AM: Digesting gains

By Jani Ziedins | Intraday Analysis

Dec 19

S&P500 daily @ 1:04 EST

AM Update

MARKET BEHAVIOR

Stocks are churning sideways and digesting yesterday’s breakout.  Buyers are not rushing to buy and sellers are not rushing to sell.  Most peaks after an unsustainable run fail within three days.  If we see constructive action for a few days, the market is poised to continue higher.  Failing to hold these levels over the next couple days means we should expect near-term weakness.

MARKET SENTIMENT

The recent rally has priced in increased expectations of a workable Fiscal Cliff compromise.  But while the market is eagerly anticipating agreement from our politicians, if we weren’t averting a “Fiscal Cliff”, what would the market think if our politicians simply announced “we are going to raise taxes and slash spending”?  How would the market react to that headline?  It is an important question to ask because that is sub-text to averting the Fiscal Cliff.  After the euphoria of a grand bargin settles down, the market will focus on what terms are in the deal and might develop an allergic reaction to European-style austerity.

TRADING OPPORTUNITIES

I’m bullish over the long-term because we are still in the economic recovery phase and there is a ton of money stashed on the sidelines in Treasuries, gold, and  money markets.  That is the fuel to propel the next bull super-cycle, but here in the near-term we should expect some emotional volatility.  Long-term traders ignore these daily, weekly, and monthly swings and profit handsomely from their resolve to stand above the fray.  Swing traders on the other hand take advantage of this emotional volatility.

It is still a little early to short the market, but prudent swing traders are lightening up their long exposure.  Long-term holders, whether you buy here or a few points higher or lower, you will see some nice profits over the next year as a real economic recovery takes hold.

AAPL daily @ 1:09 EST

INDIVIDUAL STOCKS

AAPL is taking its cues from the market and digesting its strong two-day bounce.  Prices are down modestly, but this is still supportive of recent gains.  But unlike the broad market, AAPL is still in the mist of a selloff and struggling with widespread bearish sentiment.  All the sellers who bailed on the stock since September might be willing to buy back in if the stock starts rallying again.  Value investors form the bottom, swing traders start the rebound, and momentum chasers push it higher.  It will be interesting to see where AAPL trades just before its earnings are released in January.  Will the bearish sentiment break before then and price in a decent quarter?  Or will the pessimism remain and the market will wait for confirmation of good news before buying?

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.

msbiz December 19, 2012

so, basically, you told us nothing…

    Jani Ziedins December 19, 2012

    If you want someone to tell you what to do, try the psychic hotline. If you want to make money in the markets you need to learn how to read the market, be patient, and trade probabilities. Dom’t force it, wait for the trade to come to you.

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