hard to do recently. This shows traders are finally starting to pay attention.

This week’s AAII investor sentiment survey mirrored the market’s gains and inched modestly in the bullish direction. The most interesting thing remains the heavy overweighting of neutrals. The historic average is 30%, yet we find ourselves over 45%. That tells us both bulls and bears are growing fatigued by this zigzagging trading range and giving up the fight. They’re not willing to change sides yet, but are far less confident in their outlook.

Technically we find ourselves near the upper end of the trading range. Two previous attempts to break 2,120 failed. Will the third time be the charm? We should know in coming days. Either way this is an important turning point for the market. If we cannot break through, bulls will likely give up and it will be a rough summer. If we smash through resistance, the nearly four months of sideways trade this year built a solid foundation to launch the next leg of the rally.

While many pundits and gurus claim to know what the market is going to do next, at this juncture it could go either way and we are best served following its lead. Buy the breakout or short the stumble.

Jani

Apr 13

What to Look For

By Jani Ziedins | End of Day Analysis

End of Day Update:

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

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

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

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

Jani

 

Apr 06

What Miss?

By Jani Ziedins | End of Day Analysis

End of Day Update:

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

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

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

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

Jani

Apr 01

Good to Be Back

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

Source: Stocktwits 4/1/2015

Source: Stocktwits 4/1/2015

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

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

Jani

Mar 19

Short but Sweet

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

Jani

Mar 12

Finally an Upday

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

Mar 11

Another Placeholder

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

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

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

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

Jani

Mar 10

Is it Time to Buy the Dip Yet?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The bloodbath continued as the S&P500 smashed through all kinds of technical support. 2,060, 2,050 and the 50dma could do nothing to slow this selloff. But as ugly as it looks on a daily chart, the intraday price-action wasn’t all that dramatic. We gapped lower at the open, but quickly settled into a sideways trading range between 2,050 and 2,060 for most of the day. Those that held through the early weakness were not unduly pressured by an extended intraday slide. The lack of pain showed up in volume that failed to exceed Friday’s totals and barely finished above average. It is hard to claim the crowd panicked and rushed for the exits on such benign volume.

There are two ways to interpret this. Either the tidal wave of selling hasn’t hit yet. Or we’re running out of sellers and this thing is about to bounce on tight supply. While we can logically rationalize the latter, recent history says bottoms form on the day with largest volume of the entire move. Using that pattern as a guide, today’s lower volume selloff is likely not the end of this.

The financial press is trying to convince us the market is melting down because the Fed is moving their planned rate hikes forward a few weeks. Really? When phrased that way, it sounds just as absurd as it really is. So if this isn’t rate hikes, what is it? My money is on the surging US dollar since it pressures multinational companies’ overseas income. But while that is true, the one thing we cannot discount is the US dollar is exploding higher because we have the only global economy worth investing in. As long as global investors continue to throw money at our markets, rates will stay low and equities will keep going higher.

While we will likely see more red before this is done, I suspect we are getting close to a near-term bottom. A morning plunge followed by an afternoon bounce on tremendous volume would be the best buying invitation we could ask for.

Jani

Mar 09

Is the Worst Already Behind Us?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

Mar 05

Waiting for Capitulation

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

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

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

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

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

Jani

Mar 03

The 5k Hangover

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

Mar 02

5,000

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

Feb 25

Time to Get Nervous?

By Jani Ziedins | End of Day Analysis

Source: Stocktwits.com

Source: Stocktwits.com

End of Day Update:

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

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

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

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

Jani

Feb 23

Price Trumps Sentiment

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks traded in a tight, five-point range Monday, consolidating Friday’s breakout to new highs. While we spent all of the day in the red, such minor losses are constructive because it shows few owners are taking profits or selling defensively.

Bullish sentiment is ramping up and at the highest levels since December’s top. While rising sentiment gives us pause, 56% bullishness could easily give way to 65% or 70% in coming days. It is important to watch sentiment, but it is only a secondary indicator.

Price is the main driver of trading strategy and so far the price-action is strong. The most impressive thing is how well the market is weathering the storm of bearish headlines. On-again, off-again negotiations between Greece and Europe couldn’t dent this rebound. Neither could a failed truce in Ukraine. And it’s been a while since we had economic numbers exceeded expectations. All of these headlines should have sent us into a 200-point tail-spin, but when the market doesn’t do what it is supposed to, that is a very clear signal it wants to go the other direction. If we don’t selling off on negative headlines, what is going to happen when we finally get some good news?

Source: Stocktwits 2/23/2015

Source: Stocktwits 2/23/2015

While I remain cautious of this market because of the rising bullishness, this strength cannot be ignored. Right or wrong, stock owners are not interested in selling. Without sellers, supply stays tight and prices continue creeping higher. Until we find something that finally cracks bulls’ resolve, the only direction to trade this market is higher.

Jani

Feb 19

Stalling or Consolidating?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks were unable to break through 2,100 for a fourth day. Should we be worried?

