Monthly Archives: April 2013

AM: Tap dancing in a minefield

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:27 EDT

AM Update

MARKET BEHAVIOR
Stocks are tap dancing a few feet from the minefield below 1540.  Technical traders view a violation of this level as a confirmation the correction is finally taking hold.  It will be the first material lower-low since this rally began five-months ago and many traders put their stop-losses under this widely followed support level.  Once the selling hits, expect it to accelerate as it takes out more and more stop-losses.  How far it goes depends on the volume of stop-losses triggered and how quickly value buyers jump on discounted shares.  But value investors are more disciplined than most and often wait for the dust to settle before acting, so don’t expect them to rush to the market’s aide.  Of course we need to fall into this area before the autopilot selling starts.  Rebounding and holding 1570 shows bulls are still in control and bears’ inability to push the market down these last few points will be a major defeat.

MARKET SENTIMENT
It is comical to see the financial press rationalize each of these whipsaw moves.  One day they are promoting great data, 24-hours later everything is bad news.  We go back and forth, day after day.  If the market was up huge today, I have little doubt they would find a reason.  But they are journalists and that is their job.  We are traders and our job is seeing through all the BS and understanding why markets are really moving.  It always comes back to supply and demand.  We are stuck in a fierce battle between bulls and bears.  The first couple of months bulls had the clear upper hand as we marched higher every week.  But since March bears have evened the fight, leading to this choppy sideways trade.  The market works in cycles and after a period of up, it is inevitable we will run into a bout of down.

TRADING OPPORTUNITIES
Expected Outcome:
Dip buyers are supporting the market at 1540.  The question is if they have enough money to keep us from sliding into all the automatic stop-losses just a few points away.  Every dip this year was buyable and many are sticking with this game plan, and to this point it’s been the smart trade.  But all good things must come to an end and eventually we will run across a dip that doesn’t bounce.

I cannot say conclusively this is the start of the selloff and the Teflon market could throw in another bounce, but given the age of the rally the and gains we’ve seen, the risk of an explosive downside move far outweighs the potential gains from another tired bounce.  An interesting trade here is shoring a break of 1540 with a stop around 1545.  Look for a slide to at least 1400.

Alternate Outcome:
Everyone is watching this market, waiting for it to breakdown.  Most of the cautious traders are already out, taking their profits weeks ago.  This preemptive selling took a lot of supply out of the market.  If we bounce and hold 1570 for a few days, the rally is back on and no matter what our biases are, we have to respect the market’s resilience.

AAPL daily at 1:27 EDT

INDIVIDUAL STOCKS
The stock that cannot go lower keeps going lower.  AAPL sunk to $395 and it is harder to find people promoting the buying opportunity at these new levels.  Formerly enthusiastic bulls are now confused and uncertain.  They are the ones selling at these levels as they finally give up on their favorite stock.  Earnings next week will is a coin-flip, but it wouldn’t surprise me to see one last flush lower.  $350 would be a 50% selloff and makes for a nice round number.  Of course many top stocks decline an average of 72% after their peak, meaning there is still a lot of downside risk left if the stock falls to $196.  While shocking, this level is not unreasonable if AAPL continues losing market share, doesn’t come up with a new innovative product, and margins decline due to price competition.

Bottom fishers are buying GLD at $135 figuring it cannot go any lower, but we probably haven’t seen the last of the selling.  And even if we have, there are a lot of horrified GLD  holders looking to get out of their positions on any strength.  The thing to realize is many buyers at these levels are opportunistic knife catchers.  They will dump their shares at the first signs of weakness, triggering another leg lower.

Plan your trade; trade your plan

PM: Will 1540 hold?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks gave up all of yesterday’s rebound and then some.  We found support at the 50dma, but still finished near the lows of the day.  Volume was well above average as formerly confident holders were selling enthusiastically.  This was the third test of 1540 and breaking it will trigger a huge wave of technical stop-loss and short selling.  The recent pattern is alternating strength and weakness and a strong rebound Thursday will build a larger margin of safety above all the sell orders sitting under 1540.

MARKET SENTIMENT
Yesterday felt like the rally was back on, today the inevitable correcting is taking hold.    What will tomorrow bring?  Every breakout/breakdown over the last month was a head fake.  Was today’s selloff simply another buyable dip?

The key to figuring it out is getting into the heads of other traders.  Was the two huge volume down-days this week enough to shake out weak holders, yet not so bad it damaged the confidence of the majority still holding?  With all the various breakdowns around the market, the haze of complacency is vanishing by the day.  Some traders are taking a proactive stance and selling while others are anxiously holding on.  Some of these holders remain confident while others are simply indecisive.  This latter group is who will provide the supply if the market does breakdown.  Hope is not a strategy and holding on simply because the market bounced back every other time is a good way to lose money.

But this is not a one-way street.  Bears are increasingly cocky as they finally see the pullback they’ve been waiting for.  If we rebound and continue higher, it will be due to the huge volume selling on Monday and Wednesday.  The anxious are climbing over each other to get out and after a certain point we will run out of sellers.  Twenty percent above average volume is strong for an intermediate dip.  If that is all this is, we will bottom soon.  If this is a much larger correction, twenty-percent is just getting started and we could see a hundred percent surge in volume if the market slices through the 200dma.

Both sides have equally valid arguments, our job is deciding which outcome is more probable.

TRADING OPPORTUNITIES
Expected Outcome:
Neither bulls nor bears can take control of this market as we bounce around the trading range.  No one knows for sure what will happen, the best we can do is look for clues.  We face a real test on Thursday.  If the market stumbles, we are dangerously close to an avalanche of selling just under 1540.   Break this level and many money managers will flee ahead of the widely expected pullback.  When it comes to selling, it doesn’t matter what starts it.  Once the stampede starts, it takes a life of its own as people sell for no other reason than everyone else is selling.  The market could easily bounce one more time, but the potential downside is far more frightening than any reward is worth.

Alternate Outcome:
Bears are turning into the boy who cried wolf and if they don’t deliver soon, they will lose all credibility.  A powerful rebound and holding 1570 through Monday  shows bulls still own this market and the next move is higher.  The sideways consolidation and high-volume dips are clearing the market and setting the stage for a move higher.  The linchpin is holders.  If they continue holding and are not afraid of a little weakness, that will keep supply tight and there is nowhere to go but up.  If they fall prey to the fear-mongering, there are a lot late buyers that will rush for the exits when their positions fall into the red as we dip under 1540.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL had another bad day and set new 52-week lows.  It managed to hang on to $400, but just barely.  The stock is finally losing its status as a market darling and becoming something people are ashamed to admit still owning.  This is pure anecdotal, but I get far less animosity directed my way when I criticize AAPL than I did a couple of months ago.  The cheerleaders are losing their faith and that is an important part of finding a bottom.  We might see on last plunge lower, but we are closer to the end of this selloff.

There are an absurd number of conspiracy theories surrounding gold’s selloff, but the truth is it was simply and over-owned asset and fell victim to its own success.  There is not a cartel of reserve banks conspiring against gold.  This has nothing to do with Cyprus.  The long-held investment thesis behind owning gold is as a hedge against money printing, inflation, and the inevitable economic collapse.  While it sounded good, the theory failed to pan out no one else is interested in buying Gold.  This is supply and demand plain and simple.  No one wants to buy gold at $1700/oz and this week they said they don’t want to buy it at $1500 either.  The ferocity of the selloff is due to the high leverage traders were using to buy this ‘safe’ asset and margin calls triggered an accelerating cascade of selling.  The simplest explanation is most often the right explanation

Plant your trade; trade your plan

AM: The yo-yo

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:29 EDT

AM Update

MARKET BEHAVIOR
The yo-yo continues as we dropped into the 1540s this morning.  The key level of support is 1540 and expect a wave of selling to hit the market if we break this widely followed price.  If we test 1540, this would be the third time in a month and technical analysis books rarely mention tripple-bottoms because third-tests are less likely to hold.

