Monthly Archives: June 2012

Jun 29

Euro saves the day

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 11:58 EDT

Markets popped on news out of Europe.  The union is adopting a softer stance on austerity measures and now allowing bailout loans to go directly to ailing banks instead of through each nation’s central bank.  This prevents additional debt from being laid on each nation’s current obligations and pressuring their creditworthiness.

Is this a real fix, or just another temporary patch job?  I’m not an economist, but it doesn’t sound like a real fix and Europe will continue to muddle through this for a good while longer.  But it is a step in the right direction and shows a hint of flexibility coming from Germany.

The markets popped above their 50dmas in the opening gap up.  Not a good day to be short and no doubt a good chunk of the buying is shorts getting run out of the market.  The interesting thing to watch is if there is follow-on buying on this news or if big money continues to be reluctant to commit more capital to this uncertain market.  If these price gains and volume hold up, today will be a follow-through-day and we’ll move back into market in confirmed uptrend.  This will be the 3rd change in IBD’s market outlook in two weeks.  It is hard to imagine how such extreme volatility can be bullish.  The next technical level on the upside will be breaking through June 19th’s high of 1363.

It will be interesting to see if this newly found euphoria is sustainable or not.  Pullbacks and bases usually demoralize traders as they grind up both bears and bulls with all the false breakouts and reversals.  This volatility wears out traders before clearing the way for the next directional move.  Last year we traded sideways in a choppy fashion for 5 months before the strong uptrend kicked off.   We’re currently 2 months into this base.  Personally I think the market needs more time to fully demoralize traders before it will be poised to make its next move.

I closed my short position for a small loss this morning.  It’s not that I believe in this move higher, but I’m just being defensive and exercising risk management to protect my portfolio.  I’m ready to jump back in on the short side if I see any weakness in the market.  This is the best aspects of being a small trader, I can move in and out of the market with ease.  This is the only edge we have over big money managers and if we fail to take advantage of it, we are giving up the only advantage we have in this game. But this can be a double-edged sword and it will bite us in the butt if we over-think and over-trade every little blip in the markets. There is a fine line between being prudently defensive and being reactionary.

Stay safe

Jun 28

Mandate upheld

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:35 EDT

The Supreme Court blindsided the markets by upholding the individual mandate and mostly keeping Obamacare intact.   This was probably the least expected outcome given the tough questions many justices were asking during oral arguments.  But this might not be all bad for the markets because this is a definitive resolution to Obamacare and virtually eliminates all uncertainty by ending the health care debate.  The market now knows what the rules are and can move past this issue.  The markets deal with bad news far better than uncertainty, so this is most likely better for the markets than reopening the health care debate.

The markets opened lower on Euro concerns and then plunged on the Court’s ruling.  But after a sharp sell-off, the markets recovered a good chunk of the Supreme Court’s plunge and is getting back to the early morning’s levels.

It is less clear on where the market is headed because we are in the middle of the previous rally’s range.  At this point we could go either way since sentiment is fairly balanced.  I still expect the market will continue lower, but it really is a coin-flip.  The last few days shook out a lot of shorts that piled in on Monday’s sharp sell-off.  We’ll see if Tuesday and Wednesday were part of a reversal higher, or simply a head-fake to shake out momentum traders.  We’ve already given back all of Wednesday’s gains and half of Tuesday.  Another few points lower and we’ll be making new lows.

Some of the biggest movers are obviously health care stocks.  But the ruling has different implications for different sectors depending on if they were helped by or hurt by Obamacare.  Insurance companies are down, but hospitals and other healthcare providers are up because they benefit from the larger pool of insured.

Stay safe

Jun 27

What’s driving the rally?

By Jani Ziedins | Intraday Analysis

Markets are up nearly 1% at mid-day, a strong continuation of yesterday’s rally.  The interesting thing is this recent rally broke from the strong correlation of USD up, equities down.  This relationship has been rock-solid over the last couple years and seeing this divergence is extremely noteworthy.  There seems to be very little in the way of news to drive this rally, so what gives?

If I had to guess, a chunk of the market thinks it is being sneaky and acting on unique insight the market will rally tomorrow after the Supreme Court tosses out pieces of Obamacare.  The problem is this insight is not unique, as virtually everyone and their brother expects the individual mandate will be struck down and the only real question remaining is if the Court will also void the requirement insurance companies cover people with preexisting conditions, or a little more extreme, void the entire bill.  To make money in the market, you need to bet on the things few expect.  Obamacare is not one of those things, so I expect this could be a suckers trade.  The last couple days priced in most of the potential upside, so there is little remaining for anyone coming to the party late.