There are two ways to interpret this price-action. If demand dries up above 2,100, that tells us this rebound is running out of steam. The more bullish interpretation is we are consolidating recent gains before making the next leg higher.

How do we know which scenario applies here? Technicians claim all we need is price, but price alone doesn’t give us the answer. We need to dig deeper into the market’s psyche to figure out what traders are thinking and how they are positioned.

We would be stalling if the market was unable to break 2,100 with bullish headlines blowing at our back. When things are as upbeat as they can get, yet the market fails to make further progress, that tells us we ran out of buyers. With headlines screaming Greece, Ukraine, rate hikes, falling oil prices, and slowing global growth, it is a big stretch to claim this rally has a tailwind.

It is far easier to make the argument we are stubbornly holding up in the face of a tidal wave of bad news. Bears are dumbfounded by how “stupid” this market is for not breaking down when there are so many obvious reasons we should be plunging. But here’s the thing, these bearish headlines have been around for weeks. Anyone who fears these stories sold weeks ago to buyers willing to own these risks. Once everyone who is afraid of an event leaves the market, then it can no longer hurt us because there is no one left to sell it. And that is exactly what happened. Greek and European negotiations blew up in a spectacular fashion Monday, yet Tuesday we set record highs. Strength in the face of bad news tells us this market still wants to go higher. Short this market at your peril.

Jani

Feb 11

Why We Should Stop Worrying About Greece

By Jani Ziedins | End of Day Analysis

End of Day Update:

Stocks ended flat as all eyes were turned toward a meeting between Greece and European finance ministers. While progress was made, they failed to reach an agreement and pushed the final deal making to Monday’s meeting.

Clearly the market should be paying attention, but is it something we need to worry about? It seems every bearish amateur investor with a Twitter account is proclaiming the #Grexit will annihilate our market. They confidently believe they have some cunning insight that everyone else is too stupid to recognize. But do they really?

In the summer of 2008, very few professionals knew what MBS and CDS stood for, let alone the risks they posed to our financial system. Only in the aftermath of the collapse did people finally realize what happened. Now compare that blindside to the Grexit that retail investors have been discussing in coffee shops for nearly five years. Everyone in the market is fixated on each twist and turn in the Greek story, meaning if this thing blows up, it won’t catch anyone by surprise. Some predict this is just another false alarm, but even the optimist is well aware of the risks because this story is moving so slowly it is nearly old enough to enter kindergarten. With so much time to prepare, major institutions long ago hedged their exposure and a Greek default will be as traumatic to our financial system as Y2K was.

And there is another thing, markets tend to blow negative news out of proportion. The herd gets spooked and traders stampede for the exits. But we haven’t seen the fear of the unknown and the herd selling yet. What gives?

While every bearish amateur is waiting for the other shoe to drop, what if it already dropped, only no one heard it? If everyone knows about something and has plenty of time to prepare, doesn’t that mean it is already priced in? Hasn’t everyone who fears the #Grexit had plenty of time to sell? If all these people sold ahead of time, then who is left to sell when it happens? Contrary to popular perception, the market doesn’t need to crash for bearish news to be priced in.

There are a lot of things for us to worry about, but the Grexit is not one of them. The market is not reacting to these headlines, not because it is stupid, but because it is more savvy than the amateur investors predicting its demise.

Jani

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Feb 10

To Grexit or not to Grexit

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

The S&P500 rebounded from recent weakness and ended at the highest close of the year. Declining oil prices were no longer an excuse for traders to sell stocks as oil gave up a portion of recent gains.

The headline justification for today’s rally was a softening of the standoff between Greek leadership and the ECB. Greece’s new leaders are discovering there is a difference between making campaign promises and being held accountable for the unintended consequences of those decisions.

While the Greek situation could continue to unravel, anyone who fears a Grexit already sold. Those that are left demonstrated they are mostly indifferent to the whole situation and are just as likely to ignore the next round of headlines out of Europe.

When the market is sitting 1% from all-time highs in spite of the fearful headlines, it shows it doesn’t care about these concerns because they are already priced in. Market strength in the face of fear mongering is a buying opportunity. That doesn’t mean the rally is invincible, only that bears will need to come up with something new and unexpected if they want to break the market.

Technically the market is acting well. We found support near 2,050 and the 50dma, setting the stage for today’s upside move to 2,070. The pain trade is betting against the bears since further upside will force them to cover their shorts.

While I expect higher prices in the near-term, I remain cautious further out. The last few years have been an easy, elevator ride higher, but a recent increase in realized volatility shows the market’s personality is shifting. At this point I’m far more likely to sell a breakout to all-time highs than buy it. But I reserve the right to change my mind as new information comes to light.

Jani

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Feb 09

Do We Need to Worry?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks stumbled for a second day on intensifying rhetoric from Greece’s new leadership. That was enough to spook European markets and bring ours down in sympathy. But the low-volume, 0.4% loss was almost sleepy as compared to recent volatility.