MARKET SENTIMENT
No one is winning this maddening market and both sides are humiliated with equal malice.  Anyone with an opinion is at risk of being duped into buying high and selling low, or selling low and buying high for the bears.  There are three traders surviving this, the extremely nimble day-trader catching each wave, the longer viewed trader with conviction in their position, and the guy who admits he has no clue and is sitting it out.  Anyone else forcing trades and reacting to the market is getting destroyed.

Bulls are humble, bears are humble, and we need to figure out what comes next.  These sharp dips are shaking the confidence of previously resolute bulls.  A large part of the recent rally was driven on light volume as holders were unwilling to sell and the resulting tight supply drove prices higher.  Every dip bounced back and holders became complacent toward negative headlines and market weakness.  It worked because every dip was on such light volume it was easy for the remaining dip buyers to prop up the market.  But volume returned last week and selling swamped dip buyers, triggering selloffs not seen since the rally began.

Volatility is often a characteristic of market tops and we have that in spades.  The question is at what point will the market break the confidence of complacent holders.  If supply remains tight, it will be far easier for dip buyers to keep the rally alive.  But if the flood gates open, there is a lot of air between us and the 200dma.

TRADING OPPORTUNITIES
Expected Outcome:
One day it feels like the market is breaking down, the next the rally is back on.  What is a trader to do?  I remain cautious of this market because I see too many warning signs between the age of the rally, indifference toward negative headlines, and the perception every dip is a buying opportunity.  While I might be proven wrong, that doesn’t mean I need to participate in this rally.    If we don’t understand something or feel comfortable with it, the best thing to do is sit it out.

Yesterdays bounce was impressive, but bulls could not add to it today and we undercut Monday’s lows.  It feels like bulls are losing this battle and selling will accelerate if we slip through all the stop-losses under 1540.  Between the market’s weakness, Gold’s plunge, and AAPL’s dip to $400, it is harder to remain an obliviously confident bull.  Expect supply to continue hitting the market as bulls lose their nerve.

Alternate Outcome:
It is easy to hate this market here, a little too easy.  Yahoo Finance had a poll on their homepage and almost 60% of the responders expected the market to go down.  Of course this was after Monday’s plunge and that obviously skewed the results, but the widespread pessimism is bullish.  This volatile, sideways trade is flushing out a lot of traders and creating a new pool of buyers for the next rally leg.  The market bounced back from several attempted breakdowns and another rebound shows bears cannot get it done.  Breakdowns happen quickly and regaining 1570 yet again shows there is more fight left in this bull.

AAPL daily at 1:29 EDT

INDIVIDUAL STOCKS
AAPL finally broke $419 and stop-loss selling put sent it in free-fall to $400.  This selloff actually benefits AAPL bulls because it further lower expectations and makes an earnings beat next week more likely.  Of course the big risk is if AAPL fails to reach the already extremely low expectations.  Option spreads are the safest way to trade earnings, but the better trade is waiting until after earnings.  An earnings surprise will send the stock back above $450 over several days.  A miss will push it to $350, but this will likely be the last selloff and the stock will finally be buyable after everyone gives it up for dead.

GLD is treading water as margin calls abate, but few are willing to buy the dip.  Given the level of damage Gold did to traders’ psyches and portfolios, expect it to stay in the dog house for a while.

Plan your trade; trade your plan

PM: Wild ride

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
It’s been a wild couple weeks and today’s strong rebound maintained the volatile whipsaw theme.  We recovered two-thirds of yesterday’s selloff in above average volume.  This was the rally’s forth-bounce off the 50dma and the second in less than two-weeks.

The market spent most of March stuck in a trading range between 1540 and 1570.  We broke out to the upside last week, but it was short-lived as we plunged to the lows of the trading range.  Today’s rebound puts us back above 1570 and it’s anyone’s guess what comes next.

MARKET SENTIMENT
The only thing that worked in the last six-weeks was buying weakness and selling strength.  The relentless head-fakes chewed up both bulls and bears trading the breakout/breakdown.  Was Tuesday’s rebound just another head-fake or signs of real strength and support indicating the rally is not ready to breakdown?  For as many people waiting for the pullback, the market is holding up surprisingly well and you have to give the rally the benefit of the doubt here.

Headlines just don’t matter and nothing will stop this rally other than running out of buyers.  I’ve been wary of this market for weeks, but bulls have been just as frustrated by the sideways chop and this turned into a battle of attrition.  Whichever side has larger numbers will eventually prevail.  Can buyers continue showing up in sufficient numbers or are the on the verge of being overrun by sellers?  No matter what anyone thought, they’ve been wrong so far, at some point we will finally have a winner.

TRADING OPPORTUNITIES
Expected Outcome:
Selloffs typically take hold quickly and maintaining these levels for a couple more days increases the probabilities of new highs.  If this market is really running short of buyers we will see the cracks grow wider in coming days.  If buyers continue stepping in at these levels it shows there are far more of them left than anyone expected and the inevitable pullback is still a ways out.

I am blown away by the resilience of the bull and how decisively they continue buying dips.  Obviously this cannot last forever, but bulls continue holding the upper hand until we see clear signs this rally is breaking down.  Right now the line in the sand is 1540.  Break though this and the selloff is finally taking hold.

Alternate Outcome:
Recent volatility is chasing off weak holders as effectively as a bigger selloff would.  Six-weeks of choppy sideways trade is refreshing the market like a 5% pullback would.   Yesterday’s plunge sent traders running for cover but lack of follow-on selling today shows holders are still willing to hold and buyers are still willing to buy.  Holding 1570 through Thursday shows new highs are likely.  If the market adds to its gains on Wednesday, bulls are still in control of this market.

Plan your trade; trade your plan

AM: Relief

By Jani Ziedins | Intraday Analysis

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

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

PM: Is this it?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks suffered their biggest decline in five and a half months on the highest volume since March’s quadruple witching.  The market lost 36-points as it sliced through support at 1570 and didn’t stop falling until 1552.  The next level to watch is 1540 where the market bounced two-previous times and is also backstopped by the 50dma.  Breaking 1540 will trigger wider selling and the next level of support is down at 1500.

MARKET SENTIMENT
The riskiest markets are where people feel the safest.  Five-months into this rally the largest up-week of the year is immediately followed by the biggest loss in nearly half a year.  Increased volatility is often seen in topping markets and if this doesn’t qualify, then I don’t know what does.

Today’s givebacks drop us to levels first seen in early March.  Anyone who bought in the last month is at best break-even and fearing more losses.  The supreme confidence of the resolute bull is giving way to uncertainty and indecision.  Every other dips been a buying opportunity, the question is if this 2.3% plunge is like every other selloff this year.  The problem bulls ran into is recent gains were made on light volume.  They had the strength to push prices higher when confident holders were keeping supply off the market, but the first day of above average supply overwhelmed the few bulls with cash left to buy the dip.

Recent weakness bounced back quickly as the dips grew more mild.  This is because more and more traders grew comfortable buying dips and rushed in earlier and earlier on each subsequent dip.  But today’s decline couldn’t find a bid and kept sliding lower and lower.  Early today the market found support at 1580.  Then it was 1570.  And finally 1560 prior to the attacks in Boston.  Traders tried to buy the dips at each of these key levels, but with so few buyers left they cannot keep up with the wave of supply hitting the markets.  We can only bounce so many times before running out of dip buyers and this market appears over its limit.

While the events in Boston were tragic, the market was already near the lows of the day and it only had a modest impact on prices.  It is unfortunate we live in a world where these things happen, but from a trading perspective, most will view this as an isolated, one-off event and is unlikely to change their outlook on stocks and the economy.

