Weekly Review and Look Ahead
Another modest weekly gain, but volatility picks up. AAPL is rallying on rumors and hope, but will Tim Cook deliver?
The market finished fractionally higher in a week that provided the largest volatility we’ve seen since the Fiscal Cliff pop. These swings show there is still indecision in the markets, but for all the attempted selloffs, the market held firm at 1500 and finished at a new high.
The market is 56-points above the 10-week moving average and 112-points above the 40-week moving average. The faster 10wma turned up and is keeping pace with the market, trailing the index by only 3.6%.
Bears continue trying to take down this “overbought” market, but are helpless to stop it. We saw three legitimate attempts to break this rally, but each one failed because the wider group of holders was unwilling to join the selling. From a supply and demand viewpoint, each selloff shook out weaker holders, meaning those left holding stocks are confident in their positions and their resolve is keeping supply tight.
The new highs are also intensifying the pressure on money managers underweight this market. “Smart money” had a horrible 2012 and 2013 is starting with a case of deja vu. It is hard to predict how long these guys can sit out, but it looks really bad when dumb index funds are outperforming smart money by multiple percentage points.
While we saw some of the widest swings in over a month, the weekly gain was modest. Often directional rallies top on one of the largest weekly gains of the move, and by that measure this rally still has room to go. The high probability trade remains to the upside.
Every rally ends and this one will be no different, but the challenge is figuring out when. Money is made knowing the difference between what is real and what is just noise. Keep a close eye on 1505. If we cannot escape 1500, that will indicate this market is running out of new buyers and we should prepare for an imminent pullback.
AAPL climbed into the post-earnings gap on rumors and hope. Tim Cook is speaking this week and traders are looking for hints at a more generous plan to return money to shareholders. If Cook doesn’t say what investors want to hear, look for AAPL to selloff sharply. And even if they get what they want, look for significant resistance at $500 as many regretful owners try to get out at break-even.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.