The one thing less expected is the entire bill being struck-down, and that could lead to a further rally.  But a peace-meal solution will renew the healthcare debate and create new uncertainty for the markets.   Hard to see how that is a bullish development.  The market hates uncertainty far more than it does quantified bad news.  In fact, leaving Obamacare fully intact could be more bullish for the markets simply because the result is definitive, same goes for completely throwing out the bill.  This halfway stuff is the least concrete of the possible outcomes and generates the most uncertainty.  But this is simply my thoughts on this trade and obviously the market doesn’t give a damn what I think.  This simply means we need to trade the market, not what we think.

But for how to trade this, if all the bulls get in ahead of the ruling, that means we might not see new buying on the news and the market could sag due to the lack of follow-on buying.  Of course there could be a reserve of Johnny-come-latelys waiting to buy the news, leading to one final push higher before exhausting the bounce and turning lower.  We could potentially reach and even penetrate the 50dma, but I still expect we have a date with the 200dma sooner than later.

It will be interesting to see how this all pans out, but most disciplined traders should be out of the market and simply spectators for this show.   We’re close to the middle of the range and the risk/reward for a move in either direction is not favorable for initiating a new position right now.

Stay safe

(p.s. I’m having some technical difficulties with my webhost and am unable to add charts at the moment.  Hopefully this can be resolved quickly.  Thank you for your patience.)

Jun 26

Rebound from sell-off part II

By Jani Ziedins | Intraday Analysis

The market opened up half a percent this morning, traded down to flat, and then rebounded to the opening levels in morning trade.  Seems to be a modest relief rally after yesterday’s large sell-off.  IBD moved it’s market outlook back to Market in Correction after yesterday’s price action.  Momentum systems do very poorly in sideways markets, often giving false signals and leading to buying the peaks and selling the troughs.  Just something to be aware of for anyone following a momentum strategy like CAN SLIM.

It will be interesting to see how the day ends.  Typically declining markets will show early strength and then weaken into the close.  We’ll see if this modest bounce ends in a slide this afternoon or if it can add to its morning gains.

I still think there is some downside remaining because too many people still have a buy the dip mentality.  They will be proven right soon enough, but the market needs to shake their confidence first.  The markets have a habit of convincing you you are wrong before proving you right.  We very well could see that come into play here as we drop under 1300 before rebounding.  Once everyone’s given up on the rebound it will be safe to wade back in after everyone’s sold in anticipation of a bigger decline. Of course an unexpected and highly bullish headline out of Europe could flip sentiment and the traders sitting on the sidelines could start chasing the market higher.

Staying with Europe, it seems a lot of people are worried Greece could be the next Lehman Brothers.  But the truth is Lehman and Greece are 180 degrees opposite.  Lehman caught everyone off guard, the market did not foresee the vulnerability of the banking system, and Lehman’s implosion happened over just a couple months.  Compare this to Greece that’s been a highly publicized, slow-motion, train wreck, 2.5 years in the making.  For the public markets, these  two events couldn’t be further apart in terms of expectations and what is already priced in the markets.

The other big catalyst is the Supreme Court’s ruling on Obamacare.   Virtually everyone is expecting a repeal of the individual mandate, so that has long been priced in the market.  At best it will lead to a temporary bounce before sell-the-news kicks in.   I actually expect a piecemeal repeal of Obamacare will lead to additional uncertainty since it will be impossible to predict how Congress will fix it.  That uncertainty will pressure the markets more than if Obamacare is upheld.  The markets prefer certain bad news than the unknown because the markets tend to price in the worst when dealing with uncertainty.

With IBD moving the market in correction, disciplined CAN SLIM investors need to resist the temptation to buying shares before the market triggers a follow-through-day, which is a large up-day on large volume at least four days after the market put in a low.

Stay safe

Jun 25

Slide continues

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:22 EDT

The market rallied into Friday’s close, but the move was obviously not sustainable given this morning’s dismal open and early trade.  It appears Friday was nothing more than a head-fake, sucking in premature bottom-pickers and shaking out weak shorts.  If this morning’s 1.5%+ decline holds, it will result in the market falling back into Market in Correction.