TRADING OPPORTUNITIES
Expected Outcome:
Either this is the long-expected pullback, or just another bounce on the way higher.  Given how old this rally is and how close we are to the highs, there is still plenty of room for additional selling.  At this point there is little reason to be in the market.  A rebound will be slower, methodical, and have limited upside.  A selloff will plunge lower in the blink of an eye.  The risk/reward is heavily skewed against owning stocks here.  That doesn’t meant we won’t see another rebound, it means this is a poor trade to make.  Long-term success in the markets is less about individual results and more about the process.  Remember it is better to be out of the market wishing we were in, than in the market wishing we were out.

The selling will likely continue on Tuesday, but look for support at 1540.  This could be an hour-long pause before plunging lower, or a multiple day bounce before resuming the selloff.

Alternate Outcome:
1540 is the key level to watch.  Bouncing back from this level, or better yet a slight dip underneath it, will show buyers are still behind this rally.  Monday’s selloff shook many weak holders from the market and once that selling pressure dries up the rally will resume.  Bouncing and holding 1560 will show this rally is back.  But if this market cannot hold 1540, stay out of the way and don’t try to catch the falling knife.

GLD daily at end of day

INDIVIDUAL STOCKS
Hard not to talk about the huge crash in GLD.  The safety trade isn’t providing much protection, down 13% over two-days.  Commodities are supposed to be relatively stable and is why many traders leverage up their position 3 to 5 times.  This massive crash is largely driven by margin calls as brokers are forcing their over-leveraged customers to sell.  This forced selling is triggering other margin calls and the vicious cycle often repeats until several major funds are forced to liquidate.

In the highly leveraged commodity markets, selling feeds on itself far more aggressively than what equity traders are used to.  This was fine when commodity trading was limited to experienced professionals, but the advent of the GLD allowed the masses to speculate in gold commodities.  As they are learning, this isn’t as easy as it first seemed.

The most frustrating thing for many traders is they were led to believe Gold was a safe hedge against market volatility and money printing.  Today is just another example of the “safest” position in our portfolio being the riskiest.  In many ways Gold mirrors what happened in AAPL.  Both were hugely popular trades that couldn’t lose, but in the process became over-owned.  Once everyone who wants AAPL or Gold had as much as they could hold, there was no one left to buy.  No matter what the fundamentals dictate, prices decline when demand dries up.  There is still a strong case for AAPL and Gold, but it doesn’t matter when no one is buying.  The plunge in Gold is a structural and limited to itself.  This is not indicative of the wider economy and is simply an isolated supply/demand event within a particular security.  There are many reasons to be suspicious of this market, but margin calls in Gold is not one of them.

Plan your trade; trade your plan

AM: Failing support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:22 EDT

AM Update

MARKET BEHAVIOR
Stocks pulled back in early trade and are under 1570.  This level was recent resistance, which is supposed to become support following a sustainable breakout.  Given the strong gains last week, a pullback this week is expected.  The question is if this weakness is buyable or an early warning to get out.

MARKET SENTIMENT
The rally turns five-months old tomorrow.  We’ve seen a few dips along the way, but they are getting smaller and smaller as dip buying becomes the norm.  Early in the rally many were predicting a crash around every corner.  Traders were afraid of the market and sold ahead of the inevitable Fiscal Cliff meltdown.    When most sell before an event, they take the pressure off of the actual event and we often bounce when the news is less bad than feared.  Fast forward five-months and traders are climbing over each other to buy every dip and their enthusiastic buying prevents any real weakness from developing.  We transitioned from a market people were afraid of to one they cannot get enough of.  If markets rally in the face of fear and decline on the back of complacency, it seems like we are close to a turning point.

Sentiment is a fuzzy thing and it doesn’t give hard buy and sell signals, it simply indicates probabilities.  Is the market more likely to continue here or is pullback in the near future?     As much as people look for the magic bullet in the market, the red-light/green-light indicator, there is no such thing.  Everything in the market is fuzzy.  If this were easy, everyone would be rich.  We will never be able to predict the tip, but we can weight the probabilities of a continuation versus a pullback given the shift in sentiment.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks are testing support at 1570.  This is a perfect level for dip buyers to rush in and support the rally.  If a person believes in a continuation, this is where they need to suck it up and buy the weakness.  But buying the dip seems obvious and is becoming a tired trade.  Dip buyers only have so much money and eventually there is a dip they no longer have the money to buy.  That is the dip that doesn’t bounce.  I was a bit premature in getting out of this market, but that doesn’t make the core analysis invalid.  I still am reluctant to own this market and expect wider selling before the rally will refresh and resume.

Alternate Outcome:
Traders love buying the dip and we need to look for that same trade here.  After the fear driven selling abates we need to reclaim and 1570 to prove buyers still believe in this market.   Falling back into and getting stuck in the previous trading range is not encouraging for such a young breakout.  The next obvious level for support is 1540 and the 50-dma.  Hold this level and the dip buying bandwagon continues.  If we break this level, watch out below.

Bull and bear alike need to watch 1570 and 1540.  Move and hold above, the rally still has legs; break under and this is the long predicted pullback.

INDIVIDUAL STOCKS
AAPL is struggling with $420 again and a break under the recent low of $419 could set off a wave of stop-loss selling ahead of earnings.  But the more selling that takes place ahead of earnings, the less downside there will be after earnings.

Plan your trade; trade your plan

WR: Big gains

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Weekly Review

MARKET BEHAVIOR
This was a historic week as we smashed the all-time high set back in 2007 and kept on going.  This was also the largest weekly gain since the start of the year, moving up 2.6% on light volume.

MARKET SENTIMENT
Markets typically make big moves under two conditions.  The first is after a steep selloff where traders were impulsively selling stocks by the truckload.  This leads to a capitulation bottom and the market rebounds decisively from irrationally oversold levels.  The second condition is at the tail end of long move where the last holdouts forget their reservations and finally embrace the long-established rally.  These are the last traders left to buy a rally and markets roll over shortly after on a lack of demand.

This rally is almost five-months old and to see some of the largest weekly moves in such a mature market is enough to raise suspicions.  One strong week doesn’t mean the top is in and we often see multiple strong weeks leading into a top.  Every market is different, but they are all the same.  There are parts of this rally that are unique, but after it is all done, we will look back and say I should have seen this coming because it was exactly like……..

I hope this market tops soon because normal and periodic pullbacks keep a rally sustainable.  This is the one-step back after two steps-forward.  If we jump ahead three, four, and five-steps at a time, expect a two, three, and four-step pullback.  I don’t think the market is grossly over-bought at this point and a five or ten-percent pullback would be part of finishing the year higher.  But if we go another ten-percent higher without a pullback, we will likely have a 20% correction in our future.  In a bit of irony, bulls should be rooting for a pullback and bears a strong rally higher.

TRADING OPPORTUNITIES

Expected Outcome:
The trend is higher and no matter what our biases, we have to respect that.  The market is clearly above support and the breakout remains intact until we dip under 1570.  Longs should move a trailing stop up to this level because a dip under this level in the first half of the week spells trouble for the aging rally.  On the short side, an aggressive bear could short weakness with a stop above the recent high of 1597.

This market is bound to pullback at some point.  Maybe it is this week, maybe next week, or next month.  The question isn’t if, but when.  The key to making money is figuring out the timing.  Without crystal balls, we have to watch the market and respond to the signals it sends.  Right now those are moves above 1597 and through 1570.

Alternate Outcome:
This is the rally that just won’t quit.  These things go longer than anyone expects, but fail as soon as everyone expects them to keep going.  It is really hard to say where we are.  Last week’s strength was due to the resurgence of the too-far, too-fast crowd after pushing up to all-time highs.  With those in the rearview mirror, what comes next?  Have all the pessimists given up and we can finally correct?

