Bears are impotent against this rally

By Jani Ziedins | Intraday Analysis

Sep 11

S&P500 daily @ 2:30 EDT

Bears are looking impotent against this rally.  No doubt the profit takers and short sellers have already made their move against this market and we are still hanging within a 1/4% of a four-year high.  If that is the best they can muster, we have clear sailing ahead.

MARKET SENTIMENT

Stocks recouped most of Monday’s slide.  No doubt a lot of bears were jumping on the short into the close yesterday as the decline accelerated in the final hour of trade.  But in the first hour of trade this morning most of those shorts turned into losers as the market bounced hard.  For a lot of bears, it seems they are seeing what they want to see.  When the market starts sliding, they all pile on convinced the market is about to break wide open.  But so far each of these have been bear traps and the bulls have been fleecing these premature bears for everything they are worth.

The problem for bears is they are trading their view of the world, not the market’s view.  No doubt most of the bears are smarter and more thoughtful than I, but the market doesn’t care about that stuff.  It goes where it wants to go and the most successful traders ride along with it.  In spite of all the gloomy headlines and data points, the market wants to go higher.  Is this a case of the market leading the fundamentals, or the market stubbornly denying fundamentals that will eventually take its knees out from under it?  Good cases could be made for each, but logic and reason don’t factor into our P&L, only price moves do.  If a person needs to be right, they can continue arguing with the market, but I’m in this game to make money and I’m following the market’s lead regardless of what I think it should be doing.

MARKET BEHAVIOR

The market is finding additional support for Thursday’s breakout and we are not seeing the same reversal that plagued the Sept 21st breakout.  No doubt a lot of the profit takers and shorts sellers have already put their weight into the market and failed to budge it.  The recent pattern is low volatility days followed by the occasional jump higher.  For the time being this trend remains in tact.  We should expect some sideways drifting as the market digests the big gain before it is ready for its next move.  Most likely it will be higher, but we need to keep our eyes peeled for a change in behavior that would signal a breakdown of the uptrend.

TRADING OPPORTUNITIES

Same as it has been for a while, stay long high quality names that are working and lock in profits on anything that made a 20% move.  Keep doing what is working until it stops working.  At that point we will reevaluate the market and determine the next high probability trade.

AAPL daily @ 2:30 EDT

INDIVIDUAL STOCKS

AAPL is showing some interesting price action ahead of the iPhone5 announcement tomorrow.  It could very well be setting up for a buy-the-rumor, sell-the-news.  The iPhone5 will be a huge seller no doubt, but the challenge for the AAPL bulls is will the iPhone5 release exceed the already lofty expectations?  If any of the leaked photos are legitimate, the biggest new feature is a slightly taller screen.  Is that enough to get people to shell out hard-earned cash for the upgrade?  Further, the rumor is the plug on the phone is changing, meaning all the existing accessories for the phone will no longer work.  So not only will the phone cost money to upgrade, it will potentially make many of the existing accessories people own obsolete. That might create a higher barrier for many people to upgrading.

The other thing I noticed while browsing the AT&T mobile website is most of the smart phones are now far less expensive than the subsidized iPhone.  The iPhone is a great product, but competitors are attacking its premium price point and no doubt it is working with Android phones outselling the iPhone two-to-one.

AAPL will have to knock the ball out of the park to continue this recent stock run and I’m not sure how much innovation there is left in smart phones.  I hope AAPL proves me wrong and blows me away with some amazing, must have features, but I’m not expecting much more than a minor redesign and internals upgrade.  How much an evolution will drive sales is anyone’s guess, especially when a lot of lower cost alternatives are catching up.

Stay safe

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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.