AM: Market up, AAPL down

AM Update

Stocks are trading modestly higher after early weakness, but AAPL isn’t finding the love as it dips under $500 ahead of tomorrow’s earnings.

MARKET BEHAVIOR

Stocks traded modestly lower at the open, but in typical fashion found a floor mid-morning and bounced back near break-even. How much longer can this pattern of early weakness followed by afternoon strength last?  The more obvious something becomes, the closer it is to changing and this pattern is getting fairly obvious.  One of these days a lot of traders are going to buy the mid-morning dip and be dumbfounded when the market continues lower instead of bouncing like it is supposed to.

If we hold 1480 into the close, this will be the 3rd day in a row we closed above this level and if we can hold above this level by Thursday’s close, the market is showing support and will more likely continue higher before pulling back.

MARKET SENTIMENT

We are stuck in a place where is it no longer valid to make a blanket statement claiming the market is overly bullish or bearish.  To figure out what is going on we need to split the market into segments based on timeframe.  This is often the case when the market is on the verge of counter-trend trade.  I have no idea when the market will pullback, but pullbacks are fundamental to the markets so we know one is coming.  Maybe it will come this week or maybe it will be like last year were we went three-months without a meaningful pullback.  We don’t make money calling for a pullback, we make money getting the timing of that pullback right and that is the hard part.

Near-term sentiment is becoming fairly optimistic as headlines are taking more of a positive tone and pessimists are keeping most of that negative attitude to themselves.  But the other side of this argument is the market saw a massive level of selling in the October and November correction and those buyers are on the sidelines wondering if they need to chase this market or risk being left behind.

TRADING OPPORTUNITIES

Expected Outcome:
The market is pausing above 1480 and if we can hold these gains into Thursday’s trade that is supportive of a continuation.  But if we see weakness develop over the next couple days due to AAPL or Debt Ceiling developments, look for a modest dip back down to 1470, 1460, or 1450, all levels of technical significance as recent support or resistance.

Alternate Outcome:
The market can continue marching higher without pausing because of all the recent sellers sitting on the sidelines   Moves in the direction of the market often go longer and further than most expect and there is no reason we can’t keep going higher here.  How a person trades this is all about risk management.  We’re in this game to make money and to make money we need to lock in profits at some point.  Some people like to let those profits ride and others have smaller goals and prefer to turnover their portfolio with smaller gains.  I’m straddling the fence in this regard.  I have a large portfolio of buy-and-hold investments and that lets me be far more active with my personal trading account.  But this is what works for me, what works for you could look a lot different.

INDIVIDUAL STOCKS

AAPL dipped under $500 this morning as the stock was hit by more selling ahead of tomorrow’s earnings.  Is this just nervous traders getting cold feet and bailing ahead of this event?  Or are some people trading on inside information and getting ahead of the rest of us?  Only one way to find out and that is to see what AAPL says tomorrow.

Recent weakness accounted for much of the negative supply chain rumors out there and even if they prove out accurate, the stock shouldn’t see too much selling because those sellers already sold before earnings.  This creates a potential sell-the-rumor, buy-the-news following earnings.

Stay safe