PM: And on the fifth day the market rested

By Jani Ziedins | End of Day Analysis

Apr 12
S&P500 daily at end of day

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

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

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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.

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