PM: Modest selloff so far

By Jani Ziedins | Intraday Analysis

Dec 04

 

S&P500 daily at end of day

Markets down for a second day, but panic has not hit the street yet.

MARKET BEHAVIOR

Stocks finished in the red, but off of the day’s low.  We fell back under the 1410 level that was temporarily providing support.  Volume was up from Monday, but still below average.   We declined the last two days, but it has been anything but a mad rush for the exits as volatility and volume are well under control…..so far.

MARKET SENTIMENT

Buyers failed to show up for a second day.  Volume was lower than average, showing selling wasn’t the sources of the weakness.   Buying pushed this market higher, but now the rally is struggling to find new buyers willing to commit fresh capital at these levels and as a result we hit this soft patch.

Last week everyone was hoping for an early compromise to the Fiscal Cliff, but that view has changed 180 degrees and now it seems everyone expects us to blow past the deadline without an agreement.  I’m getting tired of always talking about the Fiscal Cliff, but it is the topic of the moment.  The overall impact will be minimal, but the market is obsessing over it and that creates tradable opportunities due to these overreactions.

Depending on how things go over the next couple weeks, the act of falling off the cliff could actually be the point of maximum pessimism and become the buyable catalyst. We’ll have to keep an eye on sentiment and see how other traders are positioned the closer we get to the deadline.

AAPL daily at end of day

TRADING OPPORTUNITIES

No reason to buy the dip here and most likely any strength is a good shorting opportunity.  Longer-term holders prepare mentally for a modest selloff and don’t let all the hype in the media scare you out of your positions.

INDIVIDUAL STOCKS

AAPL really took it on the chin today and it is getting harder to find an AAPL bull.  The selloff and this shift in sentiment is dramatically lowering the expectations for the company on what should be a blowout quarter.  IPhone5 is still on backorder, we have the iPad mini, the new iPad4, and the refreshed iMacs to make for a strong bump in Q4 sales.  This doesn’t mean AAPL can’t go down more, but AAPL at $575 is far less risky than owning it at $700.

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.