Testing Support

By Jani Ziedins | Intraday Analysis

Apr 09

S&P500 5-minute chart

The indexes are down just over a percent this morning in reaction to Friday’s jobs numbers.  This drops us down to previous support/resistance levels and slightly above the 50dma.  So far the sell-off has been fairly orderly and the indexes are trading in a tight range.  This is fairly constructive as the sell-off didn’t trigger a snowball of additional sell orders.  Volume is again fairly light, exhibiting a lack of concern by most security holders.

S&P500 daily chart

Technical and psychological support at these levels was inevitable.  Over the last 3-months, selling into any weakness has been a mistake and the best money was made from buying these dips.  And that is exactly what it appears people are doing as we find support at these levels and a cascading sell-off has been avoided to this point.

But the lack of fear in the markets and traders resolve to hold their securities and not get shaken out is what makes me cautious.  The best example of this is AAPL.  Again AAPL seems to be the hideout of choice for traders who want to weather the storm as AAPL is up on a big down day in the markets.  AAPL was a safe haven during last summer’s sell-off and it seems to be filling the same role this time around.

GLD daily

But in a lot of ways AAPL is reminding me of gold last year.  Gold bugs were saying  gold is good for inflation, deflation, slow economy, and hot economy.  Gold was the be-all, end-all, cure-all for anything that ailed your portfolio.  And this year, AAPL seems to be that same elixir.  Up-market?  Buy AAPL.  Down-market?  Buy AAPL.  Strong economy?  Buy AAPL.  Weak economy?  Buy AAPL.

AAPL daily

Since everyone is so bullish on AAPL, the real question is under what conditions should we sell AAPL?  When no one can answer that question is when you need to get nervous.  Right now the biggest liability I see for AAPL is the relative ease of buying a new iPad since its launch.  Did AAPL ramp up pre-launch production to avoid shortages and back-orders we’ve seen in the past?  Or was the demand for the new iPad less than what we’ve seen in the past and that explains the availability?  (Most likely a combination of those two factors.)

But as with gold last year, it was a great trade as long as you knew when it was time to get off.  No doubt AAPL can and will continue to ride higher, but remember what WON says, “All stocks are bad, unless they go up.”  Don’t fall in love with Apple and remember it is just a trade.  As always keep a lookout for a good time to lock in profits on a winning trade.

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.