AM: Strength continues

AM Update

MARKET BEHAVIOR
Stocks continue the rebound as we approach recent highs.  Will the series of ups and downs continue, or is the market finally ready to march higher?

MARKET SENTIMENT
The expected pullback remains elusive.  Even bulls are cautious near all-time highs and that wariness on both sides is what keeps propping up this market.  No doubt there are chasers running in, but the majority is reluctant to fully embrace these highs because common sense tells us we’ve come too-far, too-fast.

People often look down on dumb money that impulsively rushes in and out, but many times smart money over analyzes the situation and misses the trade.  Smart money is taking profits here after such a long run, but we keep marching higher, what gives?  To figure this out we need to understand what other people think and how they are positioned.

Those that expect near-term weakness are taking profits and holding back on new purchases, but the market is unfazed by this selling and reduced demand.  Without a doubt the market will pullback at some point, but we have to acknowledge the strength in this face of this selling is impressive.  Cautious smart money will eventually be right, but making money in the market is all about timing and no matter how smart we are, if we get the timing wrong we lose money.

Many traders are light this market ahead of the expected pullback.  If they already sold, that selling pressure is removed from markets and makes it easier to head higher.  Big money is bullish on this market but hates buying new highs.  They often wait for the dips to stock up and that is why every dip finds a floor.  Swing-traders and dip-buyers do not have the resources to keep supporting this market for this long, meaning real money is standing behind this move.

TRADING OPPORTUNITIES
Expected Outcome:
We can trade our opinions or we can trade the market and this market simply refuses to breakdown.  Without a doubt this market will selloff at some point, but it is not giving any signals the breakdown is imminent.  In fact it is far more resilient than most expected and that is extremely bullish in of itself.

I don’t feel comfortable with the rally, but the hardest trade is usually the right trade.  Without a doubt this rally is living on borrowed time and will breakdown at some point, but the trend remains higher and will likely continue for a while longer.

Alternate Outcome:
I’ve been bearish on this market for six-weeks and while its largely moved sideways in that period, the lack of a breakdown make the continuation more likely.  But “more likely” is not a guarantee and we need to continue watching for the inevitable selloff.  Markets have a habit of convincing us we are wrong just before proving us right.  Its taken me a while to come back around to the rally, and I very well could be changing my mind just the selloff begins.  But I’m okay with that because as a small trader I can reverse my position in a moments notice.  I don’t mind being wrong, but I can’t stand staying wrong.

Trading Plan:
The rally is intent on taking out 1,600 and that will continue the pattern of higher-highs.  It is possible buying stalls after new high as the up and down continues, but the rally is not in jeopardy until we break the 50dma at 1450.  I will be more cautious if the rebound stalls short of news highs at 1597.

INDIVIDUAL STOCKS
AAPL is up modestly following Tuesday’s earnings.  It appears some buyers are encouraged by they lack of a selloff and feel more comfortable with a potential negative catalyst removed from the stock.  But they are ignoring the trend and are bottom-picking, something that hasn’t worked well for many AAPL bulls.  A popular definition of insanity applies here, doing something over and over yet expecting a different result.

AMZN is higher ahead of earnings.  Even though the valuation is sky-high, Bezos knows how to play the market and I give him the benefit of the doubt when it comes to wooing shareholders.  If earnings disappoint,  there is a lot of air under this stock and plenty of time to get in on the short side with far less risk.

Plan your trade; trade your plan