While the S&P500 failed to hold 2,050 support, there was little urgency from participants to sell the violation. Owners seem fairly comfortable with these headlines and price-action. That confidence would crumble if losses accelerate, but as long as owners continue holding, we won’t have the supply necessary to pressure prices.

Last week’s rebound relieved bulls, but sentiment remains cautious. AAII and Stocktwits sentiment measures saw a big drop in bullishness last week, no surprise given recent headlines. But stable prices in the face of fear-mongering means most of it is already priced in. Those afraid of these headlines had plenty of time to sell, meaning anyone still holding stocks is demonstrating a willingness to own this risk.

While any number of geopolitical situations could flare-up, stability around 2,050 for a couple more days tells us the market is inclined to continue higher. When the market has every reason to sell off, but it insists on going higher, don’t fight it. On the other hand, if we cannot hold the 50dma Tuesday, we have a date with the 200dma.

Jani

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Feb 05

Bullish Signs

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks continued the rebound, adding another 1% and closing just shy of January’s double tops at 2,065. Volume was average, but lower than the last six days of elevated trade.

While the market surged 15-points at the open, from there it was one of the most benign days of the year as we traded inside a five-point channel between 2,055 and 2,060. I cannot remember the last time we saw such laid-back intraday trade. We finally “broke out” to the upside in the final minutes of the day, if you count a two-point move to 2,062 as a breakout.

Just a few days ago I was talking about 120-point intraday swings and now a two-point surge at the close is the best we can do. Amazing how quickly things change. Calm, rational, stable trade is good for the markets, suggesting this is more than a dead-cat bounce.

Sentiment remains in the toilet. Stocktwits’ SPY stream is 55% bearish while the latest AAII survey showed bearishness surging 10% and bullishness plunging 9%. It appears recent volatility and fearful headlines have discouraged a large number of retail investors.

But just when things look the worst is usually when they turn around. This is where the last of the hopeful holdouts call it quits and sell their stock at a discount because they cannot stomach the thought of another downday. But once they finish selling, supply tightens up and we bounce. And so far that is exactly what’s happened.

Everyone who fears falling oil prices, Euro uncertainty, and volatility sold to thick-skinned bargain hunters willing to hold the risk. The current crop of owners demonstrated a willingness to own this uncertainty. That’s why when oil falls or tensions flare up in Europe, the market is indifferent. The new owners don’t care about those issues. Right or wrong, prices remain firm when no one sells.

Friday morning we get employment. While this is usually good for a few minutes of volatility, it’s been years since an employment report changed the direction of the market. The talking heads love to hype it up, but it will be ancient history by lunchtime.

Technically the big milestone is 2,065. We were turned back twice in January at this level and a lot of traders will be watching it. If we break it, expect a wave of breakout buying and short-covering. From there we will have to see how the market behaves before deciding if this bounce has the resilience to continue to all-time highs.

Jani

Feb 04

Does Oil Still Matter?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Update:

Stocks slogged through most of the day in the red, taken down by a huge drop in oil prices. A late-day rally shook off the early doldrums, pushing us into the green, but that was short-lived as a last-minute headline out of Europe sent the market tumbling into the close.

As dramatic as that sounds, the day was a fairly benign relatively speaking. The market traded sideways, mostly staying between 2,040 and 2,050. This compares favorably to the massive swings we’ve seen in recent sessions.

With oil down as much as 9%, it was constructive to see the market slip only a fraction of a percent. That shows a big chunk of the oil story is already priced in. Anyone afraid of plunging oil prices sold weeks ago, and is why today’s oil dip didn’t concern current owners much. In fact, it was quite bullish to see the market break into the green toward the end of the day. That is, until the ECB rained on our parade.

Without getting too technical, the ECB decided to play hardball with Greece’s newly elected, anti-austerity leaders. This high-stakes game of chicken roiled markets in the final minutes. But the question we have to ask is if Greece still matters? We’ve been down this road before. Back then numerous financial institutions were vulnerable to a Greek default, but this time it is less of a surprise and the bulk of Greek debt is held by governments. While German taxpayers won’t be happy, at least this time it shouldn’t threaten to seize European banking flows.

But that kind of thinking uses logic, not the market’s strong suit in uncertain times. This afternoon’s sell-first, ask-questions-later later mentality could send prices careening dramatically lower Thursday. But at the same time, many traders who lived through multiple Greek crises could see this as just another Red Herring trying to get them to sell their stocks for a discount. Fool me once, shame on you; fool me twice, shame on me. It will be interesting to see which mindset traders show up with Thursday morning. So far overnight futures are down modestly, suggesting the Greek story is not spiraling out of control.

Technically, the market struggled with 2,050 resistance the last two days. Look for a surge of breakout buying and short-covering if we get through this level. That should push us to 2,060, which will be a far larger test of this young rebound since that is where we stalled multiple times in January. On the downside, be wary of an inability to reclaim the 50dma and 2,050. If the market cannot keep recent gains and slips under 2,020, then we will most like continue sliding through the 200dma.

Jani