I suspect this down-leg is at least halfway through its move as many of the previous bulls and breakout buyers have already bailed on their recently initiated long positions.  1300 is easily within reach, but the bigger question is when will the market bounce?  If this remains a technical correction, it will run out of sellers soon.  Outside of unexpected bad news, the market will most likely find support between 1300 and 1280.  Of course sell-offs can develop a life of their own as selling begets more selling, but I think there is a strong possibility this leg down does not mark a new low.  Of course over the intermediate-term I still think the market is stuck in a trading range and the best way to trade this market is swing-trading; ie buying the dips and selling the rallies.  It will most likely be another month or two before we can buy the breakout.

Much like my March 13th analysis of a head-and-shoulders pattern, we also need to make steady progress transitioning from impulsive traders moving the market to real trades coming from institutional managers driving the market.  Impulsive trades rarely stick because there is no weight to this short-lived phenomenon.  Once all the impulsive traders make their move, the market quickly reverses because it lacks follow-on buying (or selling) from big money.  But with each successive failed move, the balance shifts from impulsive to real as the impulsive trader is less like to participate in the follow-up moves after being burned and losing money on the first or second failed breakout.  With the impulsive traders sitting out subsequent breakouts, it is far more likely for those to stick because these later moves are driven by a larger percentage of real buying (or selling) from the big institutions.  I did a better job explaining this phenomenon in my March 13th post if you want to read more about it.

I continue neglecting my watchlist in this environment simply because high growth stocks are so volatile.  They are up and down in dramatic fashion depending on the whims of the market.  The only good time to own high-beta stocks is when there is a strong and consistent wind at your back during a nice up-trend.  I’m still trading, but through index ETFs because these are far less volatile and more predictable in this environment.

As for predicting the market, many gurus say it is a fool’s game, but obviously I beg to differ.  The big difference comes from what data people use to make predictions.  It seems most experts are looking at the wrong things when their predictions fail to work out.  Sports make for a good analogy to this phenomenon.  A defender always looks for clues for which way the ball carrier is headed.  It is our natural tendency to look for cues in the head and eyes, but this can often be misleading and is the source of the term head-fake.  The ball carrier will often fake out the defender by moving his head and eyes one direction while moving in the other.  An inexperienced defender falls for the head-fake and goes the wrong direction, allowing the ball carrier to easily run by.  But a more experienced defender ignores the head and eyes and instead focuses on the hips.  While it is easy to move your head and eyes, the hips are far more difficult to fake.  You go where your hips are pointed and is why a defender who cues from the hips will have far more success than one who follows the head and eyes.

When it comes to the markets, it is also always trying to fake out traders and many times the fundamental and technical data send out misleading clues.   (I’ll get into why this is in a later post)  This is why I don’t put much weight in news or technical levels.  Most of my analysis is figuring out what other market participants are thinking and how they are trading the market.  The market is nothing more than a trillion-dollar popularity contest.  Get in the mind of other traders and suddenly the irrational and unpredictable behavior starts making sense.  It is never about what the market should do; it is about how market participants are positioned and what they expect.  Follow those clues and you’ll have far better success in anticipating the market’s next move.

Stay safe

Jun 22

Buy the dip or sell the weakness?

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:51 EDT

As everyone already knows, yesterday was a tough day.  Second biggest decline of the year.  A big news story didn’t trigger the slide and the sell-off was fairly methodical without big gaps or dramatic drops.  It was simply a domino effect as one stop-loss triggered the next.  Lacking a major headline, the market simply ran out of buyers and it’s little surprise a technical rally ends in a technical correction.   No doubt the media is trying to identify some culprit, but when dealing with crowds you don’t always need a reason for the herd to make a move.

This morning the markets bounced half a percent in early trade.  Is this the rebound hopeful bulls are praying for, or just a head-fake to suck in bottom pickers?  The question on everyone lips is if this correction is done or not.  Can we buy the dip, or should we sell the weakness?  If we look at the market as a spring, comparing yesterday’s pullback to the recent rally, it’s hard to claim yesterday’s move was overdone and no doubt there is more downside potential.  For the market to stage a recovery, we need fundamental investors to step in and buy these discounted shares.  Are they ready to do that in this environment?  More often than not these more conservative investors will take a wait and see approach after a sharp decline.  I expect prices will need to decline a bit more before value investors see prices as too attractive to pass up.  Of course that doesn’t mean we won’t see a feeble rally to suck in bottom pickers and shakes out late shorts.  And by early afternoon, the indexes are trading in a tight range as both bears and bulls are taking a wait and see approach.

