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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 finished Thursday’s session pretty much where it started. But as quaint as that flat finish sounds, getting there was anything but a smooth ride.
Before the open, we got December’s CPI report showing inflation picked up a small amount from November. While not terrible, it leaves inflation above the Fed’s target and hints that rate cuts might not arrive as quickly as some investors hoped.
After opening with small gains, the selling hit hard, and the index shed nearly 60 points over a few hours. But when it looked like another big wave of selling was knocking us back to the January lows, supply dried up, and prices bounced.
Luckily, this sideways chop under 4,800 resistance doesn’t surprise regular readers. As I wrote in my Free Analysis Tuesday:
We’ve come a long way from the October lows, and the market deserves a well-earned break. I’m not expecting a surge past 4,800 anytime soon and the market is settling in for a sideways grind under 4,800 resistance. But as long as we keep getting more up than down, this is a better place to be owning stocks than it is to be shorting them.
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As luck would have it, we hit our head on 4,800 resistance and turned back. But equally expected was another aborted selloff that didn’t go anywhere.
Bulls and bears are jumping all over these gyrations that confirm their biases, only to have those trades blow up in their faces a few hours later. This market is entering a consolidation phase, and it will be a while before we get the next big, directional move. Keep that in mind the next time you are planning a trade.
In range-bound markets, we trade the reversals; we don’t bet on the continuations. Until the market decisively breaks out of the 4,700/4,800 trading range, be prepared for a lot more sideways chop.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 slipped less than 0.2% Tuesday.
While a loss is a loss, this small give-back actually looks bullish for two reasons. First, we opened the session with much larger losses, and the market spent all morning climbing back from those opening lows. Second, giving back less than 0.2% of Monday’s towering 1.3% surge is barely a scratch.
Tuesday’s price action follows what I wrote in Monday’s free evening post:
Monday’s decisive bounce off of 4,700 support must be respected. At this point, last week’s step back is over, and the rally is resuming. That’s the only way to trade this. For a nimble trader, the bounce off of 4,700 was buyable. The non-stop, nearly straight-up rally through Monday’s session was paid for by tardy shorts getting squeezed out of their positions. Odds are good we will see more pressure applied to bears over the next few sessions.
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If this market was overbought and vulnerable, Tuesday’s opening losses were the perfect opportunity for bears to strike by opening the selling floodgates. Instead, most owners saw Tuesday’s early losses, shrugged, and kept holding. That caused supply to dry up and prices to bounce.
While two days of resilient trade is not conclusive (three if you count Friday’s draw), it sure is a good start. As I often write, something that refuses to go down will eventually go up. And so far, the market is refusing to resume last week’s selloff.
While last week’s selloff could return at any time, the first thing a bigger selloff needs to do is violate 4,700 support. As long as the index remains above this key level, last week’s selloff is dead.
We’ve come a long way from the October lows, and the market deserves a well-earned break. I’m not expecting a surge past 4,800 anytime soon and the market is settling in for a sideways grind under 4,800 resistance. But as long as we keep getting more up than down, this is a better place to be owning stocks than it is to be shorting them.
Everything will change if the index falls under 4,700 support. But until that happens, keep giving the market the benefit of the doubt.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 surged 1.4% Monday, closing comfortably above 4,700 support as last week’s worries faded from memory.
Financial headlines haven’t changed, but the market is enjoying a bit of relief as Congress makes incremental progress toward avoiding a shutdown. Sometimes, that’s all it takes to cure a bout of selling. As the saying goes, buy the rumor, sell the news. And traders were definitely buying the rumor on Monday.
Time will tell if Monday’s strength proves durable, but often, it only takes removing the selling pressure for the market to regain its footing. We will learn more about the market’s mood on Tuesday, but so far, things look promising. One day doesn’t make a trend, but every trend starts with that first day.
As readers will recall, I put on a short position last week. Fortunately, I was prepared for something like Monday’s bounce. As I wrote last week:
At this point, the pullback deserves the benefit of the doubt. Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to their entry points, greatly reducing their risk.
[S]horting a rally is one of the hardest ways to make money in the market, so this only applies to the most adventurous traders, but for the moment, this trade is working and we stick with it. The most important thing is respecting our stops. Just ask anyone who shorted “too high” at 4,400, 4,500, and 4,600. Don’t make the same mistake and pull the plug if the short trade stops working.
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With Monday’s buying erasing all of last week’s selloff, that obviously qualifies as the short trade no longer working. Savvy traders pulled the plug at their entry points. As the saying goes, no harm, no foul. This trade didn’t work, but it didn’t cost us anything. Does anyone complain about getting free lottery tickets, even when they don’t pay off? I sure don’t
As for what happens next, Monday’s decisive bounce off of 4,700 support must be respected. At this point, last week’s step back is over, and the rally is resuming. That’s the only way to trade this. For a nimble trader, the bounce off of 4,700 was buyable. The non-stop, nearly straight-up rally through Monday’s session was paid for by tardy shorts getting squeezed out of their positions. Odds are good we will see more pressure applied to bears over the next few sessions.
And if the selling returns, that’s okay, too. I’m willing to ride the next trade in either direction. Start small, get in early, keep a nearby stop, and only add to a position that’s working.
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By Jani Ziedins | End of Day Analysis
Free After-Hours Analysis:
The S&P 500 shed another 0.3% on Thursday, making this four down sessions in a row.
Financial headlines haven’t changed in a meaningful way since last week’s Santa Clause rally peaked, but no matter how good things seem, there always comes a point when we run out of new money to keep pushing prices even higher. It is starting to feel like October’s massive rebound finally reached that point of diminishing demand.
Now, don’t get me wrong, I’m not one of these cynics predicting a huge crash or anything like that. But I’ve been doing this long enough to know stocks move in waves. Every bit of up is eventually followed by a bit of down. The only question is how much down we get.
As I wrote in my Free After-Hours analysis on Wednesday:
At this point, the pullback deserves the benefit of the doubt. Anyone who shorted Tuesday or Wednesday morning is sitting on small but comfortable profits, and they can lower their stops to somewhere between Tuesday’s intraday highs and their entry points, greatly reducing their risk.
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Given Thursday’s declines, shorts should move their stops down to their entry points, making this a low-risk trade. This close under 4,700 support suggests we have more near-term weakness coming our way.
As I wrote above, I’m not at all bearish. This week’s step back is nothing more than supply and demand rebalancing from last week’s overbought levels. At this point, 4,600 support is very much in play. We might not get all the way back to this level, but my trading account is currently positioned to profit from more near-term weaknesses. This won’t be a straightforward or easy trade because it never is, but expect more down than up and keep giving this short trade the benefit of the doubt.
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