PM: Negative GDP

PM Update

Trivial decline in the face of negative GDP, how can that be?  AAPL struggles with $460, while AMZN is near record highs, what gives?

MARKET BEHAVIOR

Stocks started strong, but finished at the day’s lows and just a hair above 1,500.  What began as surprising strength in the face of a negative GDP headline faded into the close.  Volume was above average, but lower than yesterday.  This shows sellers were not rushing for the exits and it was more a lack of buying that let the market drift lower.  The other noteworthy thing is today’s 0.4% loss was the largest decline of the year.

MARKET SENTIMENT

Just a few months ago, a negative GDP would have crashed the market, yet today we set a new intra-day high shortly after the headlines hit the market.  What gives?  Journalists and fundamentalists are coming up with various excuses, but the truth is holders didn’t care about the headline and chose to keep holding, expecting higher prices ahead.  It doesn’t matter if these traders are right or wrong, the fact remains they want to keep holding and they are not going to let some silly headlines flush them out of the market.

We find ourselves in a market with limited supply because no one wants to sell, and not only  that, the steadily rising prices are converting former pessimists into buyers.  The real takeaway from today’s trade is this market is not afraid of headlines.   Risk of unexpected bad news is something traders normally live with, but the market is demonstrating a carefree attitude toward fundamentals and that is giving investors a free pass to be long.  Markets decline for various reasons, but it looks like this one won’t top until we run out of buyers because headlines cannot dent this rally.

TRADING OPPORTUNITIES

Expected Outcome:
While the day finished in the red, the market’s resilience in the face of unexpected negative headlines is quite bullish.  0.4% is trivial if we talking about unexpected negative GDP.  This doesn’t mean the coast is clear and this move is near the end, but it doesn’t look like it is done yet.  Look for a bounce off of 1500 tomorrow to confirm a continuation.

Alternate Outcome:
The end is near and we could be in the early stages of the top.  Failing to hold 1500 would be a change in character and we could see further weakness.  At this time I don’t expect a selloff to be anything more than testing recent support.   Holders have shown a lot of resilience in the face of some highly negative headlines and if they haven’t cracked yet, I don’t expect a modest pullback will send them running for cover.

INDIVIDUAL STOCKS

APPL failed to hold $460 for a second day.  I’ll give the stock one more shot to surge higher Thursday, but if we don’t see strong rebound from these oversold conditions, this is going to become AAPL’s new home for a while.

A lot of people are dumbfounded by how AAPL can have record profits and be down by 35% while a company like AMZN misses and is holding near record highs.  It all comes down to supply and demand.  Everyone loves AAPL and anyone who wants some already has as much as they can fit in their portfolio.  AMZN is the scariest stock on the street and investors are afraid to own it.  Contrarian investing works because while AAPL is extremely popular, there is no one left to buy it.  On the other hand investors avoid AMZN, meaning there are tons of new buyers available to keep pushing the price higher.  Supply and demand; understand how it works and the market starts making a lot more sense.

Stay safe