Looking back at the last 12+ months of index price moves, it is hard to find a major down day that was part of a continued uptrend.  Using history as a guide, that indicates a high probability there is more downside left in this move.  But if it really is a technical sell-off, meaning people are selling simply because the price is falling under their stop-loss, this move lower might be more limited.  Technicals can move the market around a few percent here and there, but a major move requires new fundamental data and a change in outlook.  Barring anything new and unexpected, the technical slide will probably peter out around the 1300 level.  I don’t expect this down leg to make a new low unless the market starts getting spooked by its own shadow.  Once the technical selling exhausts itself, we’ll reverse higher.

As for what comes next, we’ll probably trade sideways for the remainder of the summer and won’t resume the uptrend until all the senior institutional traders are back from their summer vacation.  By that time there will be a little more clarity regarding Europe, the election, and economy.   As long as all these things hold together, we should see a year-end rally.  While not the same size as last year’s rally, it will still be very tradable.

FB daily @ 12:51 EDT

It appears FB found a bottom and is rebounding from its grossly oversold levels.  Chances are several dollars of upside remain, but I expect it will run into significant resistance at the $38  IPO price.  No doubt a lot of people dyeing to get out at breakeven and given the gigantic number of IPO buyers, this will be a huge wall to breakthrough.  If it breaks above $38, that would be highly bullish, but realistically I expect it will turn back after running into insurmountable resistance at $38, at least over the near term.  If anyone is swing trading this move, plan on taking profits before it reaches $38.  You can always get back in if it stages a breakout above $38.

Stay safe

Jun 21

Following the rules

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:27 EDT

The Euro is tanking, pushing the USD higher and the markets lower.  A strong dollar dilutes overseas revenues and profits for domestic companies, hence one of the reasons US stocks typically decline on a strengthening dollar.

Today’s decline is pushing us back down to the 50dma and testing this key technical moving average.  No doubt there is a cluster of stop-losses sitting just under the 50dma that would be triggered if we break this line.  Then the question becomes if value buyers jump in and prop up the market before we trigger more stop-losses around the 1340 level.  Without the value buyers support, the autopilot stop-loss selling can snowball and the next key level is prior support just above 1305.  Of course all of this is moot if the market holds above the 50dma and avoids triggering those stop-losses.

Update:  Since I started writing this post, the markets have slipped under the 50dma and the decline accelerated and we broke this level.  We’ll need to watch the rest of the day to see if the market can bounce back.

There doesn’t seem to be much in the way of headlines driving this modest weakness.  If I had to guess, it was a poor Spanish debt auction that sent the Euro lower, but in reality this is just a normal pullback after a strong run the last two-weeks.  The market tends to bounce around as it overshoots on both the upside and downside, giving us the sawtooth patterns so common in stock charts.  The calendar is littered with meetings and economic reports, so it will be interesting to see which ones the market grabs on to and which it ignores.

Yesterday’s price action was interesting, while the market closed mostly flat, there were wild swings after the Fed’s statement.  While it looked like a quiet day to anyone looking at a daily chart, no doubt it chewed up and spit out a lot of day-traders who got whipped around by those intraday swings.  The best course of action around events like that is to let the dust settle before trying to place a trade.  It’s better to be a little late than a lot sorry.

I went to one of the new IBD meetups last night hosed by IBD and presented by Ted LePlat.  It was a boilerplate CAN SLIM review peppered with promotion of premium services.  Ted is a very convincing guy, but the question I’m left with is if it is really as easy as it sounds?  If it is simply a matter of following the rules, how come we aren’t all rich by now?

Many people will rationalize the lack of widespread success to lack of discipline and not following the rules.  While that sounds plausible, surely there are lots of anal-retentive people who follow the rules to the letter.  Where are they?  And of course if the key to success is simply a matter following the rules, why not automate it using a computer that has zero emotional impulses or temptations to cheat?

Virtually every aspect of CAN SLIM is already automated.  All the fundamental data contained in Current and Annual earnings and is already automated and compiled in the newspaper and on  Supply and demand is accounted for in IBD’s accumulation/distribution ratings.  Leader or laggard shows up in industry group rankings, relative strength, and stock checkup.  Institutional sponsorship shows up in IBD’s mutual fund rankings and fund holdings.  Market direction is easy to calculate given the simple rules and the market outlook is published daily in the paper.  The most qualitative component is the New, but it should be fairly easy to identify between annalists’ growth projections, relative strength of the stock, and write-ups in the New Americas section.

