AM: Stuck in no-man’s land

By Jani Ziedins | Intraday Analysis

Dec 14

S&P500 daily @ 1:23 EST

AM Update

MARKET BEHAVIOR

Markets traded slightly lower, staying within a tight rage.  We are resting between 1420 the 50dma.  This is no-man’s land with a potential rebound on one side and a selloff on the other.  Neither camp is making an agressive move here and instead waiting to see what other traders do first.

MARKET SENTIMENT

Between the conflicting negative sentiment, strong price gains, and relentless short-squeezes, most traders are uncertain where this  market is headed and are just sitting on their hands.  We might break this log jam leading into the close as traders with more conviction start piling in on one side or the other.  Breaking above 1420 or under the 50dm could trigger a larger wave of activity from those waiting for the market to make a move.

Trading so close to the 50dma makes us vulnerable to a dip under it and the inevitable avalanche of automated orders that get executed when we break well followed technical levels.  Market markers pay their alimony and kid’s private school tuition through trading volume.  They know all these stop-losses are just a couple of points away and will do their best to push us into that area to trigger all that activity.  The bigger question is what happens after all those automatic orders are executed.  Does it trigger a larger slide as selling begets more selling?  Or will the market run out of sellers and bounce?

TRADING OPPORTUNITIES

It is getting late in the game to put on a new short.  At this point we could easily bounce back above 1430 on yet another short-squeeze.  And if we selloff, we probably won’t fall much further then 1400.  That doesn’t set up for a good risk/reward.  If you have some short profits from yesterday, keep them on a tight leash and start eyeing the exit.  You don’t have to sell today, but the probabilities and rewards are less in your favor than they were yesterday.

Anyone out of this market should start looking for stock they like and look for an opportunity to buy on this pullback.  We might see prices get a little more attractive, but don’t get greedy and wait too long.  For long-term holders, don’t let this modest selloff spook you out of your holdings no matter how scary the headlines become.  Remember, our profit comes from the market not the medida, so don’t take your eye off the ball.  We could see prices dip to 1390 and maybe even a little bit lower, but that is where selling should climax and find support.

Of course the emotional trade is the wild card and we need to watch for signs the market is cracking if traders become spooked by developments out of Washington.  But given this market’s strength in the face of recent bickering and rhetoric, current participants are not all that sensitive to what is coming out of DC and I don’t expect a panic driven rush for the exits even if talks breakdown.  But I reserve the right to change my mind on a moment’s notice as the story develops and the market reacts to it.

INDIVIDUAL STOCKS

AAPL was flattened by a downgrade from a UBS analyst.  He lowered his price target from $1,000 to $700, and that caused the stock to drop to $510.  But let’s not forget these analysts are really glorified accountants and if they could trade, they would be traders not lowly analysts.  The other thing is this UBS analyst is still very positive on the fundamental story, he is just playing stock market by trying to guess what the market will do next.  And in most instances analyst driven moves rarely stick because they are not related to the fundamental story, they are simply one person’s opinion.  Fundamental news out of the company is what triggers directional moves in a stock.

Trading wise we might see the stock break $500 on gigantic volume, forming the second dip in a double-bottom before returning to more normal levels.  A lot of people are selling AAPL by the dump truck load between the weak price action, impending tax increases, and sentiment change, but look all of those to reverse next year.

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.