AM: What sequester?

By Jani Ziedins | Intraday Analysis

Mar 01
S&P500 daily at 1:10 EST

S&P500 daily at 1:10 EST

AM Update

The market is up in a contrarian trade after sequester cuts go into effect, but the market’s strength is not enough to keep AAPL from making new lows.


Stocks tested 1500 in early trade as the sequester kicked in, but the market bounced within minutes, rising nearly 20-points over the next couple hours.


The obvious collapse due to sequester is no longer a sure thing.  The market dipped in the first 10-minutes, but that hasty selling quickly exhausted itself and the market bounced decisively.  Sequester is more a media event than an economic one.  It made great fodder on financial and political talk shows, but most market participants realize a 2.4% cut in federal spending will not turn this economy upside down.

Sentiment wise, a lot of the fearful are scratching their head and wondering what is wrong with this market.  As we discussed yesterday, most of the weak hands are already out and no longer have a vote in where this market goes.  When all the pessimists are already on the sidelines, this limits new supply and the resulting scarcity props up prices.

Clearly this market does not want to not top on news, but it will eventually run out of new buyers.  As long as people continue doubting this market there will be fuel to keep the rally going.  What we need to watch for is when everyone embraces this market.  That is when supply of new buyers is drying up and we need to look for an exit.


Expected Outcome:
This was the fourth time people could buy 1500 in the last couple weeks.  When the market surges higher, those that missed the move hope for a pullback, but too often they are afraid of the pullback when it finally happens.  The rule of thumb is if a pullback is hard to buy, it is probably a good place to get in. If the pullback is easy to buy, then it will probably keep going lower.  There is a lot of psychology and supply and demand behind this, but we have two high-profile examples of this between the S&P500 and AAPL.  The hard buy was the right buy and the easy buy was the wrong buy.

Today’s bounce off of 1500 shows this rally still has legs.  Supply is tight because most of the sellers already sold and current holders are comfortable holding.  While volatility will persist, any weakness should find support quickly.

Alternate Outcome:
Obviously there are no guarantees in the market and we need to be wary of a drop under support.  No matter how convinced we are in our analysis, we need to stick to our sell rules.  We will be wrong and that’s okay, but it is criminal to stay wrong.  Right now 1500 is solid support and a material breach of this level will force us to reevaluate our thesis.

AAPL daily at 1:10 EST

AAPL daily at 1:10 EST


AAPL is making new lows and is a far more attractive short than buy at these levels.  The stock continues its underperformance and is down 1.5% when the market is up.  In the near-term this is a sentiment trade, not an investment.  Look for weakness to persist as long as people still talking about value.  Expect selling to accelerate and challenge $400 as many “investors” bailout after pain and regret get too intense.  This stock will eventually become oversold after this last wave of selling and will finally become buyable, it just isn’t there yet.

Stay safe


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.