AM: Cautious optimism

AM Update

S&P500 bounces off of support at 1515 and AAPL is finding buyers in the $460 range.  AMZN, NFLX, and LNKD continue proving the cynics wrong as they keep gaining.

MARKET BEHAVIOR

The market opened lower, but rallied off of 1514, again finding support near the 1515 level.  What was resistance a couple of weeks ago is providing support here.

MARKET SENTIMENT

Josh commented a couple posts ago that while exchange volume returned on Tuesday, trading volume on the SPY remains suspiciously light.  This is a really interesting observation and it might give us further insight into this market.  The SPY is a trading vehicle for speculation and hedging, not investing.  This can be seen by the SPY’s ridiculously high turnover rate of just 5 days.  Following volume on the SPY provides great insight into what traders are doing, separate from longer-viewed investors.

One possible explanation for the low volume on SPY is traders are afraid to buy this market and just as fearful of shorting it.  Since short squeezes have been a big part of what pushed this market higher, we might not have that same bid above the market going forward.  If that is the case, this market will need to draw in new buyers to keep moving higher.

TRADING OPPORTUNITIES

Expected Outcome:
Without a doubt the market is approaching the end of its run and an intermediate top is weeks and a handful of points away.  The safer this market feels with its steady climb higher, the more nervous it makes me.  I’m not ready to give up yet, but I am less confident and more paranoid than I was a couple of weeks ago.  One of the hardest part of trading is knowing when to take a winner.  We should be giving that more thought here than what positions to add.

Alternate Outcome:
If the expected trade is promoting caution, then the alternate is going all in.  Markets often move further and longer than most expect and undoubtedly this one has already don that, jumping over 120 points in less than two months. But are we seeing skepticism grow or fade the higher this thing goes?  I’m still waiting for that large weekly price gain, but am actively looking for an exit.  It is always better to be out of the market wishing you were in, than in the market wishing you were out.

INDIVIDUAL STOCKS

AAPL is finding support at $460 and trying to regain upward momentum after two days of selling.  $460 is a good line in the sand to use as a stop-loss for a long trade, but if this is an obvious stop-loss, other traders will use it and the stock could trigger another wave of selling if it dips to under it.

After some early weakness, AMZN is fining buyers willing to support the break above the 50dma and recent gains.  This stock is not done humiliating bears and get in its way at your own peril.

LNKD and NFLX continue dining on fresh bear meat as they push to new breakout highs.  Remember, the contrarian trade isn’t going against the price, it is going against the crowd.  If the crowd thinks these are ridiculously overpriced stocks and bound to crash, then the contrarian trade is betting on the continuation.

Stay safe