AM: All-time highs within reach

By Jani Ziedins | Intraday Analysis

Mar 14
S&P500 daily at 12:52 EDT

S&P500 daily at 12:52 EDT

AM Update

Markets keep inching toward all-time highs and AAPL remains range bound.

MARKET BEHAVIOR

Stocks added to yesterday’s gains and are making new highs again after a brief consolidation.  The market is within a few points of an all-time closing high and just a bit further from all-time highs.

MARKET SENTIMENT

This is a challenging time to trade the markets.  The obvious up-trend and media constantly promoting new highs is sucking in formerly hesitant investors and convincing existing holders to keep holding.  How far this goes is anyone’s guess, but we all know it will end at some point because it always does.  Even the best traders in history cannot pick-tops with any consistency, so why do so many average traders try?  I suppose it comes down to the type of people attracted to the markets.  We are all here because we feel we have an edge.  We think we can buy things that are undervalued and sell things that are overvalued.  Some people look at this market and finally see a safe place to buy stocks; others see it as grossly over-bought and keep shorting the market.  Who’s right?

What if the best trade is no trade?  The market is in no-man’s land.  It’s gone too far to be a safe buy, but the upward momentum makes it poor short.  We’re traders and that’s what we do.  Call it a gamblers fix or whatever, but the hardest thing for many people is to just sit there without any positions.

TRADING OPPORTUNITIES

Expected Outcome:
Momentum continues. We are within 5-points of an all-time closing high.  Can the market really resist the temptation of making history?  This rally might be in the final innings, but support at 1550 shows there is still gas in the tank.  We could easily tag 1565 and that marks the top of the rally, or it sets off a short-squeeze and pushes us through 1575, at this point it is anyone’s guess.  No doubt there are stop-losses above 1565, but each short-squeeze is getting weaker and weaker.

Alternate Outcome:
I remain suspicious of the current rally, but the market is good at faking us out.  It wouldn’t be unusual to see the market pause after making all-time highs.  A pullback that finds support at 1550 shows both buyers and sellers are still behind this rally we should expect a continuation.  At this point moving a trailing stop up to 1545 gives the market room to move and lets a trader stay in the rally.

INDIVIDUAL STOCKS

AMZN daily at 12:53 EDT

AMZN daily at 12:53 EDT

AAPL is up modestly ahead of Samsung’s Galaxy announcement.  One of the more interesting things to note is how much press Samsung is attracting with this launch.  It isn’t quite Steve Jobs like, but it sure is the most anticipated and hyped Android phone release.  No matter what the Apple management claims, the market sees the Galaxy as a viable alternative to the iPhone.  Whither this is true or not doesn’t matter because stocks trade on perception, not reality.

AMZN slipped on an analyst downgrade.  Analysts ratings are not part of the fundamental story and moves because of upgrades/downgrades rarely stick.  If analysts were good at trading, they would be traders, not analysts.

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.

Shlomo March 14, 2013

It seems to me the time to become bearish is sooner rather than later. It would appear to me that the early, often wrong, bears have been scared away from this market (it’s hard to find outright bearish “It HAS to pull back, it’s too overextended” anymore) and replaced by more passive bears (complaining, but afraid to act). It also seems to me that anyone initiating buying at these levels after an historic streak of up-days is guilty of “exhaustion buying”. Put-call ratios are depressed, and some (but not all) breadth indicators are divergent here.

scott March 14, 2013

I’ve been saying for years that people have totally forgotten what a 20%+ year in the market feels like. (not including years where the market was left in the dumpster after a crash) Now, I am not saying that this is what is occurring, but just like your alternate outcome section, it is certainly on my mind. Who’s to say that the market can’t go up 25% this year?

The market has put together several years in a row with 20+% returns in the past. I’ve heard a million reasons why the market can’t do that this year, but I haven’t heard why it can.

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