AM: Finding support

By Jani Ziedins | Intraday Analysis

Jan 11
S&P500 daily at 1:08 EST

S&P500 daily at 1:08 EST

AM Update

This morning’s trade is supportive of the rally, but how much further can this go?

MARKET BEHAVIOR

Stocks dipped at the open, but found a floor near 1467 by mid-morning and reclaimed some of the early losses.  The market continues trading around 1470 with several dips below and pokes above.  It will be insightful to see how the market trades into the close.

MARKET SENTIMENT

Seeing some doubt creep in after yesterday’s breakout to new highs is actually constructive.  Markets often top when everyone is yelling buy, buy, buy, and we didn’t get that this morning.   And obviously the other positive is selling didn’t get out of hand either.  Much like after the Fiscal Cliff rally, stable, sideways trade is a continuation pattern.  It is premature to say this morning’s calm signals a continuation, but it is encouraging.

How the day closes will be important as we establish a new trading range.  Will the market rally in the final hours again?  Will it dip back into the old range?  Or will it simply settle near yesterday’s close?

TRADING OPPORTUNITIES

Expected Outcome:
Early selling and subsequent support is constructive.  The two things that will kill this rally are obviously a breakdown, but also a surge higher.  No need to explain how breakdowns kill rallies, but on the other side, a flurry of buying will exhaust the supply of remaining buyers as the candle that burns twice as bright lasts half as long.

Of course I’m rooting for the surge higher because it will make an easy sell and setup a short trade on the resulting pullback, but I will trade what the market gives me and that is shaping up to be more stair-stepping higher.

Alternate Outcome:
The market is completely oblivious to any of the world’s concerns.  And just like how market prices swing up and down, so does sentiment.  We rose a 130 S&P points from the depths of dispair over an Obama reelection and Fiscal Cliff concerns to a place where pessimists are confused, disorganized, and humiliated.  But the paradox of the markets is the fewer the numbers, the more potent the force.  The shrinking bear camp is becoming stronger by the day, and this is something we need to be aware of as bears defect in droves after we cleared old highs.  Momentum might carry this market a little higher, but gravity will eventually take over.  Will that be next week or next month?  We have to keep watching and adjusting our models as new information becomes available.

INDIVIDUAL STOCKS

AAPL gave back some of yesterday’s surge into the close, but is still holding above $520 for the time being.  The stock seems content trading between $500 and $550 leading into earnings.  The September through November slide has clearly paused and found support at $500, indicating the over-owned, emotional, and tax based selling of last year has been contained.  The stock is entering a new phase this year.  Will it be further declines on weakening fundamentals?  A bounce from oversold levels?  Or more sideways trade?  We will know shortly after earnings are released.

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.