PM: A third close above 1470

By Jani Ziedins | Intraday Analysis

Jan 14
S&P500 daily at end of day

S&P500 daily at end of day

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

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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.

Fil January 14, 2013

Hi Jani,

Thank you for your post. This drop on aapl certainly makes the long entry price a lot more attractive and solid. I did a scan for today’s price action, and apparently most of the selling happened during the pre-market and the first 10 minutes of the regular session. This should indicate that the weak hands/stop losses got shaken out. There were no significant block trades for the rest of the day, it seems that everyone was just staying put after the drop occurred.

Best regards,
Fil

Lt January 15, 2013

AAPL IS BELOW 490 NOW 486. ITS POURING BLOOD IN APPLE STREET. THIS IS GOING DOWN TO 450 BEFORE EARNINGS. PANIC HAS SET IN. THERE ARE MORE SELLING TO COME.

    Jani Ziedins January 15, 2013

    Without a doubt we are passing through autopilot stop-losses set under $500. There is already a high level of pessimism and cynicism in the stock and most of the weak hands bailed out months ago. I would be surprised if this stock hits $450, but of course I don’t have a crystal ball. What I really expect is we are seeing the psychology that makes double-bottoms such a common reversal pattern. The first rebound sucks in the eager buy-the-dip crowd, but because nothing in the markt is easy, they get humiliated by the next pullback. A key part of the double bottom is the second bottom undercuts the first because this flushes out the last of the hopeful holders and sets the stage for a rebound. Time will tell, but without a doubt this is the least risky time to own AAPL in the last year. (the riskiest was in September when everyone was bullish after the iPhone5 release and the stock went above $700)

      Fil January 15, 2013

      Along with the double bottom, we also have the falling wedge, which is also bullish. The volume today is a carbon copy of that on yesterday, 1 million+ shares changed hands in first 10 mins, but no or very little block trades through out the day. The selling so far matches with what Jani stated – emotional and stop loss triggered.

        Jani Ziedins January 15, 2013

        There are no guarantees in the market, we are simply playing a game of probabilities. AAPL’s recent strength brought in some bottom-pickers and they are running for cover these last two days. The rest of the ownership are value buyers who bought the stock in the face of recent declines and are willing to sit through some weakness. We could easily see further weakness, but there is a limited number of bottom-pickers remaining in the stock and once they are gone, supply will dry up and the stock will bounce.

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