Apr 16
S&P500 daily at 1:22 EDT

S&P500 daily at 1:22 EDT

AM Update

MARKET BEHAVIOR
Stocks found support at 1560 and recovered half of yesterday’s losses by midday.  This pause breaks the runaway selling and gives nervous and indecisive traders time to evaluate the situation.  Holding 1560 is encouraging, but the critical level is former resistance at 1570.  We need to break back through this barrier to revive the breakout.

MARKET SENTIMENT
Nervous longs are breathing a sigh of relief as the selling ended and we reclaimed a big chunk of yesterday’s losses.  This is yet another example of the market rewarding indecision.  While it’s been the “smart” trade for a while, failing to act will inevitably get very expensive as indecisive and stubborn bulls give back all their profits when one of these dips fails to bounce.

Rebounding after such strong selling is typical, the bigger question is if real buying will follow the initial relief rally.  The biggest clue is holding and adding to the rebound in coming days.  Unsustainable bounces often fail within a couple of days and we should refrain from buying the dip until it demonstrates real, institutional buying and proves it is more than active traders trying to pick a bottom.

The market remains within 2% of all-time highs, showing the coiled spring is still to the downside.  That can easily continue under such circumstances, just be aware the potential for an explosive move is lower, not higher.

TRADING OPPORTUNITIES
Expected Outcome:
Things often stop working when too many people know about it and buying the dip feels that way, but it is hard to argue with the market.  We are breaking 1570 as I write this and the market keeps wanting to go higher.  My suspicions of this rally remain and there is no reason I want to own it here.  We will see a five to ten percent pullback at some point this year, whether we are on the verge of that pullback or still months away is still up for debate.

Holding above 1570 through Thursday shows this market found buyers and is ready to move higher.  Failing to hold 1570 means buyers are becoming scarce and lower prices are expected.

Alternate Outcome:
Buyers love buying this market and it is a dangerous game to argue with them.  This market will correct at some point, but that will only happen after buyers run out of money.  So far they continue jumping on every dip and until this changes, expect the rally to continue.

AAPL daily at 1:23 EDT

AAPL daily at 1:23 EDT

INDIVIDUAL STOCKS
GLD had a modest bounce from yesterday’s lows, but is struggling to add to those gains.  Selling in Gold reached extreme levels and it will bounce at some point, but the forced liquidations by over-leveraged institutions will likely continue for a while longer.  This selloff is ruining careers and companies, but it is hard to feel sorry for arrogant men who made millions while losing mountains of money for their clients.

AAPL bounced with the market and continues the sideways trade ahead of earnings next week.  I don’t really expect the stock to do much unless bulls jump on a juicy rumor or the price dips under $419 and triggers a wave of stop-loss selling.  This will be a really interesting earnings release to watch since growth expectations are nonexistent.  Are they finally low enough that AAPL can beat investor expectations?  This stock will get its relief rally, I just don’t know if the bottom will be $420 or $350.  Next week will tell us a lot and trading the subsequent surge or plunge might be the safer than gambling on the earnings.

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.

marc April 16, 2013

The NYSE Bullish Percentage index (but not yet the SPX) has retraced three boxes (2% box size/3 BR)
Meaning > the number of stocks across the board on Point n Figure buy signals has dropped from 78% to 72% which is considered an early warning system for a correction – or at least a stall. Look for confirmation in the $BPSPX and act accordingly (Conservative investor > take some of your chips off the table. Aggressive investor > look for attractive shorts).

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