PM: Can the rally continue?

PM Update

MARKET BEHAVIOR
Stocks closed unchanged on average volume.  This was the fourth-day buyers showed up in sufficient numbers to support these levels.

MARKET SENTIMENT
It is really hard to get excited about the market here, but that is what makes it work.  Everyone expects a pullback, even bulls preface their bullishness by saying they expect near-term fluctuations.  What this means is those fearing a major correction already out.  Swing-traders took their profits and are ready to short this market.  Even bulls are waiting for weakness so they can add to their positions.  Most of the selling already took place and we have a growing pool of money outside the market ready to come back in.  This is why the inevitable selloff still eludes us.

TRADING OPPORTUNITIES
Expected Outcome:
Good old supply and demand.  Sellers threw everything they had at this market and here we stand, 1% shy of all-time highs.  If this was the best bears could do, there is nowhere to go but up.  I don’t understand it, but that’s the way the market works.  If this made sense anyone could do it.

Sell in May and go away has been a thing for the last several years and many of traders expect another weak Summer.  But if that is expected, it makes it less likely to happen.  Maybe this year we rally through Summer and have a larger correction in the Fall.  Certainly a possibility we have to consider

Alternate Outcome:
Until yesterday the Expected Outcome was a selloff but it just hasn’t worked out that way.  Buyers continued buying this month and we found solid support at 1540 and the 50dma.  I still don’t trust this market, but it nullified many of my criticisms and I must acknowledge and respect that.  I don’t have to own the market here, but bulls deserve credit for putting up such a good fight.

Just because I stopped fighting this market doesn’t mean I embraced it.  I remain paranoid of our precarious position and 1540 and the 50dma are the key levels to watch.  As long as we hold above these the rally is on, but another test and violation of support is unlikely to bounce back.  Stay with what is working, but keep a close eye on the exits.

INDIVIDUAL STOCKS
AAPL’s increased dividend and share buyback program failed to impress and the stock finished flat on the day.  Most interesting is how little the stock moved following earnings.  Results were a mixed bag and both bulls and bears got a little of what they wanted.  But we have to award the draw to bears because momentum is clearly on their side and another fundamental catalyst came and went without reigniting the stock.

Realistically speaking the most bulls can look forward to is a minor refresh of the iPhone5 and a retina display coming to the iPad mini.  What else is there to bring this stock back to life?  Look for selling to continue and even accelerate into the mid to lower $300s.  This will be the last flush and finally put a floor under the stock.  The most loved stock needs to become the most hated and today’s uninspiring earnings moved us one step closer.

GLD is making a comeback, but the obvious bounce is rarely the real bounce.  Everyone is buying the dip and that is why the price is coming back, but what happens when dip buying dries up?  This occurs often enough on Wall Street that it earned the name “dead cat bounce”.  I cannot say how long or high the bounce will go, but we will retest $130 before this is over, making this a better selling opportunity than buying one.  I’m not a gold bull or bear and don’t have a particular opinion one way or the other, I am simply looking at it from a crowd psychology vantage.  The speed of how quickly dip buyers embraced the selloff makes me suspicious.

NFLX traded flat after blowout earnings.  There are still a truckload of shell-shocked shorts praying for this gap to slide back down, but unfortunately the market gods are far more inclined to humiliate the hopeful and desperate than help them.

AMZN reports earnings Thursday and this one is a coin flip   With such an outrageous valuation the stock is standing on a trapdoor and any bad news will send the stock reeling.  But Bezos and Co are masters at pulling rabbits out of hats.  Can they do it again?  Buying or shorting earnings is like betting on black or white.  The safer and higher probability trade is waiting for the news and then trading the subsequent move.

Plan your trade; trade your plan