PM: 52-week closing high

PM Update

MARKET BEHAVIOR

The S&P500 closed up 0.5%, setting a new 52-week closing high and is just half of a percent from the absolute high.  Volume was average, but less than the previous two days.  The market is 55-points above the 50dma and just over the 1460 level that last Fall’s rally could not hold.

MARKET SENTIMENT

A lot of people are waiting for the market to pullback because everyone knows a two-day, 65-point rally is too-far, too-fast, but in the markets, the obvious trade rarely works out.  Most of the doubters have already locked in profits and/or sold short, yet we are still inching higher.

If most of the preemptive selling has taken place, supply is on the verge of drying up and we could see a new 52-week high next week.  That would send a lot of shorts running for cover and tempt breakout buyers to jump on board.  As the market continues its march higher, it will suck in the last undecided watching from the sidelines, but these last stragglers will signal the top as this time we run out of buyers and demand dries up.

TRADING OPPORTUNITIES

Expected Outcome:
Much like everyone else I expect a pullback, but I also see higher prices before that pullback happens.  Breaking 1475 would mark a new high and send shorts running for cover.  That last short-squeeze could be the top, or it could kickoff the next rally leg, it all depends on what other market participants think and how they are positioned as we make that new high.  If sentiment turns positive and breakout volume is huge, that would be a signal to fade the move.  But if  volume remains modest and most traders resist the temptation to buy, then the rally will continue.

Alternative Outcome:
This thing has to breakdown at some point and it could do that out of the gate Monday morning.  We need to close around 1460 to show support for the recent rally and if the market cannot do that, then the pullback will happen without a final short-squeeze.  No one knows for certain what will happen next and that is why we need to plan for multiple scenarios so we are better prepared for whatever the market throws at us.  It seems more likely the market will head higher, but that is no guarantee.

INDIVIDUAL STOCKS

AAPL diverged from the broad market and lost 2.8% on concerns over market share.  The stock couldn’t find a bid and finished near the lows of the day.  No doubt this selloff sent a chill of fear and regret through many of the chasers who bought near $550.  Some of them probably even sold impulsively today as they feared the headlines and a bigger selloff.  But if a person bought in the low $500s, then this pullback is no big deal.  A big part of success in the markets is buying right.  If you can buy right, everything else becomes a lot easier.

Stay safe