PM: A win for the bulls

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Markets traded mostly flat on light volume.  Neither sellers nor buyers showed up in force and while it looks like a draw, holding above the 50dma is a win for bulls.  We are within a couple of points of a post-election high and breaking above that would be a technical accomplishment.  Of course we need to wait for the breakout to stick because it could just as easily turn into a double top, dropping us back to the 200dma.

MARKET BEHAVIOR

The market is holding up well giving further hints owners are not ready to sell shares even with all the counterproductive rhetoric in Washington.  Another support day here and it will be time to take a serous look at going long this market.  The real test will come when we break above Dec 3rd’s high of 1424.  If we don’t selloff in a double top, it will be extremely constructive action and we have to take notice no matter what is going on in the headlines or how light the volume is.  Markets rally in the face of pessimism and that could be what is happening here.  All the pessimists already sold to new holders who are comfortable sitting through the Fiscal Cliff volatility.  This attitude creates a self-defeating prophecy where the holders willingness to ride out volatility actually eliminates the expected volatility.   If everyone is holding, supply dries up and the market heads higher.

TRADING OPPORTUNITIES

Another close above the 50dma and this market will show more strength than most give it credit for.  No doubt there is a lot of pessimism around the Fiscal Cliff, Europe, and China, but the only times I can recall when everything was great was just before a major bear market.  This fear of impending doom is also creating a self-defeating prophecy as it holds prices in check keeps the bear in his cage.

My recent bias was for a modest pullback after the recent 75 point rally, but I am reconsidering that near-term expectation.  There is probably a 50/50 chance we’ll avoid a selloff and instead use this sideways consolidation to reset the clock.  Headlines are always a risk in this market, but everyone is expecting us to go over the fiscal cliff so that is already largely priced in. We could see a couple of days of emotional selling, but nothing like what happened after the election.  There was far more hope of a Romney win than a Fiscal Cliff resolution, so that means any Fiscal Cliff selloff to be more modest.  Hope is the fuel of declines and right now hope is scarce.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL had another down day.  At this point the stock is so emotional it is largely a coin flip if it will be up or down.  It has completely disconnected from the broad market and is marching to the beat of its own drummer.  It has become a trading stock and is completely divorced any market or company fundamentals.  If it feels too risky to buy AAPL here, then it is probably a good buy for anyone willing to hold through more volatility.

Stay safe