PM: New closing highs

By Jani Ziedins | End of Day Analysis

Apr 29
S&P500 daily at end of day

S&P500 daily at end of day

PM Update

We set a new closing high on light volume.  Some people worry about the sustainability of light volume, but this market sure doesn’t.  We are a hair under 1600 and well past the point of a head-and-shoulders top.

The next potential bearish pattern is breaking through 1600 and forming a double-top, but at this point these predictions are mostly wishful thinking from cynics who missed the rally.  This market cannot go up forever, but as long as it keeps going up we should ride it, not fight it.  The rally remains in effect until we start making lower-highs and lower-lows.

I was bearish until April 19th’s bounce off the 50dma.  The market had the perfect setup to selloff, yet it bounced instead.  When the market doesn’t act as expected, it is right and we are wrong.  No ifs, ands, or buts.  We made a mistake in our analysis and need to change our outlook.  We might eventually be proven right, but never forget, in the market early is the same thing as wrong.

The market continues rallying because cynicism is the rule, not the exception.  Even bulls are waiting to buy the pullback.  When everyone expects near-term weakness, they sell ahead of it and wait to buy it, but this behavior prices in the pullback and it doesn’t happen.  In fact the opposite is more likely because recent sellers become the next crop of buyers.  That is why this market continues defying gravity.

Expected Outcome:

It will be interesting to see where the market goes from here.  Willy buying dry up near recent highs and we stay within the trading range, or will we breakout and defy the doubters by marching to new highs?  Chances are it will do a bit of both.  Look for a new breakout and then a consolidation of those gains.  Holding above 1570 shows buyers are still supporting this market.

Alternate Outcome:
The market has a nasty habit of convincing us we are wrong before proving us right.  Many bears are giving up and going long this market.  That buying is the fuel pushing us higher, but these are often the last buyers.  The market is far more patient than most traders and only after people give up waiting for the pullback will it finally happen.

Trading Plan:
Look for new highs in coming days, and use this opportunity to move a trailing stop up to 1570.  If we break this support level we will dip to the 50dma and possibly challenge 1540.  Failing to hold 1540 means the long predicted selloff is finally taking hold.

AAPL finished just shy of the 50dma and is up 10% over the last couple weeks.  Is this finally the bottom all the bulls have waited for?  Could be, but it sure doesn’t feel like the move down to $385 was true capitulation that dramatically altered sentiment and ownership in the stock.  We could rally for a few more days, but AAPL is a trading stock, not an investing one and the best money is made buying dips and selling rallies.  We probably have one more whoosh lower before finally demoralizing and chasing off the last of the hopeful, especially now the last bullish catalysts have come and gone.

GLD daily at end of day

GLD daily at end of day

AMZN broke the 200dma and presents an interesting shorting opportunity with the 200dma as a stop-loss to buy the stock back.  We easily could see a bounce back above the 200dma before a larger selloff begins, but with a tight stop, the risk is limited and the potential gains are large.  A bear needs to be patient and it might take a couple tries before he finally hits on the mother load.  A rebound above the 50dma means the expected breakdown is not happening and a bear needs to wait for another opportunity.

GLD mostly closed the gap from $143.  Does this mean the selloff is done, or just a dead cat bounce on the way lower?  This easily could be the V-bottom that ends the slide starting back in September, but this is an insane amount of volatility for a “safe” commodity.    I’m not in gold and have no interest, but if I were, I’d be looking to sell this bounce, not buy it.

If you want me to write about a stock, post it in the comments and I’ll pick a few when I see something interesting.  Obviously I cannot provide insight into every stock out there, but I’ll try to include a couple new stocks here and there.

Plan your trade; trade your plan


About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.