AM: Rally extends to the 50dma

By Jani Ziedins | Intraday Analysis

Nov 29

S&P500 daily at 12:55 EST

AM Update

Bears tried again to break this market but this rally is stronger than most expect.  But don’t let this support lull us into complacency.  Each failed breakdown brings us one step closer to the one that sticks.  As an added bonus, at the end of this post I highlighted some of my analysis from a couple weeks ago.

MARKET BEHAVIOR

Markets opened higher and traded up to the 50dma.  Then Boehner held a press conference, spooking the market and it gave back all those gains in a matter of seconds.  But like we’ve seen over the last couple weeks, the market bounced back from the initial knee-jerk reaction.

As seen from recent price action, the market remains emotional and we should anticipate elevated volatility in the coming weeks. But this is a good thing; a perfectly rational market is an efficient market.  It is these emotional swings that present us with the best profit opportunities.  Other people’s pain is our gain.

MARKET SENTIMENT

I hear a lot of traders complain that politicians are driving this market.  But the truth is only supply and demand can move markets.  Politicians are not moving markets, emotional traders hanging on every utterance in DC is what is causing these wild swings. If traders don’t like how the market is behaving, they only have to go as far as the closest mirror to see exactly who is responsible.

A couple of days ago it was Reed’s fault the market sold off.  Today it was Boehner’s.  The truth is it doesn’t matter.  Bears were looking for an excuse to lean into the market, the got it, and they tried their hardest to break this market.  But much to their disappointment, no one else followed their lead and the market bounced back.

But with each failed breakdown, we are that much closer to the one that will really work.  So rather than grow increasingly complacent with each rebound, we need to grow more suspicious.

TRADING OPPORTUNITIES

Lighten up long positions and get ready for the short that is getting closer by the day.

INDIVIDUAL STOCKS

AAPL is holding up nicely along side the broad markets.  The nonstop selloff has been abated, but it needs to rally a few dollars more to retake the widely watched 200dma.  But at this point the ‘death-cross’ is all but inevitable as the 50dma is quickly racing toward the 200dma.  While a lot of people will make not of this, it is a trailing indicator and it is really late to this party.  More than a selling signal, any weakness on the ‘death-cross’ could be a buying opportunity.

How did I do?

SCORECARD

I’ve been sharing a lot of ideas on this blog and I want to start this scorecard feature to highlight my successes and failures.

Nov 15th 2012  “The selloff has coiled the spring for an upside move pretty darn tight and the smallest bit of good news is bound to set of a gigantic bear trap.  On the other side, a huge number of skittish sellers has already sold, meaning the  potential supply is dwindling by the day.  This is setting up for a fairly asymmetrical trade where the upside potential is larger than the downside risk.  There is no reason to jump out in front of this meat grinder, but wait patiently for the right opportunity to snap up heavily discounted shares from emotional sellers and their pain will be your gain.”

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.