PM: We did it!

PM Update

It took a while, but the market final set the all-time closing high.  Is this the end of the run, or are we just getting started?  AAPL missed the party and plunged 2% as is struggles to find buyers.

MARKET BEHAVIOR

Stocks finally did it, they set the all-time closing high Thursday.  Volume was extremely light given the breakout, end of quarter, and option expiration trading activity.  The all-time intraday high is the only record left and is just 7-points away.  It’s amazing how far we’ve come since the 2009 lows.

MARKET SENTIMENT

Friday’s 0.4% breakout is nothing to write home about.  Shorts and momentum buyers are nowhere to be found and Thursday’s move was fairly uninspiring.  Without a doubt the holiday played a role in the light volume and lack of enthusiastic follow-on buying.   We are left to determine if these new levels are here to stay and if buying will keep pace when volume returns to normal.

Sentiment came a long way from the post-election and Fiscal Cliff lows last November.  Even two-months ago the tone was very cynical.  There are still bears abound, but the pessimism doesn’t seem nearly as pervasive and universal.  Without a doubt momentum can carry us a dozen points higher, but are there enough buyers left to continue past 1600 without a material pullback?

The biggest risk the market faces is if bulls bought the breakout ahead of time and swing-traders will use the new high to lock in profits.  Few buyers and lots of sellers is a recipe for declining prices.

TRADING OPPORTUNITIES

Expected Outcome:
This rally deserves a lot of credit.  Its did what no one thought was possible and matched the go-go record highs set long before most knew what a mortgage-backed security or credit default swap was.  The lesson is never doubt our determination to overcome anything thrown in our way.  This rally has long legs and the secular bull will easily pass 2,000 in coming years.  I don’t believe in the tripple-top theories being thrown around.  This market has gone nowhere in thirteen years, how can people possibly claim that is unsustainable and too-far, too-fast?  But that is the long-range view, we are traders and want to know what is around the next corner.

The market continues holding 1550 and every bout of selling is conquered, resulting in yet another higher-high.  Any bear knows how dangerous it is challenging this bull, but every move must come to an end.  As much as I believe in the longer-term trend, I don’t feel comfortable owning stocks on the heels of a four-month rally.  Markets go up and they go down, it is normal, healthy, and expected to run into a little resistance after coming this far.

Alternate Outcome:
The one thing this market does best is prove doubters wrong and it continued doing that on Thursday.  Markets always pullback, but they never do it when people expect it.  When markets top, they tend to roll over fairly quickly.  The last few weeks of support at 1550 is what enabled this breakout to all-time highs.  If this market holds up through Tuesday, look for more gains out of this bull.

INDIVIDUAL STOCKS

AAPL is living in bizarro world.  When the broad market sets all time highs, AAPL plunges 2%.  AAPL clearly has a demand problem and cannot find follow on buyers to keep it above the 50dma.  Even more scary is all the recent momentum buyers are fleeing in droves.  The stock fell short of setting a new high above $485 and the trend of lower-highs continues.  Without buyers, expect the stock to test $400.

Stay safe