PM: Fear the Cliff?

By Jani Ziedins | Intraday Analysis

Nov 28

S&P500 daily at end of day

PM UPDATE

MARKET BEHAVIOR

Markets traded lower and finished at the bottom of the day’s range, just a tad under 1400.  Is this the break bears were looking for, or just a bear-trap to snare all the eager top-pickers?

Volume was a tad under average, but picked up significantly from Monday’s sluggish levels.  We are between the 200 and 50dma and a hair under support at 1400, a key level dating back to August.  We still have a way to go before breaking the trend of lower highs, the last high being 1434.

MARKET SENTIMENT

No doubt today’s declining price tempted many chronic bears to re-short the market.  Maybe they will be proven right, or maybe they are early, only time will tell.  Honestly it can go either way here, but usually when all else is equal, you are better off siding with a continuation.

The market was spooked on some commentary out of D.C. about lack of progress and that was enough to send a shutter through the markets.  But any intelligent investor needs to recognize this is boilerplate political negotiation conducted through the media. Expect it, trade it, profit from it.

We are still early in the negotiation process and I expect today’s issues will quickly be ironed out.  It won’t be until closer to the deadline where we will encounter seemingly fatalistic breakdowns that will send the market materially lower.  Heck we might even go over the proverbial Fiscal Cliff when Republicans and Democrats can’t agree on what exactly what revenue increases and cost cutting looks like. But that is just our elected officials playing a high stakes game of chicken.  If you can’t stomach that turmoil, then maybe you need to find another hobby.

TRADING OPPORTUNITIES

Every single catastrophic selloff in the last five years has been a buying opportunity.  The 2008 financial meltdown came and went.  Euro Contagion has blown over a couple of times already.  The Fiscal Cliff Part I came and went.  Even a downgrade of US Debt was a buying opportunity.  And this time will be no different.

Now some people will say buying prior to these events exposed people to a lot of risk and heartache.  But that is buying before the worry sets in.  We are well past complacency and everyone is already fretting over every interview with politicians or central bankers.  Fear complacency not headlines.

Now this is a longer view, in the near term we probably need to whip around a bit before this is done.  And that is a good thing.  It is the other traders who cannot control their emotion that give us the best profit opportunities.  Seeing how we ran up nearly 5% last week, a modest but dramatic pullback is in order.  Maybe it will start tomorrow, or maybe next week.

As for all the ‘tax selling’ going on in the markets anticipating tax hikes next year, all this money coming out of the markets will need to find a home next year.  Selling now is buying later, just another catalyst for a continued rally next year.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL is rising from the grave.  This is obviously a stock that is swinging dramatically from an imbalance in supply and demand.  In September it was over owned around the iPhone5 launch and more recently the huge wave of selling was overdone.  In all reality the big run is probably coming to an end and it is changing from a buy and hold stock to a trading stock.

FB is also showing life after being left for dead with all they shares that were supposedly going to hit the market after the lockup expiring.  Funny how the day that the stock was supposed to crater it went up huge.  Proof again conventional wisdom doesn’t work so well in the markets.

ET CETERA

I’m experimenting with posting twice a day, once during the trading day and another in the evening.  This will let me share ideas midday while there is still time left to make a trade and again in the evening to help digest all the day’s action.

Stay safe

Follow

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.

Ted November 28, 2012

Keep up the 2 a day posts. I work nights and enjoying the recap on market activity, learning a lot here.

    Jani Ziedins November 28, 2012

    I’m glad you find it useful.

Comments are closed