AM: New highs….again

AM Update

The S&P500 bounces back after early selling and makes a new high.  AAPL challenges $460, but runs into resistance

MARKET BEHAVIOR

The market had an open invitation to selloff after yesterday’s dip and this morning’s early weakness, but it bounced back and made new highs instead.  This price-action is supportive of 1500 and if we hold through the close, the market is not ready for a pullback.

MARKET SENTIMENT

How far can this thing go?  That is what most traders are asking themselves right now.  They are interested in buying this market because last fall’s worries are ancient history, but they are hesitant to chase a market that ran this far and is poised for a pullback.  They are stuck in this indecision, but each point higher pushes them closer to buying.  The thing about chasing is it is not like a breakout or breakdown where everyone is watching the same levels and a flood of orders his the market at once.  Chasing is a gradual phenomena where traders change their minds over time.  It is this steady stream of new buyers that allows the market to drift higher in spite of all the calls for a pullback.  No doubt this cannot go on forever, but it usually last longer than most people expect and that is exactly what is happening here.

One way these things end is when a larger wave of regret hits traders in unison after the market continues marching higher without them.  Buying picks up and the pace of gains accelerates until most traders can no longer stand sitting out and jump in headfirst, but this surge marks the end of the rally as buying finally exhausts itself.  So far this pause at 1500 shows buying isn’t getting out of hand just yet.

TRADING OPPORTUNITIES

Expected Outcome:
I’ve been wary of a pullback for a few days, but the market’s resilience around 1500 is indicating support, not exhaustion.  No one has a crystal ball and our understanding of the market evolves with each new piece of information.  Barring a weak close today, the market is supported by new buyers and still has more room to run.

My initial hesitation was due to stop-loss and breakout buying that pushed us through 1500.  These buyers have limited resources and their support usually fades within a couple of days.  Since we held these levels for a third day, it shows real support from follow up-buying and this is more than a short-squeeze.

Alternate Outcome:
Markets don’t always exhaust themselves in a single push higher and we could see a rolling top here at 1500.  Watch for a material violation of new support at 1500, but until then stick with the trend.

INDIVIDUAL STOCKS

AAPL rebounded from recent lows and is challenging $460 in late morning trade.  A lot of buy-the-dip traders bought AAPL at $460 after earnings, only to watch it plunge under $440 within 24-hours.  No doubt a lot of these buyers are filled with regret and looking to exit their impulsive AAPL trade at break-even.  We also had people hold AAPL through earnings who failed to sell the initial dip to $460 and they promised themselves they would finally sell if the stock regained $460.  Attitudes like this make technical levels behave like support and resistance.  When regretful owners jump at the chance to sell at $460, that will hinder further advancement.

While $460 will provide some resistance,  the major roadblock up ahead is $500 where a huge swath of regretful investors would love to get their money back.  We will probably bump up against $460 for a couple of days, maybe even turn back from it, but the real level to watch is $500.  Any swing-traders should wait to buy the break above $460 and look to sell around $490.  On the lower side  a break under $450 signals a lack of support and we will see new lows.

Stay safe