AM: New highs again

By Jani Ziedins | Intraday Analysis

Feb 19
S&P500 daily at 1:23 EST

S&P500 daily at 1:23 EST

AM Update

New highs in the market as all is well with the world.  AAPL struggles with $460, AMZN is holding the 50dma, and NFLX is close to breaking $200.

MARKET BEHAVIOR

The market made new highs in early trade and is holding those gains through midday.  What cannot go any higher keeps going higher.

MARKET SENTIMENT

No one wants to sell this market and anyone watching from the outside is developing second thoughts about sitting this one out.  There are few motivators more powerful than seeing everyone else make money and that is why so many former cynics are quickly forgetting their fear of heights.  The calm and complacency of the group is infectious and there are fewer and fewer people warning of imminent doom with each passing day.

The gradual shift in market sentiment is what heightened my senses.   There could easily be days and weeks left in this rally, but we are far closer to the end than the start.  From a risk versus reward analysis, the remaining reward is shrinking by the day and the risk becomes more and more real.  We could easily see another 25-points to the upside, but on a 180-point move from November’s lows, holding out for those last few percent could lead to “tripping over pennies”.  Buy when everyone is fearful and sell when everyone is greedy.

TRADING OPPORTUNITIES

Expected Outcome:
The market is rallying here, but don’t become complacent.  This is not a time to short the market, but it is a good time to start locking in profits, especially if the rate of gains increases.  This would be the last of the holdouts chasing the market and once they buy-in, demand will dry up and we will finally have that pullback everyone’s been calling for.

It’s easy to predict the market because it always does the same things.  A pullback is a no-brainer because markets always pullback……eventually.  The money is made in correctly timing these moves and that is the hard part.  I don’t know exactly when this market will top, but I suspect it is coming.  No doubt I’ll get out of this market early, but I’m okay with that because top-picking is a fool’s game.

Alternate Outcome:
Markets often go further and longer than anyone expects.  We could see this rally continue higher for weeks, even months, but that doesn’t make it a high-probability trade.   This market has already gone further and longer than anyone expected, already up 60-points from the Fiscal Cliff pop.  We are approaching the point where cynicism gives way to greed and that is when markets top.

If someone wants to play both sides of the fence, a trailing stop is not a bad idea.  It leaves the door open to further gains, but locks in profits if the market does start dipping.

INDIVIDUAL STOCKS

AAPL daily at 1:23 EST

AAPL daily at 1:23 EST

AAPL couldn’t hold $460 and stop-loss selling pushed it down to $453.  The real test will be if the stock can reclaim and hold $460 or if this level becomes resistance again.  The sell-the-news dip continues following last weeks push up to resistance at $485.  Last Tuesday Cook quashed hopes of an imminent increase to the dividend/buyback program and without that catalyst  the stock has drifted lower.  I still don’t know where the next buyer will come from or when the next revolutionary product will be released.  Until those questions can be answered, the stock will probably retest recent lows as it continues purging hopeful holders.

AMZN is finding buyers above the 50dma and the stock looks like it wants to keep defying bears and shorts.  Owning AMZN here is a pure speculation trade and based entirely on the next greater fool theory, but it seems likely that greater fool will be shorts rushing to cover as the stock trades back above $270.  This stock will unravel at some point, but it is a bad short right here.

NFLX continues its assault on $200 and is less than $10 away.  Anyone who thought the 30% post-earnings pop was waaaaay over done missed a great trade.  Remember, the contrarian trade isn’t going against the chart, it is going against the crowd.  If the crowd thinks something went “too-far, too-fast”, the contrarian trade is betting on a continuation.

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.

sally February 19, 2013

Is that a typo in the AMZN discussion? I think you mean above 270 not 470 (surely?)

    Jani Ziedins February 19, 2013

    Yes, you are right, thanks for catching that.

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