The biggest challenge I have is determining what conditions would get me reengaged in this rally.  Obviously I’m looking for a shakeout to refresh the uptrend, but what if the chase is just getting started?  I don’t want to stubbornly miss 100-points of upside because the market doesn’t do what I think it should.  A weakening market cannot hide its cracks, so if we don’t see weakness develop over the next few days, the next move will be higher.  Then we resume our search for cracks and another move higher.  Repeat until the market stops going higher.

Plan your trade, trade your plan

PM: And on the fifth day the market rested

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update
The market paused after the biggest five-day gain of the year.  This is both healthy and expected, but is this another buyable dip or the last chance to get out?

MARKET BEHAVIOR 
Stocks took a breather after the strong run stretching back to last Friday morning.  We ended down a quarter percent on light volume, but well off the intraday lows.  We closed near 1490 and another couple of days at these levels shows buyers are willing to keep spending their money up here.  Support is down at 1570 and as long as we hold that level, the breakout remains intact.

MARKET SENTIMENT
The number of cynics resisting this rally shrinks by the day.  Only a fool would short this market, but that might be why it finally works.  If this feels like the least safe time to be short in months, that is exactly what makes it the safest.  But in this instance safe is a relative word.  There is no such thing as safety in the markets, but there are times less risky than others.  While this market could continue higher, without a doubt we are closer to the top today than we were yesterday.  Eventually this market will run out of gas and will top while everyone is still looking up and buying dips.

TRADING OPPORTUNITIES

Expected Outcome:
Without a doubt I am a broken clock expressing my reservations about this market.  I first doubted this rally a few weeks back when we first hit 1560.  Clearly I was premature, but I knew this going in and said as much.  For my trading style it is easier to get out early.  Obviously I wish I had these last 30 points, but if I tried holding for the top, I would inevitably hold too long because no one can reliably call tops.  There is no reason people need to listen to me and I’m happy for all those still making money, but I just don’t trust this market.  Every market pulls back eventually and this one is living on borrowed time.  And just like a broke clock, if I keep doubting this market I will eventually be right, the only question is how much profit I missed by sitting this one out.

Alternate Outcome:
Markets work until they don’t and clearly this one is working.  It doesn’t matter where buyers come from as long as they keep paying premium prices to own this market.  These things go further and longer than anyone expects and obviously that is the case here.  When in doubt stick with the trend.

Anyone trading with a trailing stop should move it up to support at 1570.  If we break this level so soon after a breakout, the rally is in trouble.  An ambitious, daring, and masochistic trader could short any weakness on Monday with a stop above the recent high at 1597.

AAPL daily at end of day

INDIVIDUAL STOCKS
What is left to say about AAPL?  It is trading near recent lows ahead of earnings in a couple of weeks.  I’m getting a lot less hate mail over my critical analysis of AAPL and maybe sentiment is finally shifting in this stock.  I don’t know what earnings will be, but this stock is getting close to a bottom.  If earnings are good, the bottom is already in.  If earnings are weak, we’ll see one last flush before finding support in the upper $300 range.  But remember it will be a long, long time before this stock returns to darling status and everyone is overweight it again.  Don’t get greedy and take profits early and often.

NFLX gave up early gains and finished near flat for the day.  This stock is destined to trade $200 again and it will be sooner than later if the broad rally remains intact.  But don’t stick with this name if the SPX falls under 1570.

LNKD powered into the close on a short squeeze and made a new all-time high.  Anyone shorting this stock is just inviting people to take their money.  No one needs to own LNKD at these levels and valuations, but it is foolish to bet against this stock.

Stay safe

AM: Modest selling

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:20 EDT

AM Update

MARKET BEHAVIOR
Stocks opened weak on the first dip since last Friday’s low.  Some selling after five-days of gains is normal and expected.  The market is finding support at 1580 in mid-day trade and the breakout remains intact as long as we hold 1570.

Gains over the last five-days were the largest we’ve seen since the start of the year.  Accelerating gains after such a long run is something to be wary of, but while they are impressive, they have not materially broken the upper trend line.

MARKET SENTIMENT
This week was another example of buying the dip being the right trade.  Many were anticipating a larger selloff, making the rebound more likely.  All the profit-taking in March’s consolidation was unable to weight on the market.  The result was higher prices once that selling exhausted itself on last Friday’s disappointing employment.

It’s become painfully obviously this market will not breakdown on news.  The only thing left is running out of buyers.  This means we will slide lower while everyone is still looking up and is a more difficult turning point to spot than a clear shock to the system.

The shift will occur when pessimists give up fighting the tape.  These are the last people willing to embrace the rally and thus the last buyers to keep this thing moving.  The picture is a little more complicated when we include international investors fleeing precarious economies and bond investors warming up to equities again.  Chances are those that fled the Cyprus’ fallout have already done so.  If they were not motivated enough to move immediately after events, they are even less likely now the situation is calming down.  As for bonds, they are coming back and rising prices takes pressure off of bond holders.  The last buyer I can think of is the incremental IRA investor sending in his contribution before the April 15th deadline.  How many of these above buyers can we count on in coming weeks to continue pushing this market higher?

No matter what the Fed does, equity prices will only go higher when people actually buy equities.  When everyone is in equities because they think prices will continue higher is exactly when they top and nose over due to lack of demand.  Until Ben starts buying stocks, his influence over the equity markets is dependent on equity investors buying into the hype.

TRADING OPPORTUNITIES

Expected Outcome:
I still don’t feel comfortable with this market, but holding above prior resistance at 1570 shows the breakout is alive and well.  We are at the upper end of the trading channel.  A break above this trend-line will signal exhaustion and should be sold, not bought.  A modest dip to the lower trend-line could be another buying opportunity as long as we hold key support levels.

Alternate Outcome:
While the trend is solidly intact, it is hard to embrace this rally after five-months of gains and an unbroken streak of rebounds.  We are also in the fifth-year of the larger bull market. While everything looks good, that is what always happens at tops.  I still believe in the secular bull, but every decade long run has bounds dramatic of weakness.

INDIVIDUAL STOCKS
AAPL retreated to $430 and is largely trading sideways ahead of earnings in two-weeks.  Unless we get leaks and believable rumors, expect the stock to stay around these levels because neither bulls nor bears are likely to change their mind in coming days.

NFLX is higher on a day the market is selling off.  Look for short-covering to continue pushing this stock higher, assuming the broad market holds up.

LNKD daily at 1:21 EDT

LNKD recovered from early weakness and reclaimed $180.  The bounce off of $175 shows there are more willing buyers at these levels than sellers.  Holding LNKD here is only for the bravest of the brave, but shorting this stock here is just plain foolish.

AMZN added to yesterday’s break above the 50dma.  With so many bulls and bears trading the breakout/breakdown, the smart plays has been swing-trading the up and down.  This probably won’t change until earnings where we will finally see a more directional move.  My inclination would be to wait for earnings and trade resulting move.

GOOG is largely mirroring weakness in the indexes.  What was AAPL’s loss has been GOOG’s gain.  If AAPL disappoints on earnings, look a large portion of that money to come GOOG’s way.

Stay safe

PM: Getting frothy

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update
Markets added to their weekly gains as we push toward 1600.  Is this move sustainable or on the verge of exhaustion?

MARKET BEHAVIOR
Stocks added to yesterday’s breakout and are just a few points shy of 1600.  Thursday’s volume was near average and shows traders are re-engaging this market after several weeks of anemic trade.

Wednesday’s breakout finally moved the market above the month-long trading range and shows it is ready something new.  While we are moving higher, be cautious of a failed breakout and retreat back into the trading range.  Sometimes markets are direct, other times they fake us out before revealing their true intentions.  Things look good for the rally as long as we continue holding above previous resistance at 1570.

MARKET SENTIMENT
For as many things as people are worried about, you wouldn’t know it by looking at stock charts.  This market is running to all-time highs and humiliating any and all naysayers in the process.

