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SPY: Traders Love This Nervous Market


  • Moving from a straight up market to a step up market.
  • SPY retesting support to see if it holds.
  • Traders betting on a retest of the bottom.
  • But strong support here at $266.7.
  • A break below points to a retest of $260.

The market, as tracked by the SPY (NYSEARCA:SPY), is nervous and bouncing around to create a "trader's heaven." Traders just love inefficient markets created by a lack of liquidity and short term, emotional bad news, disconnected from fundamentals. There is no fundamental, rational reason for these big swings in the market. There are plenty of emotional reactions to perceived bad news about tariffs, rising interest rates and inflation. Those with clear, fundamentally rooted analysis, (think Warren Buffett here), always buy on weakness when the fundamentals are good. They look for emotional moves in the market, based on rumors, and forecasts of the future that are probably wrong.

Discounting Bad News

Nobody can forecast the future, but the market has to discount bad news into the future. Usually discounting bad news results in an oversold market. Then after the selloff, the inflation does not appear short term as expected, the rates do not go up as anticipated and there is no immediate reaction to the tariffs. Usually short term fundamentals continue strong and the market forgets about the long term bad news. It bounces back short term and waits for the forecasted bad news to actually hit the market. That actuality is the real end of the bull market, not when the bad news is first heard.

Traders Short Any Bad News

Traders know all of this. They short the market on the bad news. Then they go long the market when it is oversold and the market has forgotten the bad news and is now focused on some short term good news, like low inflation and no interest rate hike as expected and the positives of the tax cut.

Making Money With the Traders

So how do you make money? First you have to be convinced the market is good for

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This article was written by

Tom Lloyd profile picture

Tom’s book "Successful Stock Signals for Traders and Portfolio Managers" is available on StockCharts.com and Amazon. The StocksInDemand.com system is designed to make money using a combined fundamental and technical grade for each stock. Tom received his MBA in Accounting from St. John's University, where he taught courses on the stock market. He marketed fundamental research, technical research and quantitative research to professional portfolio managers during his Wall St. career. He uses all of these methods to pick stocks for investing and trading.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SPY over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

ET180 profile picture
I'm with Gundlach, interest rates matter. Market pumped up on TRILLIONS of central bank money printing. Not claiming that it will crash, but quantitative tightening will matter.
I like this article, but agree with @ET180, reverse QE in the US and reductions in QE in Europe may change liquidity more than the interest rates and is the only thing left out of this long term bull analysis. The outcome may be the same but the writer did not address it. One other thing is the future of company share buy backs.
I almost bought dis calls (was watching for dis below $100=too cheap), instead went with Ups calls. An easy 100% profit by May.
Also great for weekly credit spreads on spy. Loving it!!
PalmDesertRat profile picture
recent volatility has been great for high quality volatile stocks like: mpc, blk, nue, aapl,pkg,fbt,soxx
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