AM: Bears try again

AM Update

MARKET BEHAVIOR

Markets stumbled out of the gate on reports of weak demand for the iPhone5.  That was all the excuse ambitious bears needed to start selling the entire market.  The early slide picked up speed, but the market found support at 1465 by min-morning and is currently trying to reclaim 1470.

MARKET SENTIMENT

There is an important distinction between what the market should do and what it is doing, and right now bears are struggling with this concept.  Market price is determined exclusively through supply and demand, so no matter what the fundamentals or technicals are, it is still supply and demand that determines the next move.  Sometimes supply and demand goes with fundamentals and technicals and other times it doesn’t  But the market ALWAYS moves with supply and demand.  No matter how outrageously good the news, if the market runs out of buyers, it cannot rally any higher.  And like the situation we have here, no matter how bad the news, if everyone already sold, supply dries up and prices rebound.

TRADING OPPORTUNITIES

Expected Outcome:
This mid-morning bounce might not signal an all clear and we could still see further weakness, but it shows the market is not poised for an explosive move to the downside.  Here again the market had every excuse to selloff, but it found a bottom.  We will watch how this market closes today and tomorrow, and if it continues finding support, the next move is higher, not lower.

Alternate Outcome:
The bounce might be driven by the overly bullish buy-the-dip crowd and they are only delaying the inevitable selloff.  If this is the case, look for a stair-step lower.  The move will be slow motion initially while the last of the bulls use up their capital buying the dip, but once they run out of money, the selloff will pick up speed.  1450 is the lower end of this trading range and breaking this could signal a shift in market direction.

INDIVIDUAL STOCKS

AAPL got smacked down on reports of slow iPhone5 sales.  But isn’t that the reason the stock dropped $200 since September?   Slow iPhone5 sales has been reported on for a while and it is old news already factored into AAPL lower stock price.  Now this doesn’t stop people from hitting the panic button and selling all their AAPL shares, but the downside is far more limited because most of the bearish selling has already happened.

Earlier I said I expected AAPL to rally into earnings, but news like sentiment will most likely hold the stock down.  But this new bearish attitude surrounding the stock makes it safer to hold through earnings.  If the market is already expecting bad news, then there is little selling left in the stock.  But on the other side, less bad news will send the stock higher.

Stay safe