Markets require demand to go higher.  Without new buying they fall under their own weight no matter how confident holders are.  People sell stocks for many reasons, but they only buy for one, because they predict it will go up.  So far people continue buying this market even at these seemingly extended levels.  While I expected the market was topping, we always knew the alternative was a continuation higher.  The month-long consolidation and flirtation with all-time highs convinced many holders to lock-in profits and wait for the next trade.   These are many of the traders chasing the market higher.  We all know this will come to an end at some point, we just are not there yet.

One of the topping signs we are looking for is the biggest weekly gain after an extended run.  This is the classic exhaustion top.  Through the first four-days of the week we are already up 2.6%, the largest weekly gain since the New Year’s Fiscal Cliff pop.  Another up-day on Friday will extend this even further.  While it is hard to argue with the market, history is not kind to moves like this and it is hard to chase the market here.

TRADING OPPORTUNITIES

Expected Outcome:
Clearly the trend is higher and we cannot get in the way of this bear meat grinder,  but that doesn’t mean we have to embrace this rally.  Sometimes the best trade is doing nothing.  Shorting this market is suicidal.  Holding this extended rally reeks of greed.  The only thing left is sitting in cash and waiting for the next high-probability trade.

Alternate Outcome:
There is a lot of fear of heights in this market and that is why we continue higher.  For as giddy as the chart looks, there are still new buyers willing to buy this market.  No matter what anyone says, as long as buyers keep showing up, the market will continue rallying.

INDIVIDUAL STOCKS
AAPL traded sideways after Wednesday’s nice gains.  We are less than two-weeks from earnings and expect some fireworks as either bulls or bears will be sent running for cover.  If someone wants to trade this, consider limiting risk by using call or put spreads.

NFLX finished at the highs of the day as the bounce off of $160 is sticking.  Hopefully bears locked in their short profits because this is headed higher as long as the market holds up.

AMZN daily at end of day

AMZN smashed through the 50dma…….again.  Will this be the time it holds?  Like everything else this time of year, it all comes down to earnings.  A strong number will squeeze shorts and send the stock higher for a few days, but a miss could be far more damaging given how high the expectations are.  This is also a good candidate for an option trade.  One could also wait for earnings and jump on the surge or crash, whichever it happens to be.

LNKD is running into resistance at $180.  Clearly the stock wants to go higher and look for a short squeeze when it breaks this level.  But like all of these speculative stocks, all bets are off if the market starts melting down.  Hiding out in these stocks during a correction is like seeking safety in a tree house during a tornado.

Stay safe

AM: Is this time different?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:11 EDT

AM Update
Stocks are challenging 1600.  Is that the next major milestone on our way higher?

MARKET BEHAVIOR
Stocks continued the rally, running up to 1597 before easing off the highs by mid-day.

MARKET SENTIMENT
Stocks covered nearly 60-points since Friday’s opening low.  This is the fourth surge of ~60-points over a few days since the market bottom in November.  The first was the rebound off the November lows.  The second was the Fiscal Cliff pop over New Years.  The third followed February’s dip to the 50-dma.  And we are in the middle of the fourth.

The common trait is they came on the heels of an aggressive selloff and widespread fear.  The November lows dipped 100-points over a month.  The selloff into the end of the year slid 50-points before bouncing on December 31st.  February slumped 45-points before bouncing.  Last week only pulled back 33-points from the highs before surging 60.

Prior selling is what fuels the next rally.  The selling leading up to this pop is the lowest we’ve seen and makes me question how much fuel is in the tank.  The strongest surges occur early in a recovery when the market is most oversold.  Almost five-months into this rally we are many things, but oversold is not one of them.  Coming this far on the heels of modest selling makes me wonder if there is enough buying left to power another sustainable leg higher?  I don’t see it and I remain reluctant to chase this market here.

Clearly I was early in jumping off the rally bandwagon, but it is impossible to know just how far the crowd will push these things.  And they might not even be done, at this rate we would blast through 1650 next week.  I’d love to catch those gains, but I don’t feel comfortable with this market and I will continue to sit out until it starts behaving in a way I understand.  I’m okay missing additional upside because chasing something I don’t understand is nothing more than gambling.

TRADING OPPORTUNITIES

Expected Outcome:
Stocks keep marching higher, but everything indicates the market is skating on thin ice.  This is great for those willing to take a chance, but it only ends well if they know when to lock in profits.  Eventually one of these dips will not bounce and many traders will give up all their gains waiting in vain for that bounce.

Alternate Outcome:
Am I falling into the trap of tunnel vision by allowing my skepticism of this rally to skew my analysis?  Undeniably I’ve been wrong, but the question is if my analysis is fundamentally flawed, or simply early.  Obviously there is demand at these levels because buying is the only thing that can push prices higher.  One possible mistake is I am looking for an intermediate top, which occur more quickly.  Major tops take longer to develop and run up higher before finally breaking down.  I certainly hope this is not the case because I am a medium-term bull, but the longer it takes for this market to top, the bigger risk there is to the downside.  It was a long time ago, but things were quite pleasant in the Fall of 2007 prior to one of the biggest bear markets in history.  I don’t believe we are in a similar situation, but the higher this market goes without correcting, the more it scares me.

INDIVIDUAL STOCKS
AAPL is trading sideways this morning and modestly in the red.  It is unlikely we will get new fundamental information prior to earnings, but rumors could moving the stock ahead of time.  Of course given all the previous rumors of dividends, product launches, and stock splits that never materialized, market will be far more skeptical of unsubstantiated rumors.

NFLX is trading above recent resistance at $170.  At this point is seems the selling exhausted itself and the stock is looking to retest the 50dma.  If the market holds up, this is a far more interesting buy than short.

LNKD daily at 1:17 EDT

GOOG’s fallen out of favor and missing the markets move to all-time highs.  Is this part of the divergence that leads to a broad market top, or just a single stock getting sent to the dog house?  GOOG appears to be the biggest beneficiary of AAPL’s selloff.  Further AAPL selling, especially if it is due to losing market share to Android, will see much of those proceeds find a new home in GOOG.

LNKD is surging higher and just shy of making a new all-time high.  While not a technical 50-dma bounce, the stock is clearly finding support in the area and wants to continue higher.

Remember, 50% of a stocks move comes from the broad market.  If we see the markets breakdown, get out of these speculative stocks and look to buy them back after the market finds a bottom.

Stay safe

PM: All time record!

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update
Stocks broke out to new highs.  Will we continue higher, or is this just one last head-fake before the inevitable correction?

MARKET BEHAVIOR
This was the third largest up-day of the year as we smashed record highs.  Volume finally rebounded, but was only average for such a monumental move.

MARKET SENTIMENT
Markets did it again, they humiliated bears for the umpteenth time.  I was bullish for most of the rally, but even I didn’t expect it could go this far.  Previous tops since 2009 developed quickly and this one is stretching on.  That means either 1) this is not a top, or 2) this is a different kind of top and the resulting correction will be different too.

Markets marched relentlessly higher since the opening low on Friday, acting like a giant four-day short-squeeze.  I’d love to say this was real buying, but it is hard to find a catalyst to justify this move other than people buying simply because everyone else was buying.  We haven’t removed a major issue weighting on the market or eliminated a tail risk everyone was fearing.  We didn’t receive unexpected good news proving the economy is far stronger than anyone expected.  We haven’t uncovered compelling insight the future is better than already forecast.  People are simply following the herd and buying because everyone else is.  The last time traders did something simply because everyone else was back in the post-election selloff and we know how that ended.

I really want to believe in this breakout, but I just can’t find a redeeming quality in it other than it is going up.  Obviously I’m wrong, but I’m okay with being wrong if it means staying out of a market I don’t understand or feel comfortable with.

TRADING OPPORTUNITIES

Expected Outcome:
Over a month ago we said one way this rally could end is a strong surge higher.  50-points over 4-days probably qualifies as a strong surge.   The reason surges at the end of long run exhaust a market is the last of the crowd finally rushes into the trade, leaving no one else to buy.

