AM: Humble pie

S&P500 daily at 1:11 EST

AM Update

Bears are humiliated today as the break above 1510 sent shorts running for cover.  AAPL’s investor day is uninspiring and the stock is sagging as another catalyst came and went.

MARKET BEHAVIOR

Stocks broke above 1500 and continued past 1510 in morning trade.  Runaway selling on Monday gave way to binge buying.

MARKET SENTIMENT

Two-days ago the world was ending and now it is saved.  Try as they will, fundamentalists, technicians, and the financial press cannot explain away these recent swings using headlines, data, or charts.  There is only one thing that moves markets, supply and demand.  Herd psychology is taking over as people make trading decisions exclusively based on what other people are doing.  Normal rules do not apply in times like these and is why it is so important to understand what people think, how they are positioned, and why they are doing what they are doing.

Shorts and breakout buyers are chasing this market higher and while their buying is not sustainable, the rally is sending a wave of relief through the market.  Traders who held the dip are feeling better and anyone who sold the dip is suffering a bout of regret.  The obvious short was anything but and bears have humble pie all over their face.

Reclaiming 1500 and 1510 is significant.  While volatility will persist, this rebound shows bears have less sway over the market than most thought.  The recent rebound further diminish their credibility and traders are becoming more comfortable holding this market.  But in one of the most ironic paradoxes of the market, the smaller a group, the more powerful it becomes.  As the bear contingent shrinks we need to become more fearful them.  The more bullish people become, the greater the risk of running out of new buyers becomes.  This is the psychology and structural trade that leads to double-tops and head-and-shoulders patterns.  The first breakdown typically fails and bounces higher because too much cynicism and doubt remains.  With each successful bounce, the rally bandwagon becomes more and more crowded, eventually succumbing to its own success when everyone is bullish.

TRADING OPPORTUNITIES

Expected Outcome:
This market is showing how important it is to trade proactively, not reactively.  There was a lot of money to be made using defined buy-points, stop-losses, and taking worthwhile profits.  Unfortunately for many, this has been a horrible couple days as they bought the rally and sold the dip.

The market reclaimed 1500 and has a comfortable cushion above this key support level.  The obvious stop-loss is 1495 and anyone who overcame their fear and bought the  break above 1500 is doing pretty well right now.  There is no reason to become complacent here, but so it looks like higher-highs are in our future.

Alternate Outcome:
Until the market makes a higher-high, the risk of a suckers rally is real.  Markets often bounce on their way lower, sucking in bottom-pickers and flushing out late shorts.  Any bull needs to acknowledge they can be wrong and this is where stop-losses are worth their weight in gold.  Success in the market isn’t about how much we make when we are right, but how little we lose when wrong.

AAPL daily at 1:11 EST

INDIVIDUAL STOCKS

AAPL is down 1.5% halfway through its investor day as the market has been underwhelmed by what it heard.  There is still time to surprise the market in the Q&A, but if there was real meat to this story, Cook would have presented that early.  With another catalyst come and gone, look for the stock to resume its slide lower.  There are still too many hopeful holders in this stock for it to make a meaningful rebound without an insanely cool new product that will reinvent the company.  The iPhone6 or another me-too streaming TV device just isn’t going to do it.

LNKD is squeezing bears again as something that’s gone too-far, too-fast keeps going.

Stay safe