PM: What weakness?

PM Update

The S&P500 defies gravity and AAPL’s unbelievable valuation becomes even more unbelievable.

MARKET BEHAVIOR

The S&P500 responded decisively from recent weakness and threw everyone for a loop as it set another new high. Volume was slightly above average, but lower than recent days. This was the biggest up-day since the Fiscal Cliff pop, but 1% is hardly excessive.

MARKET SENTIMENT

While we need to be careful of a capitulation top, the lower volume shows the market has not sucked in the last the buyers yet. We are watching for a high-volume rally day because it signals the dam of reluctance has finally broken and the last surge of hesitant buyers is rushing in.

This market clearly wants to go higher and it will reveal how much higher in coming days. Successive up-days will signal the last rush of buyers before exhaustion, but if the market takes its time and exercises moderation, expect this to continue for a bit longer.

Everyone knows this rally is over-bought, but that is what keeps it moving higher. We need to keep a close eye on the level of cynicism remaining because it is the fuel that pushes us higher. Reluctant buyers become enthusiastic buyers the higher prices go.

TRADING OPPORTUNITIES

Expected Outcome:
Keep doing what is working; this market is defying all calls for a pullback and that will likely continue in coming days. While this market will eventually top and pullback, you cannot get in front of this. Shorts will get their chance, just not yet.

Buy-and-hold investors stick with your plan, but conservative swing-traders should look to lock in profits. Aggressive swing-traders can hold for more, but keep this trade on a short leash and move up your stops.

Alternate Outcome:
Next week will most likely set another new high and while we could be near a top, there is still plenty of cynicism to fuel a move even higher. If we see more basing and sideways trade next week, hold a little longer. Nothing is certain in the markets and one in hand is worth two in the bush, but you also cannot make money without taking some risks. We will learn a lot more about the mood of the market early next week and that will tell us how to trade this.

INDIVIDUAL STOCKS

AAPL is giving longs heartburn as it turned back from $460 and retested $450. The failure to break $460 is noteworthy and violating $450 in coming days will most likely signal lower prices in the near-term. In my unscientific observations, it seems like there are still a lot of AAPL supporters and those people need to be chased off before the stock will find a bottom. The most loved stock on Wall Street will need to become the most hated before this thing will turn around.

Stay safe