Part of this market’s resilience stemmed from confident holders refusing to sell in the face of weakness.  That kept supply tight and allowed us to rally on light volume.  But how much higher can we go before these investors start locking-in profits?  At some point demand will not be able to keep up with supply and that will be the top.  Obviously we are not there yet, but that day is coming.

Alternate Outcome:
The world is an ugly place.  US equities and Treasuries are not doing well because they are fundamentally sound, but because they are the least bad place for global investors to park their money.  The only reason we look so good is because everyone else looks so bad.  If a person focuses on the qualities of our market in isolation, of course they look poor, but take a step back and it makes sense why there continues to be demand for our equities and debt at these historic levels.  Until there is a viable alternative currency and market in terms of liquidity and safety, everyone will have to hold their nose and buy what we are selling.  Europe was the closest alternative but their financial problems eliminated them from contention.  Its been a long time since Japan was investable.  And it is illegal for foreigners to invest in Chinese companies directly or hold large piles of yuan and they run a surplus so there is little government debt to buy.  None of these global dynamics will change anytime soon, so expect wealthy foreigners to continue pumping money into our markets.

Look for recent resistance at 1570 to act as support.  As long as we hold above this level, look for the rally to continue.

INDIVIDUAL STOCKS
AAPL had a nice comeback and is above $430.  Expect resistance at the 50dma as the stock  trades in a range ahead of earnings in two-weeks.

AMZN daily at end of day

AMZN continues to struggle with the 50dma.  Inability to march ahead is a concern for bulls.  Like most stocks, everything hangs on earnings.  Given the slowing gains and high valuation, there is more downside risk than upside opportunity.  A pop higher would send shorts running for cover, triggering a few day short-squeeze, but a disappointing report could trigger a far larger selloff.  This is a highly speculative trade and option spreads are a good tool to manage risk.

LNKD’s 50dma is catching up to the stock and look for it to provide support.  This story is similar to AMZN in terms of valuation and short interest, the difference is LNKD’s run is far younger than AMZN.  Every move has a lifespan and there is more life left in LNKDs young run.

NFLX was absent from today’s record breakout, but this consolidation is good.  It flushed out chasers and tempted bears to get even more short.  Both of these are setting the stage for another explosive move higher, likely taking out $200 as long as the broad market holds up.

Stay safe

AM: We did it, the sequel

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:06 EDT

AM Update
Who thought we could use all-time highs and weak hiring in the same sentence.  Right or wrong, trader’s faith in the Fed is unflappable.

MARKET BEHAVIOR
The markets cleared all-time highs by a wide margin as they pushed through 1585 in early trade.  This was the last major record for the SPX and now we can move past the hype and focus on what comes next.  Over four-days the market rallied 45-points from the post-employment low and finally broke above the recent consolidation.

MARKET SENTIMENT
When in doubt, stick with the trend and that is clearly the case here.  While calls for a top will eventually be right, they were obviously premature.  The question is where do we go from these new highs?

The all-time high is purely symbolic because few traders actually sat for five-years waiting to get their money back.  Support and resistance levels work because these are where large groups of traders bought or sold.  Moving above or below these areas changes losses into wins and wins into losses.  Support and resistance less than a year old are the strongest because traders are still in these positions.  Levels older than two years are far less meaningful because most traders have long since moved on.  Anyone who bought the October 2007 highs sold a long, long time ago and no one is selling today to get out break-even.

The strong move off of 1540 is largely fueled by lack of supply from confident holders and demand due to short covering.  We have not seen a fundamental catalyst over the last few days justifying this move.  The most recent major headline was unexpectedly weak hiring and the best bulls can come up with is weak employment keeps the printing pressing running at full speed.  Technically the market checked back to the 50dma, held support, and then broke above the trading range.  No matter what anything else indicates, we win and lose exclusively on price and the price keeps going higher.

TRADING OPPORTUNITIES

Expected Outcome:
Either this is the start of the next leg higher, or the last exhaustion surge before rolling over.  I remain skeptical of this market, but it is proving far more resilient than I expected.  At this stage most of the demand is artificially driven by short-covering and tight supply from confident holders.  To sustain the move we need to see constructive consolidation where a wider pool of investors are willing to step in and support these levels.  If this is an exhaustion surge, the market will roll over quickly in the vacuum of follow-on buying.  Anything short of a collapse over the next couple days shows this rally is sticking around, but just because prices are headed higher doesn’t mean we need to be long.  Sometimes the best trade is simply sitting on our hands and waiting for the next trade.

Alternate Outcome:
Where will the next buyer come from?  Shorts are scrambling for cover and their buying will dry up soon.  The next buyer is the recent profit-taker looking to get back in.  After that is the international trader looking for safety and security of the US markets given the instability in the rest of the world.  And finally the crowded treasury market will eventually rotate back into equities.  There is ample supply of buyers waiting to push this market higher, the only question is over what time frame?  Can new demand come in fast enough to overcome the market’s natural tendency to pullback?  We will soon find out.

The one thing we do have to watch for is the longer this market goes without a material pullback, the larger the pullback will be when it eventually happens.  We could soar for another quarter or two, but that will be on Icarus wings.

INDIVIDUAL STOCKS
On a day like today, virtually everything is higher, even lagging stocks and indexes are popping.  IWM, GOOG, AAPL, LNKD, and AMZN are all strongly higher.  The broad market is often credited with 50% of an individual stock’s move and today it is lifting all boats.  The notable exception is NFLX struggling to get into the green.

Stay safe

PM: Bizarro world

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update
The market surged after Friday’s weak employment and MSFT and INTC are leading us higher in this bizarro world scenario.  Who expected this?

MARKET BEHAVIOR
Stocks finally did it, they strung together two consecutive up-days for the first time in over three-weeks.  We surged nearly 30-points since Friday’s opening low, an impressive rebound from the post-employment weakness.  Volume was still below average, but higher than Monday’s exceptionally low turnover.

MARKET SENTIMENT
The market is proving it is an equal opportunity humiliator.  This sideways trade is grinding up both bulls and bears.  Currently bulls have the upper hand, but that’s only if we breakout to new highs.  The way this thing is going, it wouldn’t surprise me to see another plunge after setting a new high Wednesday.

It really feels like the market is stuck in no-man’s land.  Bulls promote the trend and unlimited monetary easing.  Bears say this has gone far enough and we’re due for a pullback.  Both have equally compelling arguments and why the market’s stuck in this trading range.

TRADING OPPORTUNITIES

Expected Outcome:
At this point it is just too difficult to predict the next move.  I expected market weakness, but it just hasn’t happened.  When markets breakdown, they typically roll over fairly quickly.  The resilience shows it is simply not ready yet.  Support and a strong close on Wednesday demonstrates this market has more upside left.  I don’t know if that is ten-points or fifty, we just have to wait and see.  Of course I don’t trust this market, so even if the next move is higher, I don’t have to be part of it.

If the trading range remains intact and we trade lower on Wednesday, the chances for a near-term pullback increases.  We bounced off 1540 two times already and a third test will not be as lucky.  This is a widely followed technical level and expect a large wave of stop-loss and short selling to hit the market if we penetrate these recent lows.

Alternate Outcome:
This rally might only be middle-aged and the recent volatility and skepticism are keeping it younger than most expect.  Challenging all-time highs brought out the cynics and recent dips revitalized the bears.  The rally feeds on this negativity and is why we continue holding up.

The last three-days of nearly straight up gains are stereotypical short-squeeze.  There was little news to justify the buying and in fact the news on Friday was unexpectedly bearish.  Yet here we are, near all-time highs.  I cannot tell if this is the last gasps of the rally or we are just getting started.  Either way, this is a tough place to short the market.

