AM: Supporting the 50dma

S&P500 daily @ 1:12 EDT

AM Update

MARKET BEHAVIOR

The markets rallied modestly in early trade.  There are not many sellers at this level and they are being matched with more than enough willing buyers to support prices.  We are also close to making a new post-election high 1424.  Volume is light, but that is normal for this time of the year.  For as much concern as there is over headlines, the price-action doesn’t reflect this sentiment.

MARKET SENTIMENT

Owners are willing to hold here and the swing-trade is not putting much of a dent in these higher levels.  The recent pullback to 1443 changed the makeup of stock owners as weak-kneed owners sold out to more long-term opportunists willing to buy at a discount and hold through some volatility.  The stability of these new owners is supporting prices so far and we haven’t seen the volatile ups-and-downs that followed past declines in 2010 and 2011 and this summer.

There has not been much progress in Fiscal Cliff talks, but the market seems to be rallying in anticipation of the inevitable deal.  This is pretty standard buy-the-rumor, sell-the-news kind of stuff.  Given the recent rally in the face of stubborn posturing by both sides, it seems the market is okay with us heading off the cliff for a short amount of time.  But even if the majority of smart-money is expecting it, the actual event could spook retail investors and they start selling by the fistful because of media hype.  This could create another profit opportunity like we saw following the election.

TRADING OPPORTUNITIES

Holding above the 50dma is encouraging, but we need to maintain this level for another day to prove there is real buying behind this move and it isn’t just short-term traders propping us up.  Breaking 1424 without selling off will be a strong indication current owners are perfectly content holding and that lack of supply will support of prices.

On the other side, breaking under the 50dma could trigger a wave of selling and that could shake the confidence of many content owners.  Nothing undermines resolve like red splashed across a trading screen.

AAPL daily @ 1:12 EST

INDIVIDUAL STOCKS

AAPL is showing its divergence from the rest of the market with it down while the broad market is higher.  It is now trading in a world of its own as everyone is trying to guess the next move.  This stock has completely separated from the fundamentals and is just a dice game at this point.  Everyone is in the markets for their own reasons, some want to make money and support their families with others are looking for a gambling-like thrill.  All the gamblers are flocking to AAPL and if that is your thing, there is no better place to be.

The supportive thing for the market is while AAPL carried the market on it’s back in the early part of this year, the collapse of AAPL has not weighted on the broader markets as much as expected.  At the time it seems to be a single stock story that is not spreading.

Stay safe