AM: Market frustrates bears

By Jani Ziedins | Intraday Analysis

Feb 01

AM Update

The S&P500 defies bears and rallies to new highs while AAPL continues to frustrate the buy-the-dip crowd.

MARKED BEHAVIOR

The S&P500 bounced off of 1500 and is making new highs again. The three-days of recent selling refreshed the market and it is ready to go again.

MARKET SENTIMENT

Anyone who jumped on the over-bought bandwagon and shorted recent weakness is having a bad day. Just another example of the market abusing counter-trend traders. When in doubt, stick with the trend because it goes longer and further than anyone expects.

This recent strength is winning over reluctant traders who are having a harder time resisting the temptation to buy this market. All the fears from a couple of months ago are long forgotten and while not surprising, it is amazing what a rallying market does to a trader’s view of the world. But the further this goes, the more careful we need to be. These things always end and with each passing day we are one day closer to that end.

TRADING OPPORTUNITIES

Expected Outcome:
The market is defying all expectations and continuing higher. Fundamental and technical analysts are full of reasons this market needs to pullback, but that is the very reason it continues. Keep watching for the cynics to give up and that will be the we find the top, until then stick with trend. If anyone is foolish enough to short this market, take profits within a day or two because they won’t last much longer as yesterday’s shorts are finding out.

Alternate Outcome:
This market will top and it will top in the near future. Maybe that is next week, or maybe next month, but it is out there. We found out this week headlines cannot dent this market so we need to watch for a depleted supply of buyers. As long as traders keep shorting this market, they are creating new demand when they are forced to cover. When the shorts finally give up, that demand will taper off and most likely the market pullback will follow.

We have come a long way and holding out for that last couple percent is getting greedy. No one sells at the top, so either we sell early or we sell late. I’ve never heard of a highly successful investor who sells late and in fact most claim the secret of their success is selling too early. Maybe they know something we can learn from. Maybe this market will top at 1525 or 1550, but for anyone in since 1400 would be foolish to risk those gains for an extra 20 points that might or might not happen.

But it all depends on your trading strategy. Swing-traders should take profits, and long-term traders keep holding and wait for higher prices this summer or next year. Aggressive short-term traders can continue squeezing out the last few drops of this rally, but stay on the long-side until we get a more clear signals this market is topping.

INDIVIDUAL STOCKS

AAPL is having another bad day and retesting $450. The sharp rebound so many were hoping for is dead and once those swing-traders throw in the towel, their selling will put more pressure on the stock. Now that the oversold bounce isn’t happening, who is going to buy AAPL if all the people who believe in the company and stock already own it?

The stock very well might be trading near the bottom of the selloff, but that doesn’t make it a good to stock to own if it will take a while to recover. I’d rather take that money and put it to work. Only when AAPL livens up buy back in. No reason to hold on to dead money. But that is just my approach to trading and each person needs to follow their plan.

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.