May Day or Mayday?

S&P 500 chart

Chart by Steven Sarnoff, h/t stockcharts.com

Stocks rebounded throughout the month of April.  The month ended with the market reaching a natural technical retracement level.  May Day not only started the new month, but May may see selling pick up to drive price lower over the weeks ahead.

Former support (demand) often represents new resistance (supply).  You can see on my weekly chart of the S&P 500 ETF (SPY), that price backed down after encountering the negative influence of a line of average price movement.

The character of the behavior of market price movement shows sellers regaining the edge.

Don’t be surprised to see the March lows taken out.

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Stay safe.

Best regards,

Steve

 

Silly

John Cleese silly walk

John Cleese’s silly walk, Monty Python’s Flying Circus, 1970, h/t arstechnica.com

In the stock market, earnings season is known as “silly season.”  This week, a new silly season kicked off and it may very well mark a return of volatility to trip up complacent market participants.

As the catastrophic effects of the global Covid-19 pandemic bash corporate earnings, investors will be adjusting their once-lofty expectations. 

Throughout market history, a shakeout and break has been the catalyst for getting investors to examine earnings in their proper light.

We’ve seen the market move violently from fear to FOMO (fear of missing out).  I suspect we will witness another bout of fear before this chapter is through.

There’s a tremendous struggle going on between inflationary and deflationary forces.

I think it’s silly to try and know what the market will do.  Instead, our technical analysis focuses on what the character of the behavior of market price movement is saying.

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Stay safe and be well.

Best regards and in good humor,

Steve

Your Almost Daily Bit of Wall Street Wit & Wisdom

I view each day’s trading as a struggle between buyers and sellers for the advantage in price direction. 

The character of the behavior of market price movement tells us whether a particular day is positive, negative, or indecisive.

Though yesterday’s stock market session closed little changed from Monday, its character was decidedly negative (sharply higher open only to close near the low, producing the largest give-up of gain since 2008).  This sets short-term resistance and implies the likelihood of lower prices to come.

The struggle is on now with the Fed desperately printing and pouring money out (inflationary) in an attempt to quell a devastating economic decline (deflationary), spreading like a wildfire, ignited by Covid-19.

We shall see which side prevails.  Until proven otherwise by price, bears retain the edge.

Be well,

Steve

 

Mythbusters

Mythbusters

Mythbusters h/t The Discovery Channel

This past week, an article in Vanity Fair went viral.  It claimed that some futures traders made billions of dollars using inside information about Trump’s chaotic tweets.

One paragraph in particular caught my eye:

“There is no way for another trader, let alone an outsider such as me, to know who is making these trades. But regulators know or can find out. One longtime CME trader who has been watching with disgust says he’s never seen anything quite like these trades, not at least since al-Qaida cashed in before initiating the September 11 attacks. ‘There is definite hanky-panky going on, to the world’s financial markets’ detriment,’ he says. ‘This is abysmal.'”

First,  Business Insider points out there is much in the Vanity Fair article’s claim that is simply false and reveals how desperate people are for the news they want to hear.

Second, seeing a trader perpetuate the myth of terrorists profiting from the 9/11 attacks gives me pause.  You see, I’m in the 9/11 Commission Report’s “Pre-September 11, 2001 Trading Review,” because so much of the options activity in American Airlines puts at that time was based on my Options Hotline recommendation from Sunday, September 9, 2001. “In every instance where we noticed unusual trading before the attack, we were able to determine, either through speaking directly with those responsible for the trading, or by reviewing trading records, that the trading was consistent with a legitimate trading strategy.

Terrorists aren’t that smart, and Trumpians, well….it seems a mythbuster’s work is never done.

Finally, as with all news these days, think critically about what you hear.

Consider the source.

And find out for yourself.

Enjoy your weekend!

Best regards,

Steve

Your Almost Daily Bit of Wall Street Wit & Wisdom

The Stock Trader's Almanac

From the archives: First edition of The Stock Trader’s Almanac, with a note from my dad.

“Perhaps it’s Talmudic wisdom but, selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times.”
— Jeff Hirsch, The Stock Trader’s Almanac

We shall see if last week’s sharp decline is completely retraced, or if Thursday-Friday’s strong rebound is rebuffed, heading into Yom Kippur.

The important thing to remember with such indicators is, as Richard Russell would say, “It’s the little exceptions that get you.”

Best regards,

Steve

 

Island in the SPY

As you can see on my candlestick chart below, Wednesday’s gap down negative black candle line left all of September’s price action as an island reversal pattern.

S&P 500 chart

Chart by Steven Sarnoff h/t stockcharts.com

This price picture implies the likelihood, but not the certainty of a trend change.  The key going forward will be to see how the venerable index behaves on a rebound attempt to fill the gap.  The aged bull market may be tired and we are in a distinct time period of risk.

I see overhead resistance (supply) waiting at $291.50-$295.49, basis the close.

Underlying support (demand) from today’s positive session is at $284.82-$289.12.

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Best regards,

Steve