So far all of CAN SLIM is already calculated and automated on various IBD computer generated screens, ratings, and lists.  The next important aspect is chart reading.  But IBD even automated this with its Pattern Recognition upgrade to its Market Smith charting package.  It will automatically identify common chart patterns, show buy points, stop-losses, profit taking levels, and even base counts.

So with all of the above, why not automate the whole thing and relax on the beach while a computer prints money for you?  Further, why does WON still pay portfolio managers big bucks to do his trading?  He was an early pioneer in using computers to compile and calculate market data back in the 60s, why not take the next step and use computers to do the trading too?  Wouldn’t a computer be far less likely to cheat on the rules?  That sounds like a perfect solution………unless there is something more to CAN SLIM than simply following the rules.

If a computer can’t do it, could that mean there is some secret sauce that isn’t in the rules?  Does it take human insight and intuition to make CAN SLIM work?  Is that why some, like WON, can be phenomenally successful while his mentees, portfolio managers, and followers struggle to produce the same kind of profits?

Now don’t get me wrong, I’m not bashing the system as I am a huge believer in the logic behind it, having read HMMS five plus times already.  But the thing I question is how easy is it?  Obviously I believe it is the special sauce that separates the few from the many.  It is being able to pick the true winners from a sea of false positives.  It is knowing what rallies to buy and which to sit out.  It is knowing when something is topping or just pulling back.  It is knowing when to hold and when to take profits.

I don’t really know where I am going with this other than to say it is never as easy as a salesman makes it sound.  If you really want to be successful at this game, you won’t find all the answers in a 300-page book or a set of seminars.  It takes years of learning, practice, and experience to succeed.  Never stop learning.  I’ve read countless books on the market from a wide range of viewpoints.  Some of my favorite books were the ones that claim no one can beat the market.  Rather than always drink the Kool-Aid and ignore the critics, I embrace the other side and learn as much as I can about those criticisms in order to mitigate those very legitimate weaknesses.  The honest truth is all sides are right, it is simply a matter of figuring out which rules apply at what times.

Stay safe

Jun 20

Fed day

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:55 EDT

Yesterday was a big day for the markets as we clearly smashed through the 50dma.  The price gains over the last several days knocked out many bears as a fair amount of the recent buying was fueled by a short-squeeze.  The other portion of the crowd was Johnny-come-latelys who were jumping in as we passed key technical levels giving them the green light to take the plunge.   But with the bulk of the short-squeeze and Johnny-come-lately buying behind us, what will it take to move higher from here?  Exhausting the technical buying, the only thing left is an influx of fundamental buyers.  Are these traditionally conservative traders ready to start buying in the face of all the headline risk flying around the market?  That’s the question any bull needs to come to terms with.

But if we look on the other side, all these Johnny-come-latelys bought in recently, meaning their downside stop-losses are right under the market.  This sets up an interesting dynamic as we just cleared all the automatic buying on the high side, but setup a whole new tranche of potential automatic selling on the low side.  This means any upside move will have to be earned, but there is potential for a cascade of stop-loss selling if we dip lower.  Simply looking at the potential fuel on each side of the market, there is far more risk of a large move to the downside.  This isn’t talking about the probability of one direction over another, simply the potential for a strong move either direction.

A big catalyst for the market will be any announcement by the Fed this afternoon on monetary easing, ie QE3.  It seems the market is hopeful of more easy money and could be disappointed if the Fed doesn’t act.  Could that kick off the move lower?  We’ll know the answer soon.  But as far as sentiment, it seems market participants are excited about the current market, a dramatic reversal from just two weeks ago.  The size of the rebound and breaking through key technical levels has many pros expecting this move to take us back to 1400.  Further, it is hard to find anyone bearish at these levels.  When market participant’s opinions get so one-sided, more often than not, the market moves the other direction.  It is simply supply and demand at work.  If everyone is bullish, it means everyone has already bought and as a result there is no one left to buy and continue pushing prices higher.  In the absence of new buyers, the market moves lower regardless of how bullish everyone is.  Are we at that point?  It is hard to say, but the lack of bears raises a red flag for me.

Update:  The Fed released its statement and is extending Operation Twist, but not initiating QE3.  The initial reaction in the market was lower, but just as quick, it reversed and recovered those losses.  It will take a bit of time for the market to process this information and decide what it means.

Stay safe

Jun 19

Fundamental or technical buying?

