PM: The streak ends

S&P500 daily at end of day

PM Update

The streak ends, but it is too early to proclaim the rally is dead.  Another AAPL rumor comes and goes.

MARKET BEHAVIOR

Stocks made new highs in early trade, but couldn’t hold those gains and fell into the red by mid-morning.  From there the market chopped around, finishing near the midpoint between the daily high and low.  Volume was lower than average, but higher than Monday’s extremely light levels.

MARKET SENTIMENT

It was only time before the market ended its winning streak and we cannot read too much into today’s quarter percent decline.  The more interesting insight will come as the market responds to this selloff.  Was this just a pause on the way higher or the start of something more?  There are many signs the market is running out of buyers, most notably the lack of short-squeezes on strong employment or new highs yesterday and today.  Bears and cynics were a big part of the rally and it is a major shift in sentiment if they gave up fighting the rally.

TRADING OPPORTUNITIES

Expected Outcome:
There is not much to do here except wait for the market to reveal its intentions.  Spending a couple more days between 1550 and 1555 will demonstrate constructive support and lack of meaningful selling.  At that point we can grab on for a ride up to 1565 and 1575.  But if the market fails to hold 1550, a larger pullback is in store.  The first level of defense is 1530, then 1525, 1515, and finally 1500.

The easiest trade here is locking in profits and letting the market tell us what it wants to do next.  We are fairly deep into this rally and these things have to end at some point.  Pushing our luck for another few points of upside is getting greedy.

Alternate Outcome:
Markets often go further and longer than anyone expects.  Clearly this market did that since the chorus started calling for a pullback two-and-a-half month ago.  I am probably early in taking profits too, but I always prefer taking profits early because it is a lot easier to identify the next trade when holding cash.  This is a personal preference and everyone needs to find what works best for them.  Trailing stops also work well for people who are reluctant to sell on the way up.

If we are only half-way through this rally, there will be plenty of time to get back in.  Holding 1550 shows the market is ready to continue higher.  If the market is finally running out of buyers, it will fall apart fairly quickly.  If the market holds these levels, we can always buy back in.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL continues jerking traders around.  This was the second time in two-weeks the stock surged on rumors only to give back all those gains the next day.  Holders are so desperate for a catalyst they embrace any rumor that comes along.  This is not constructive behavior found in stock that is ready to bottom.  Until the it breaks the cycle of lower-lows and lower-highs, the down-trend remains intact.  Broad market weakness will likely put even more pressure on AAPL, pushing it under $400.  These things go further and longer than anyone expects and I don’t see sings AAPL’s selloff is coming to an end.

Stay safe