PM: 1500 is rock solid

By Jani Ziedins | Intraday Analysis

Feb 07
S&P500 daily at end of day

S&P500 daily at end of day

PM Update

Bears cannot break this rally and look for higher prices in coming days.  AAPL surged on hopes of money being distributed to shareholders, but use this strength to get out.  AMZN looks interesting here and NFLX is chewing up bulls and bears alike.

MARKET BEHAVIOR

Stocks stumbled in early trade but recovered most of those losses by the close.  The market is finding support near 1500 and continues bouncing back from any dips to this key level.

MARKET SENTIMENT

No matter what the “experts” say, this market does not want to selloff.  For the umpteenth time it had the perfect opportunity to selloff, yet found support and rebounded.  If this market was as over-bought and overly-bullish as many are claiming, it would have fallen apart at the first signs of weakness.  Clearly that is not happening.  This market will top because every market tops, but it isn’t ready yet.  Look for the cynics to turn into chasers the higher this market goes.  Since many of these cynics are big money managers, there is still a lot of fuel left in the tank.

TRADING OPPORTUNITIES

Expected Outcome:
The reluctance to selloff after so many tempting opportunities shows this market is far more resilient than most give it credit for.  I can’t say how much higher this will go, but high-probability trade remains to the upside.  Today’s rebound made for a nice entry point and if you missed that, look to buy any dips.  We have probably seen the last 1500 dip and look for the market to surge past 1515 as shorts scramble to cover on Friday.  The next target is 1525 and depending on how the market trades there, 1550 is a real possibility in coming weeks.

Alternate Outcome:
With so many failed breakdowns it is hard to see the market implode, but we still need to prepare for the unexpected.  A material break of 1500 that doesn’t find support and bounce is a change in character and we will need to reevaluate our bullish thesis.

INDIVIDUAL STOCKS

AAPL daily at end of day

AAPL daily at end of day

AAPL spiked in anticipation of a policy shift regarding its cash hoard.  Clearly investors favor getting their hands on some of that money, but this is not a fundamental shift in the business model and the enthusiasm will be short-lived.  The primary reason for AAPL’s selloff has been concern over competitiveness and margins.  Increasing dividends, buybacks, or preferred stock plans does nothing to help the company make more money.  Everyone has long assumed AAPL would do something with that mountain of cash, so most of this is already baked into the price.  This is still a trading stock and a move up to $485 should be used as a selling opportunity.  The best trade for the next few months is selling strength and buying weakness.  Give this story a few days to play out, but don’t get sucked up into the hype.

NFLX pulled back modestly after making a new high. This stock is chewing up momentum chasers and shorts at the same time, so be careful with this one.  The trend is higher and $200 is within easy reach, but it might experience a few dramatic dips along the way.

AMZN slipped under the 50dma, but quickly recovered this level.  Finding buyers and not triggering a larger avalanche of selling is suggestive of a move higher.  If the broad market breaks out to new highs, look for it to take AMZN with it.

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.

Peter Sugar February 8, 2013

I’m sorry to say that your advise on Apple is sounding more and more self-serving …

    Jani Ziedins February 8, 2013

    I don’t have a trade on in AAPL and have nothing to lose or gain. It would be nice to see it rally because so many people are holding on, but I’m afraid that high level of hope is what will hold the stock back. This is a game of supply and demand. When everyone who likes something already owns it, where is the next buyer going to come from?

      Peter Sugar February 8, 2013

      You may not have a trade on in Apple but if the stock moves in a way that appears to support your argument then you have bragging rights and your ego gets stroked. That’s incentive enough for most people …

        Jani Ziedins February 8, 2013

        Everyone wants to be right, but the real test is how we respond to being wrong. I think this is a sell the news trade for AAPL, but if AAPL surges on news next week and recovers $500, then clearly I am wrong and I need to change my thesis. I’m okay with being wrong, what is not acceptable is staying wrong.

Jon February 10, 2013

Peter,

Follow the trend. The trend is currently down. $AAPL needs to see follow through. Right now, what I see is a classic buy the rumor sell the news situation. We’ll know in a couple days how this all pans out.

I agree with Jani that rallies with $AAPL should be used to sell (again, given the current trend). Lighten your position if you own $AAPL (you don’t have to sell everything, but trim) and invest elsewhere. There are plenty of other profitable opportunities outside of $AAPL. When $AAPL starts to shape up, invest back into it if that’s where you want to be. Again, the current trend is down and the quickest way to lose money in the market is to fight the trend. So don’t be right, be profitable!

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