PM: Challenging recent highs

PM Update

MARKET BEHAVIOR
The win streak continues as the market finished higher for the fifth-consecutive day and is less than 1% from all-time highs.  Volume was above average but the day ended in the middle of the range due to a ten-point afternoon selloff.

MARKET SENTIMENT
Here we are pushing up against all-time highs again.  Bears reassure themselves with the afternoon selloff and will surely explain away new highs as building a double-top.  These are both valid points, but are they enough to finally bring down this resilient market?  Bulls and bears are evenly matched as shown by the sideways trade, but when in doubt stick with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
I’ve been cautious since early March.  I thought the market would struggle with the transition to the second quarter, but it held up nicely instead.  The market flirted with 1540 three-times and bounced decisively after each.  Topping markets run out of steam, but this one keeps going and we cannot dismiss that.  There are a million reasons for this market to go lower, but it isn’t listening, at least not yet.  Picking tops is hard to do and we get it wrong far more often than we get it right.  It simply  comes down to probabilities, a market continues countless times but reverses only once.  This market is not giving any signals it is ready to breakdown, so stick with the rally until something new develops.

Alternate Outcome:
Every rally must come to an end and this one is no different.  The higher and longer we go, the bigger the eventual correction will be.  We have a couple more weeks to see if the expected May selloff takes hold, but if the rally continues through the Summer, look for a larger pullback this Fall.

Trading Plan:
The market can do three things here, up, down, and sideways.  Breaking and holding 1597 shows the rally is ready to continue.  Finding a ceiling at 1600 means the trading range is sucking us back in.  The breakdown only takes hold if we fall under 1540 again.  We are closer to the upper end of the range need to watch for the breakout, but guard against the swing-trade lower.  If someone is out of the market, it is a little late to buy and early to short, so wait to buy the breakout or sell breakdown in coming days.

INDIVIDUAL STOCKS
AAPL had an uninspiring up-day as it finished at the lows of the day.  Volume was well off of average as few felt compelled to adjust their position two-days after earnings.  A lot of hopeful holders are still hanging on, but another move lower without a fundamental catalyst in sight will demoralize the last optimists and ironically lead to the end of the selloff.

AMZN dipped in after-hours trade following earnings and closed extended trade near the 50dma.  A material breach of this level on Friday or coming days makes an attractive short entry, but if the stock holds up it is a better buy than short.  This is a momentum story so wait for momentum to develop and don’t jump in front of this stock on principles alone.

Plan your trade; trade your plan