AM: Comeback kid

S&P500 daily at 1:45 EDT

AM Update

Stocks dipped at the open, but are making a comeback.  AAPL gapped under the 50dma and is struggling to find buyers as it remains at the lows of the day.

MARKET BEHAVIOR

Stocks gapped lower at the open on Euro concerns, but rallied through the morning, reclaiming a large chunk of early losses.  The market remains stuck in the 1545/1565 range and without a strong close, it seems unlikely we will reach record levels today.

MARKET SENTIMENT

Early rebound strength looked like dip-buying and short-squeezing was keeping a steady bid under the market and fueling the one way move.  Are there enough buyers remaining to keep this phenomenon going through the close and beyond?

This is potentially the seventh-consecutive alternating up/down day we’ve seen as volatility is picking up.  Over the last four-months it was easy for the market to rally when we were making new highs every few days.  Even the nasty dips bounced back after just a couple of days of weakness.  Our current three-week consolidation is the longest yet and is a shift away from easy buy-and-hold.  This is just another example of the right trade being the hard trade.  The easy money was made in the middle of the Fiscal Cliff hype, now that everything finally looks good, the rally stalled.

TRADING OPPORTUNITIES

Expected Outcome:
I still find it hard to be constructive on this market, but the longer it holds these levels, the more likely a continuation is.  If we hold 1550 through next Monday look for an upside breakout and all-time highs.  But a breakdown the next couple days and all bets are off.  I’m still waiting for a dip under 1545 that doesn’t bounce, but so far the market is holding up and I have to respect that.

Even if the market pops next week and sets all time highs, that will be a selling opportunity, not a buying one.  Every rally needs a break and this one came a long way in four-months.  Given the limited upside and large downside, this is a poor place to own stocks.

But don’t get me wrong, I’m not a bear, just an opportunist.  We have plenty of room for a five-percent pullback before resuming the longer-term uptrend.  Two-steps forward, one-back.  I’m still constructive on the economic rebound and believe in the longer-term secular reallocation away from bonds and into equities.

Alternate Outcome:
No only could the rally poke its head above all-time highs, it could continue higher for a few more months.  The market hates being predictable and a summer rally would be unexpected.  Big money trading strategies often change from quarter to quarter, but often is not the same thing as always.  Strong economic improvement could delay the expected step-back, but the higher we go, the harder we fall.

AAPL daily at 1:45 EDT

INDIVIDUAL STOCKS

AAPL ran out of buyers and gapped under the 50dma, a big warning flag for bulls.  This could simply be a step-back on the way higher, but no one is buying the dip this morning as the stock trades at the lows of the day.  Anyone with a profit might look to lock in at least a portion until the stock reclaims the 50dma.

Stay safe