WR: Rally wins another one

S&P500 weekly at end of week

Weekly Review

Stocks bounced back from a volatile week and I pissed off a lot of people when I suggested MSFT is out innovating AAPL.

MARKET BEHAVIOR

The market closed the week higher by three-points, but only after some dramatic downside volatility.  The 10wma is within 27-points and we bounced of this key moving average in intra-week trade.  The weekly range was the largest since the Fiscal Cliff pop as the debate between bears and bulls intensifies.

MARKET SENTIMENT

If there was a week for the selloff to finally take hold, this was the week.  We sliced through support at 1500 and bears were after blood.  But much to everyone’s surprise, the market snapped back and regained all the weekly losses in another example of the obvious trade being the wrong trade.  No doubt the market could break wide-open at any moment, but to see it run out of sellers and bounce back so quickly speaks volumes about where this market wants to go.

Recent volatility eliminated any complacency and flushed out most weak holders.  Sellers sold because everyone else was selling, which is common in a herd-style selloff, but we are more interested in the people buying the dip.  These investors are willing to step in front of a freight train and absorb near-term losses because they believe this market is headed higher longer-term.  The most noteworthy trait of these holders is they are not spooked by minor dips and are more than willing to hold through some volatility.  What this means for us is these holders don’t panic and run for the exits at the first signs of weakness and their willingness to hold through volatility actually eliminates volatility because they keep supply off the market.

TRADING OPPORTUNITIES

Expected Outcome:
When in doubt, stick with the trend.  Any weakness over the last two-months has been a buying opportunity and that trend continues.  News cannot bring this market down and any headline-induced dip has been a buying opportunity.  Without a doubt this market will top, but it isn’t ready yet.

Alternate Outcome:
This Teflon market wants to go higher, but is the rally getting too obvious?  Once everyone buys into it we will run out of new money to keep pushing prices higher.  I don’t think we are there yet, but I don’t have a crystal ball and stop-losses protect us from ourselves.  1500 is the line in the sand and another break in the near-term shows this market is running out of traders willing to buy the dip.  I still expect new highs over the next few weeks, but a dip under 1500 invalidates the bull thesis.

INDIVIDUAL STOCKS

Wow did I strike a nerve when I suggested MSFT was out innovating AAPL.  Quite a few people took offense and let me know about it.  At my core I’m a contrarian and when everyone is defending AAPL and ridiculing MSFT, that warrants a closer look.   I am the first to admit I could be wrong, but I am fairly certain MSFT will trade $60 long before AAPL sees $900.  Feel free to disagree because that is what makes markets.

Just to give people perspective on where I am coming from, I was the guy using dialup modems in the 80s call to bulletin boards, I was emailing friends in Europe in the early 90s, I used Netscape Navigator before most people even heard of the internet, I was using Yahoo when it was still hosted on Standford.edu, I had a “HoTMaiL” account long before most people knew what email was, I watched Steve Jobs unveil the original iPhone live on the internet, and I run Linux on my laptop because it is a great operating system that makes old computers new again.  While I’m not a hardcore technology pioneer, I’m certainly an early adopter.  Now I’m stereotyping here, but who has a better idea where technology is headed, someone like myself or some gray-haired investor who bought his first AAPL product a couple of years ago?

As I said, I could easily be wrong because nothing is certain in the markets, but I see real potential in MSFT and am impressed with the direction the company is headed.  Win8 and the SurfacePro have bugs, but everyone forgets what an overpriced piece of junk the original iPhone was.  I am also old enough to remember how ruthless MSFT is in showing up late and crushing the competition.  They don’t need to be the best; just good enough and I think they are more than good enough here.  Plus as a long-time Apple customer, I am becoming more and more dissatisfied with how controlling they are and am irritated with their constant dumbing down of OS X and iOS.  I want to write a lot about this subject, but will continue this discussion another time.

As for sharing these controversial ideas, I have a choice, I can say what people want to hear, which is what the popular gurus do, or I can step on toes and tell people what is really happening.  I’m not in this to make friends; I’m here to share the best investing ideas and insights and will keep doing that no matter how unpopular it is.  As always please feel free to disagree because I will be the first to admit I don’t know everything.

Stay safe