MSFT daily at end of day

INDIVIDUAL STOCKS
Much of the market’s strength came from old tech.  MSFT and INTC had huge days for such boring names.  It appears rumors of Wintel’s death are greatly exaggerated.

AAPL is still stuck near the lows, but found a little more breathing room.  From a sentiment standpoint, it is interesting to note how the message volume on StockTwits AAPL feed has dropped dramatically.   Maybe people are finally losing interest in this name indicating we are getting closer to the expected rebound.

The big hurdle will be earnings in two-weeks.  This is just anecdotal, but personally I have seen very few iPhone5s in the wild.  I fly a fair bit and will always look to see what personal technology people  using at the airport and on the plane.  There are tons of iPhone4s and Galaxy S3s, but few iPhone5s.  I’m afraid to think what would happen if AAPL actually reported a drop in sales.  There is nothing that will kill a growth story like a lack of growth.  Of course that could be the last plunge before the stock finally rebounds.

NFLX found support at $160 after a bout of selling, but its fate largely lies with the broad market.  If the market continues higher, look for NFLX to follow suit, but if the market breaks down, it will take high-beta stocks like NFLX down with it.  But this dip will be a buying opportunity and the stock’s race higher will continue once the market regains its footing.

Stay safe

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

AM Update

MARKET BEHAVIOR
Stocks are higher this morning as they bounced off of 1560 and currently above 1570.  If today closes in the green, it will be the first back-to-back up-day in over three-weeks.  The market fell to 1540 on Friday after a dismal employment report, but climbed steadily ever since.

MARKET SENTIMENT
Bears expected weak employment to trigger a wider breakdown, but this market remains oblivious to any and all negative headlines from pathetic GDP, to Sequester, and now weak hiring.  It is a challenge getting in to the psyche of traders as they buy every dip regardless of the reason or outlook.  Do they know something the rest of us don’t, or are they simply acting out of habit learned from every previous dip this year?

Obviously these moves go further and longer than anyone expects.  We heard calls for a pullback in the beginning of the year, but the market ignored all the naysayers and marched higher ever since.   Rationally we know this cannot last forever, but it is hard not to get swept up in the easy money of a steady and seemingly predictable rally.

The question we have to answer is if there is real demand for the market at these levels or if this bounce is driven by greedy holders refusing to sell and buying from shorts getting squeezed?  This market acts like it wants to go higher, but for it to move sustainably we need to identify the next incremental buyer is.  A short-squeeze lasts for two days, but without follow-on buying the market will stall and reverse lower.

This market is not acting like I expect and continued buying Wednesday on accelerating volume will force me to reconsider my pessimistic views.  That doesn’t mean I will buy the market, I will simply step aside until it starts behaving in a more predictable way.  We cannot always be in tune with the market and there is no reason we need to have a trade on.  Sometimes we just have to admit we don’t understand what is going on and wait for the next trade.

TRADING OPPORTUNITIES

Expected Outcome:
Is today’s pop real buying or a short squeeze?  One is sustainable, the other is not.  I am not a fan of the market at these levels and the trading pattern over the last two-days reeks of a short-squeeze.  Intraday trade surges is in bursts of maximum pain as it devours shorts willingness to fight this rally.  Bears are dumbfounded and bulls are gloating.

This rally is the Energizer bunny and just won’t quit.  But no matter how long it lasts, it cannot last forever and will eventually come down.  This rally is almost 5-months old and we are closer to the end than the start.  Obviously the market is not done rallying, but we are standing on a trapdoor and one of these dips is not going to bounce.

Alternate Outcome:
Holding above 1560 through Wednesday’s close shows this market still wants to move higher.  Short squeezes are short-lived and continued buying through Wednesday will show four days of solid buying after Firday’s opening low.  I don’t know where this new money is coming from, but it shows people are still excited about buying this rally.

AAPL daily at 1:51 EDT

INDIVIDUAL STOCKS
AAPL reversed from early weakness and is back in the upper $420s.  The stock might hover in this area until earnings in a couple weeks.  The views on this stock are polarized between bulls and bears.  Either people love this stock or they hate it.  These extreme opinions likely mean a decisive move following earnings as one side wins and the other loses.  Holding through earnings will be more betting on a spin of the roulette wheel than investing.

Stay safe

PM: The teeter-totter ride continues

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
The cycle of up and down continues.  Today was the fourteenth consecutive day of alternating gains and losses.  The last time we strung together two-consecutive winning days was over three-weeks ago.  This behavior is new to the four-month old up-trend and signals a potential shift in personalities.

MARKET SENTIMENT
Prices head higher for one of two reasons, excited buyers (strong demand) or reluctant sellers (tight supply).  Today’s low-volume shows these gains were due to reluctant sellers, not new buyers excited about conditions and bidding up prices.

After such a long run, we are concerned about the remaining supply of available buyers.  We are also wary of complacency and greed infecting the marketplace.  Few buyers and greedy holders are classic ingredients for a top.  While today’s gains were nice, they are built on a questionable foundation.

The thing to watch is how the market responds tomorrow. Was today simply another one-off short-squeeze and we run out of buyers again tomorrow?  Or will formerly reluctant buyers finally get comfortable at these levels and start buying in greater numbers?

Saved only by a last-minute surge, the market almost extended the 5-day streak of lower-highs and lower-lows to six-days.  Support and resistance lines are better drawn in crayon than a straight edge.  This is human psychology, not physics, so close enough and not far enough often come into play.  In this instance I’m not convinced today’s last-minute buying  broke the string of lower-highs just yet.  This is a show-me story and I need to see buyers excited to buy this market before I get on board.

TRADING OPPORTUNITIES

Expected Outcome:
The most convincing thing the market can do on Tuesday is continue Monday’s rally on increased volume.  This would be the first time in several weeks bulls controlled the market for two-consecutive days.  If bulls cannot get their act together and demonstrate strength and depth, we must doubt the sustainability of these levels.  Every rally comes to an end and this one will be no different.  The only question is timing.

Holding 1560 through Wednesday shows buyers are still willing and strong enough to support  this market.  Anything sort of this and we should anticipate continued weakness.

No matter what, there is little reason to still be in this market.  Anyone who bought months ago needs to lock in profits and look for the next trade.  Bulls make money, bears make money, but pigs get slaughtered.

Alternate Outcome:
Markets rest and refresh one of two ways, a pullback or sideways trade.  One month of sideways trade is certainly a way to clear out impatient holders and set the stage for the next leg higher.  Before this can become a reality, we need to see buyers support these levels.  Holding 1560 through Wednesday demonstrates strength and means the next move will likely be higher.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL actually notched a gain today and put a little distance between itself and the recent lows.  The biggest event for the stock is the upcoming earnings report in two weeks.  Will this finally be the catalyst bulls have hoped for, or will it simply be one more data point showing AAPL is losing ground in the smart phone war?  Obviously $420 is a far less risky place to own AAPL than $700, but the same was said about $500 prior to January’s earnings release.  This stock is a powder keg and we will likely see another big move, either up or down on Q1 earnings.  Be disciplined over this trade and only invest what you can afford to lose.

Stay safe

AM: Finding support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update
Stocks are finding support at 1550 after Friday’s employment, but should we be selling the strength?

MARKET BEHAVIOR
Stocks opened modestly lower, but found support near 1550.  The market is calm as we head into the next major catalyst, earnings season.

MARKET SENTIMENT
Sometimes new information is easily quantifiable, like an employment report, Supreme Court ruling, or a Fed action.  Other times it is a little murky but still manageable, like a new piece of legislation or a single company’s earnings release.  These contain dozens, if not hundreds of pieces for investors to consider   Then there is earnings season with its tens of thousands of new data points.  Is one company’s bullish outlook more important than another’s bearish one?  There is so much variability it will make a fundamental or news based trader’s head explode.  And in fact no one can make sense of it, they simply pick and choose pieces to promote their bias or explain why the market made the move it did.

