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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Are We Poised to Explode Higher?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

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

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

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

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

Jani

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Who is Wrong, Bulls or the Bears?

By Jani Ziedins | End of Day Analysis

End of Day Update:

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

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

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

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

Jani

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Between the Lines

By Jani Ziedins | Intraday Analysis

S&P500 4/21/2015 intraday chart

End of Day Update:

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

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

Jani

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Whipsaw

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Updates

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

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

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

Source: Stocktwits 4/20/2015

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

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

Jani

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What Happens Next?

By Jani Ziedins | Intraday Analysis

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

What to Look For

By Jani Ziedins | End of Day Analysis

End of Day Update:

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

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

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

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

Jani

What Miss?

By Jani Ziedins | End of Day Analysis

End of Day Update:

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

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

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

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

Jani