AM: A step back

By Jani Ziedins | Intraday Analysis

Apr 26
S&P500 daily at 1:16 EDT

S&P500 daily at 1:16 EDT

AM Update

MARKET BEHAVIOR
Stocks are down in early trade on the heels of a decent US economic growth number, but it fell short of expectations.

MARKET SENTIMENT
It is almost comical how the market is indifferent to lousy employment numbers, yet disappointed by encouraging economic growth.  It appears far more concerned about continued money printing than real economic progress.  The market is officially an easy money junkie and suffers from the same irrational behavior as an addict.  It makes us wonder what will happen when the easing finally ends.  I originally thought it would be a non-issue because a vibrant economic recovery would provide a smooth handoff, but if the market gets too wrapped up in easy money, it could be a shock to the system regardless of what the economy is doing.  It is a bit premature to trade this, but something to keep an eye on.

Various traders are expecting a breakout, a breakdown, or more sideways trade.  Over the last two-months swing-trading was the right call, but we will eventually move out of this range.  We have to decide if that will be higher or lower.  Everyone knows we cannot continue higher indefinitely, yet the market stubbornly refuses to breakdown like everyone expects.  We survived selling off in April and the next hurdle is “Sell in May…..”.  But if everyone expects it, can it still happen?

When traders anticipate something, they trade ahead of it.  They are either taking profits or selling short in front of the expected selloff.  Even bulls are holding back purchases until they see better prices.  When the market holds up in the face of this restrained buying and proactive selling, it makes us wonder what will happen when it flips around and goes the other way?  Continuing higher defies logic, but that is how the market typically operates.

TRADING OPPORTUNITIES
Expected Outcome:

A little selling after five-consecutive up-days is normal and expected.  The question is if this is simply one-step back after two-steps forward.  As long as the market holds prior resistance at 1570, the rebound is still going strong and we will eventually break this logjam to the upside.

Alternate Outcome:
The market is a patient beast and it often wears us down before revealing the next move.  It has a notorious habit of convincing us we are wrong just before proving us right.  I gave up waiting for the correction and that makes me nervous.

Trading Plan:
March’s overhead resistance at 1570 will provide support for a modest step-back and is a buying opportunity for the next move higher.  Breaking 1570 means a retreat back into the trading range and expect more sideways trade.  Testing and violating 1540 signals the selloff is finally taking hold.

AMZN daily at 1:16 EDT

AMZN daily at 1:16 EDT

INDIVIDUAL STOCKS
AAPL is modestly higher and finding some breathing room above $400, but well under previous support at $420.  Until people have a reason to buy this stock, expect the slide to continue.  The next negative catalyst will be the launch of a warmed over iPhone5s with some extra gimmicks no one cares about.

AMZN is down huge after earnings and just a hair above the 200dma.  A short looks real interesting if it falls another couple of dollars, but watch for a bounce off the 200dma.  An alternate entry is waiting for the bounce to fail and short it as it retreats through the 200.

Plan your trade; trade your plan

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, 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 young children.

fleischut April 26, 2013

IMO it’s Japanese deflation, not our GDP, that’s weighing on people’s minds today. Look at bonds. If massive Japanese printing can’t move the inflation needle it calls into question our own little speculative asset bubble and that is the dirty little core of this market that no one wants to consider: what if this whole fed-based ramp-athon doesn’t have any basis in reality at all? Is it possible that printing money is actually utterly powerless to stoke inflation?

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