PM: A third close above 1470

PM Update

The bears just can’t break this market and AAPL is finding buyers at $500.

MARKET BEHAVIOR

The S&P500 slid in early trade, but found a bottom at 1465 and recovered most of those losses by the close.  This marked the third consecutive close above 1470.  Volume was slightly below average as traders were taking more of a wait and see and not overly excited about the early selloff or subsequent rebound.

MARKET SENTIMENT

There are always two ways to look at anything in the market.  One side will say the inability to break above 1472 shows a lack of conviction and follow-on buying and it is just a matter of time before the market doesn’t bounce back from one of these selloffs.  The alternative view of the exact same information is the market is trying to selloff, but failing each time due to a lack of follow through selling and is only time before we break through the 1472 ceiling.

I’m in the later camp.  The market had multiple opportunities to breakdown, yet traders resisted the temptation to rush for the exits.  While most traders are reluctant to buy above 1472, that will change as we break through these levels.  Initially we will surge higher on a wave of stop-losses, but afterward the series of higher-highs will convince the remaining holdouts that they need to get in this rally or risk being left behind.

The challenge bears are having is recruiting new pessimists to their side.  With so many people already bearish over the political fundamental, economic, and global news, if you are not already a bear, it is unlikely you are going to become a bear.  And this is why the market has struggled to trigger anything more than a temporary intra-day dip that recovers before the close.  There are no guarantees in the market, but a third support day tomorrow makes a continuation far more likely than a reversal.

TRADING OPPORTUNITIES

Expected Outcome:
Watch Wednesday’s price-action for signs of support.  This doesn’t have to be a positive day as red days can often be supportive if they are calm, controlled, and rational.  A selloff down to 1460 with a recovery to 1465 would be considered constructive and supportive

A third support day here clears the way for people to buy or add longs.  And this goes without saying, but I’ll say it anyway, don’t short the market here.  The trend is clearly higher and wait for the breakdown before trying to short anything.

Alternate Outcome:
The line is the sand is 1450 and a dip under that will most likely signal the end of this rally leg.  Any selling short of a clear violation of 1450 will simply be a dip to the lower end of the trading range and most likely represents a buy-the-dip opportunity.

INDIVIDUAL STOCKS

AAPL struggled today, but the silver lining is it held the $500 level .  Holding support is highly productive, but we do have to be wary of a break under $500 because that could trigger a wave of stop-loss selling.  But I actually think most of the owners who bought the dip recently are in this for the long haul and won’t let a $15 slide under $500 change their opinion about the upside potential.  If we do see a brief dip under $500 before earnings, expect a quick bounce as selling dries up quickly with so few sellers remaining in the stock.

Stay safe