Friday, January 4, 2019

So Now The Traders Step In

This morning we're seeing a nice extension of a rally that was initially sparked by positive trade news and better than expected data out of China. The gains have extended on Fed Chair Powell masterfully -- and justifiably -- walking back his recent commentary that sparked a deep selloff.

The question now of course is, how high can this morning's rally run? Or will it even last? 

Regular readers have learned how day-to-day market gyrations are often more about very short-term traders trying to squeeze all they can out of intraday volatility than they are about the underlying fundamentals. 

Case in point would be the glass ceiling that the market promptly butted its head against this morning. Take a look:  click to enlarge...

Exactly 2520 (the top read line and the white arrow) on the S&P 500 is where the market was stopped dead in its tracks this morning. 

Notice that that's precisely where every rally over the previous 3 trading sessions lost its steam. So why is that? It's simply because traders have placed a large number of sell orders right at that spot, as it has proven to be an area of strong resistance of late.

So here's how it plays out for the rest of today:

The market will likely try again, several times perhaps, to penetrate that level. I.e., buyers will be battling it out with the sellers. A little good news (it would have to be on trade), could be enough to bring additional buyers in sufficient to overwhelm the sellers, in which case the short positions (and you can bet there are plenty) with prices just above 2520 will have to cover (fearing the market will run away from them to the upside); meaning they'll buy to close those positions, adding additional fuel to the upside fire.

If, alas, some bad news hits (it would have to be on trade), you can bet big that the buyers will retreat and the market will work its way toward testing that low I talked about yesterday.

Right now folks, the Fed's out of the way, so it's all about those trade negotiations...

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