PM: Finding support

PM Update

Resistance at 1515 is acting as support and look for the “overbought” market to get even more overbought.  AAPL closed the post-earnings gap, but where the stock goes depends entirely on what Tim Cook has to say.  Continue watching AMZN and LNKD from the sidelines, but FOSL is interesting.

MARKET BEHAVIOR

Stocks traded near Friday’s high on light volume as recent resistance at 1515 became support.  The market is at 5-year highs and there is no meaningful overhead resistance from regretful holders looking to get out at break-even because everyone holding a diversified portfolio is sitting on profits.  Last week saw an uptick in volatility, but today’s tight trade brought some calm back to the market.

MARKET SENTIMENT

While the market was in the red for most of the day, the losses were modest and volume light.  If anything this was more due to buyers holding back than any material selling.  This reluctance is bullish because it shows  a lot of traders have not bought the rally yet.  Often these things top in a big, high-volume surge and today’s quiet action was anything but that.

Today’s low-volume dip fits well with what we have talked about recently.  Holders are increasingly confident with each new high and less likely to sell while pessimists remain reluctant to buy.  Low-volume over the last two days was the result of no one selling and no one buying.  When holders are confident and sideline-watchers fearful of falling even further behind, there is only one direction to go and that is up.

Too-far, too-fast will eventually catch up with this market, but only after reluctant traders pile in.  The rally is fueled by investor pain and a continued rally will hurt the largest number of people the most.  The bull’s turn is coming, just not yet.

TRADING OPPORTUNITIES

Expected Outcome:
Keep doing what is working because there is no reason to sell this market.  These things go further and longer than anyone expects and that is exactly what we have here.  As long as the chorus is singing overbought and unsustainable, stay long.  Only after all the cynics have given up and joined the bandwagon will we be ready to pullback.  Supply and demand 101.

Alternate Outcome:
This market will top one of these days and I am 100% certain I will either be early or late.  There is a huge difference between trading probabilities and picking tops.  I’m good at probabilities, not so good at tops.  But that is why we build a plan and stick to it.  I know I can’t pick the top and I prefer getting out early.  I don’t know how much longer I will stay in this trade, but as long as things continue following my plan, I’ll stick around.

For those that are curious, I’m 300% long the S&P500 through a combination of leveraged ETFs and margin.  I find the indexes easier to trade because they don’t have the same event-risk found in individual stocks and it is a more pure sentiment trade.

INDIVIDUAL STOCKS

AAPL touched $485 but turned back and closed just under $480.  Tim Cook is speaking on Tuesday and AAPL traders will hang on every word, looking for a reason to buy the stock.  I’m in the sell-the-news camp because AAPL’s is historically stingy with details and its cash.  If I had to guess if Cook will exceed investor expectations or leave them wanting more, I’d bet on the wanting.  If the stock sells off,  get out and even look to short.  If investors love what Cook has to say, look for a test of $500, but expect major resistance at this level.  $500 was support for three months and it wouldn’t surprise me to see it act as resistance for a while before the stock finally breaks above it for good.

LNKD added to yesterday’s gains, putting even more hurt on the shorts that tried to stick it out.  The stock will consolidate, but look for the rally to continue from there.  NFLX’s recent price-action is an example of what LNKD could do.  As for a trade, I wouldn’t buy the stock here and I certainty wouldn’t short it either.

AMZN failed to hold the 50dma.  The stock isn’t dead yet, but it shows why the smart move is to wait for the bounce before jumping in.

FOSL looks like it is under accumulation after last week’s bounce off of the 50dma and it is still within buy range.  The stock gapped down last spring, but there is clean air up through $125.  This is a speculative play so anyone trading this should use an appropriately sized position and any broad market weakness will pummel a high beta stock like this.

Stay safe