By Jani Ziedins | Intraday Analysis

NASDAQ daily @ 11:25 EDT

Stocks opened strong this morning as both the S&P500 and NASDAQ broke above their 50dma.  But the real question is if this price action is driven by fundamentals or technicals?  Has the market’s outlook on the future materially changed, or is this simply structural buying as we are passing key levels, triggering autopilot buying from both bulls and bears?  One is a sustainable phenomena, the other is temporary and will quickly run out of steam.

No doubt my judgement could be clouded by bias, but it seems not much light has been shed on the future protects of the economy or Euro justifying a run up in price.  But we crossed several key technical levels that could explain the buying activity.  My attitude at times like this is I would rather be out of the market wishing I was in, than in the market wishing I was out.  Profit opportunities are like a city bus, miss one and another one will be along any minute, but losses are forever.

Two other aspects that could be driving the market is the Euro is staging a monster move today, weakening the USD.  Over the last few years a weak dollar has often boosted the equities market.  The other aspect is the Fed is meeting today and tomorrow and many traders are hoping for a QE3 announcement.  But personally I don’t expect the Fed to act because QE3 is the last arrow left in their quiver and using it now simply to please equity investors doesn’t seem like a smart move on their part.

While my analysis of the market tends is a bit unconventional, a disciplined CAN SLIM trader should be testing the water with smaller positions from proper buy points, knowing his discipline and rules will minimize any losses if this FTD fails.  Each individual trader needs to stick to their game plan regardless of what other people are doing around them.  I’m not buying this FTD and could easily end up chasing the market above here, but that is what I feel comfortable with.

Stay safe

Jun 18

Follow Through Day?

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 12:56 EDT

IBD called Friday’s gains a Follow Through Day (FTD) on the NASDAQ.  As many of you can guess, I’m not putting much faith in this recent FTD since we are nearing the upper end of the summer’s potential trading range.  Personally I’m going to close out my long index trade today and start looking for a good place to enter a short position.  The market broke solidly above May 29th’s high on Friday, sending shorts running for cover and no doubt the Greek vote will tempt all the Johny-come-latelys to jump in and pick up the tab for the rest of us.  We could rally a bit more and that is why I will wait to initiate a short, but I think the top is near.  Maybe we poke our head above the 50dma before heading lower, but it doesn’t need to happen.

Over the weekend the big economic news was Greece keeping the pro-bailout parties in control.  Seems in the previous election the citizens were voting with their hearts and sending a message to the leading parties that they are on thin ice.  But when push came to shove, they cast the final ballot with their head, fearing the risk of the abyss if they chose to break from the Euro.  But what should have been great news was met with skepticism at today’s open as the markets traded lower out of the gate.  No doubt many traders remembered last Monday’s sell-the-news on Spain’s bailout package and were afraid to see the same thing occur on this good news.  But the reality is this vote did nothing but maintain the previous status quo as the Greeks continue the inability to repay even their lowered debt obligations.  Of course this election does provide the opportunity for European leaders to structure a more orderly resolution to these problems.

As stated earlier, I have zero confidence in this FTD.  It took advantage of a quadruple witching where various futures and options contracts expire, leading to a spike in volume as all these derivatives are closed or rolled over.  Further, the 1.3% gain on the NASDAQ was on the light side for a typical FTD.  And of course we are at the upper end of a potential trading range.  But this is simply my take on the market.  WON’s advice is to buy every FTD because you can’t be sure which ones will work and which will fail.  But don’t jump in with reckless abandon just because IBD is saying we are in a Confirmed Uptrend.    The best course of action is to look for new breakouts or legitimate buy-points in individual stocks and then only initiate 1/2 positions in one or two names.  If the market continues higher, add positions in the follow on strength.  If the market noses over, you can close out your trial positions for a small loss and wait for the next FTD.

At present, the market recovered early weakness and is trading flat to up in midday trade.  This is blunting the fear of a major sell-off like we saw last Monday after Spain’s pop.  But it also doesn’t show a lot of excitement over the Greek elections that removed a major point of uncertainty.  This is demonstrating a certain level of both support and caution at these levels.  But my takeaway is the market’s spring is not coiled for a pop higher as we would have seen a lot more upside today if it were.  This shows that we might be getting extended given the sentiment in the market.

As for individual stocks, IBD’s Stocks on the Move from is showing several stocks breaking out or bouncing off their 50dma in large volume.  This should provide a bull several choices if they want to buy this FTD.  But remember, keep your initial buys at 50% of your normal position size and add as the market and individual stock’s show constructive price action.

Stay safe