This is especially important to remember at times like this, news and fundamentals don’t move markets, only traders actually buying and selling stocks do that.  Sometimes traders change their portfolio allocations based on a new piece of information, other times they don’t.  That is why the market’s reaction to news can be so confusing and often contrary to common sense.

The market only moves on news if it changes people’s opinion they act on this new insight.  A bullish piece of news could change a bear’s mind and lead him to buy stocks.  But a bullish piece of news won’t change a bull’s mind and when he is fully invested he simply cannot buy more.  This is why a saturated bull market fails to respond to bullish news.

Over the last few months the market has become increasingly bullish. If most traders expect good things and are already long this market, no matter how great the news, there are few new people left to buy the market and keep the rally going.   On the flip side, if a large number of people are bullish and long stocks, it is disaster waiting to happen if all these bulls turn into sellers if news disappoints.

TRADING OPPORTUNITIES

Expected Outcome:
Once we recognize the setup, it becomes easy to build a trade from it.  Limited upside on great news and huge downside on bad news shows the risk/reward and probabilities are stacked against this market. Without a doubt the Energizer rally could keep going, but there is little advantage to holding here.

Long-term success is about the process, not the individual result.  Each move in the market is largely random and can easily go either way.  But over time the advantages of trading probabilities add up.  This isn’t about how we do on this particular trade, but how we fare over the next 100 trades.

And just to be clear, I am not a doom-and-gloom bear, just a realist that remembers the markets go up and down.  The first quarter was all up, so it makes sense that we are close to the next down.

Alternate Outcome:
The only thing bulls have going for them is momentum, and often that is more than enough.  These moves go far longer than anyone expects.  The deteriorating picture in other parts of the world is driving foreign investment into US dollar dominated investments.  This influx of foreign investment and thawing fear of equities could be the new sources of buyers.  The question is if this surge of buying is enough to overcome the natural ebb and flow of prices.  Markets go up and markets go down, it would take something fairly exceptional to let the rally continue another few months.

INDIVIDUAL STOCKS
AAPL is struggling to find buyers just above the 52-week low.  The biggest value story of a generation keeps getting cheaper.  Fundamentals simply don’t matter and the stock is a victim of too much bullishness.  When everyone loves a stock and already owns it, it is difficult to find new buyers.  After that point there is nowhere to go but lower.  Given the stock’s inability to recruit new buyers after breaking above the 50dma two-weeks ago, it sure feels like the selling isn’t done yet.

GOOG daily at 1:28 EDT

Recent big winners NFLX, LNKD, AMZN, and GOOG are struggling as money is shifting from speculative plays to more conservative names.  The greatest advantage we have as small investors is the ease we can move in and out of the market.  There is no reason we need to sit through market weakness.  After a strong move higher, we take our profits and wait for the inevitable pullback where we buy back in at cheaper prices.  No doubt a couple of high-flyers will keep going in spite of broad market weakness, but we are looking for high-probability trades, not trying to figure out what 10 or 20% of stocks will hold up.  We’re in this to make money and we can only do that by selling winners.

Stay safe

LA: Are the good times ending?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Look Ahead
The first week of the second quarter gave us our first real taste of selling in 2013.  Is this a preview of things to come?

MARKET BEHAVIOR
Stocks stumbled into the biggest loss of the year.  For all practical purposes this was the only losing week since the two prior ‘down’ weeks ended essentially flat.

We follow weekly charts because they filter out the daily noise, allowing us to see what is really going on.  The first quarter  saw a relentless march higher with very little selling as pessimists were scrambling to catch up.  The first week of the second quarter is the only real selling since December.  One week doesn’t make a trend, but we need to watch for a shifting mood because market personalities often change from quarter to quarter.

MARKET SENTIMENT
Friday’s gap at the open was a wakeup call, but bulls were placated by the intraday rebound.  The smart move was sitting through every other dip this year and holders were sticking with what they know.  The problem is every dip bounces until it doesn’t.

The thing about dips is the early ones bounce.  This is when everyone doubts the sustainability of the young rally and cynics are resisting the temptation to chase.  Ironically this pessimism is what fuels the rebound and continuation higher.  But the later we go in the rally, the more the sentiment changes.  Rather than calling for a pullback, everyone is rushing to buy the dip.  This is what happened on Friday.  The obvious rebound was obvious, and as any veteran traders knows, the obvious things rarely work.

TRADING OPPORTUNITIES

Expected Outcome:
Without a doubt we could continue higher here.  There are no absolutes in the market, only probabilities.  The longer this market lasts and the higher it goes, the safer it feels, but the riskier it becomes.  The best times to buy are after a big selloff and the worst time to hold is after a huge run.

To prove itself, the market needs to reclaim 1560 and hold it through Wednesday.  While the market might bounce early in the week from continued dip-buying, if this support dries up by mid-week, it shows bulls are running on empty and lower prices are likely.

Alternate Outcome:
If the market holds support and traders continue buying at these levels, look for a surge higher, finally taking out the all-time high at 1576.  This is a show-me story.  Don’t get sucked into buying the obvious dip until after it demonstrates real demand from buyers at these levels.  It is better to be a little late than a lot sorry.

Stay safe

WR: Worst week of the year

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Weekly Review
Is it too easy to buy this dip?

MARKET BEHAVIOR
Believe it or not, this week’s 1% loss is the biggest weekly drop since the start of the year.  That shows what a good first quarter we had and how easy it was to hold.  Daily charts are full of noise and head fakes, but it is much harder for the market to hide its tracks in weekly charts.  This is why they are such valuable tools for seeing what is really going on in the market.

MARKET SENTIMENT
Friday’s selloff bounced back and gave bulls something to calm their nerves.  Every dip this year rebounded to new highs and obviously this one will too……or will it?  It’s really easy to buy this dip and that’s what makes it feel so wrong.  We are over four-months into this rally and even the most casual observer expects the market to keep going.  And therein lies the problem.

To figure out where the market is going we need to understand what other traders are thinking and how they are positioned.  Everyone long forgot about the worries and fears of three-months ago.  It is amazing how calming and reassuring a strong market is.  Most naysayers have long given up and joined the rally bandwagon.  Even the worst employment report in nearly a year was glossed over after the market bounced off the lows.  What does it all mean?

The rally bred complacency as every holder was rewarded for sitting through prior weakness.  Anyone who sold a dip almost immediately regretted it and they won’t let the market fool them again.  The steady climb higher sucked in most of the skeptics as fear of a selloff was replaced by fear of being left behind.  At this point no one wants to sell because they are holding on for bigger profits.  This lack of supply is a big reason volume has been so light the last few weeks.

Most rallies end in a double top or a head-and-shoulders.  It is always easy to spot these months after the fact, but it is far more profitable to identify them in realtime.  The market formed a potential left-shoulder in February and is working on the head right now.  A dip back to, and bounce off of 1500 would form the right shoulder.  There are no guarantees this is what we are seeing, but there are enough signs to be extremely cautious.

TRADING OPPORTUNITIES
Expected Outcome:
It’s been a great run since the start of the year and easy money for anyone with the courage to ignore the headlines.  But that was then and this is now.  Markets are the safest when they feel the most dangerous and most dangerous when they feel the safest.  Every bounce brings us one step closer to the one that doesn’t bounce.  While Friday’s dip might result in another bounce, that doesn’t make it a good trade.  The risk/reward shifts dramatically the longer and higher this rally goes.  What was easy money two-months ago is playing with fire here.

Anyone still in this market that cannot bring themselves to sell proactively needs to set hard stop-loss limits.  We bounced off of 1538 on Friday and a second test of this level is unlikely to bounce again.

Alternate Outcome:
Friday’s selloff and March’s choppy trade cleared out many weak holders and could be setting the stage for a continuation.  We need to recover 1560 and hold this level through mid-week to prove buyers are still willing to support this market near all-time highs.

Stay safe