AM: Stuck in the range

AM Update

MARKET BEHAVIOR
Stocks found support at 1550 after early weakness and are back above break-even by midday.  The market is not revealing its next move this morning, but maintaining these levels aids the bulls case.  Weakness typically develops quickly and if we don’t stumble over the next couple days, the next move is higher.

MARKET SENTIMENT
Indecision continues as bulls and bears are unable to push us out of this trading range.  Breakout buying and breakdown selling fizzles soon after we move outside the trading range.  Broadly speaking there are two groups in the market, fast money and slow money.   Fast money is small and nimble with short timeframes and high turnover.  Slow money is major institutional investors with huge piles of money and holding periods that stretch a year or longer.

There are only two things that move markets, buying and selling.  Holders and watchers don’t move prices until they decide to act.  How this affects the market is fast money has far more influence over the short-term because they are always trading, but slow money moves markets over longer-terms with their extraordinarily deep pockets.  We see a lot of volatility within our current range as fast money runs out of money and influence when they swing between all-in and all-out, but the directional moves fail because big money does not act on the breakout/breakdown.  Until big money figures out what it wants to do next we are stuck.

Does big money still have piles of money sitting around to throw at this market or are they are already fully invested.  One leads to a continuation, the other a selloff.  From what I gather, big money is optimistic about the market, even if they see a near-term dip in our future.  When it takes big money weeks to move in and out of positions, they are less concerned about minor fluctuations in prices.  Even if they foresee near-term weakness, they won’t adjust their buying and selling much and are still long this market.  If they are already in, how are we going to breakout to the upside?

TRADING OPPORTUNITIES
Expected Outcome:
The market remains stuck and directional traders are simply waiting for the next opportunity.  We had a breakout up to 1597 fizzle and retreat to 1536 a few days later.  The market bounced at the 50dma and we are left wondering if this is another buyable dip or the last chance to get out.

I still don’t trust this market and am watching for a retest and violation of support at 1540.  Our current bounce could carry us up to 1570, but dip-buying has become too obvious and is bound to fail at some point.  I can’t say for sure if this is the one, but it is coming soon enough that I want to stay out of the way.

Alternate Outcome:
Markets breakdown quickly and holding these levels for a few more days shows the market has the strength and support to continue higher.  If we don’t selloff by early Wednesday, the market’s next move is higher.

INDIVIDUAL STOCKS
AAPL is just biding time until tomorrow’s earnings release.  Even bulls concede growth in existing products is waning and are no longer hopeful for blowout numbers.  The fear is AAPL will miss the already lowered mark and give further disappointing guidance.  But with such low expectations, we could see the stock bounce if it turns out less bad than feared.  The stock still needs one last flush to crush the hopeful, a selloff after earnings will speed the revival.  A bounce on earnings simply prolongs the pain.

Plan your trade; trade your plan