PM: The teeter-totter ride continues

By Jani Ziedins | End of Day Analysis

Apr 08
S&P500 daily at end of day

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

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

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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.

smartone April 9, 2013

do you think Alcoa’s reconfirming 2013 projections might be the short term catalyst to push markets higher?
Seems that a european economic challenges and sequestrations are priced into the market so any good news like this would be considered new.

    Jani Ziedins April 9, 2013

    Could certainly be, but another scenario is a market near all time highs already assumes this stuff will be resolved smoothly. The market swings between extremes of the world is ending to everything is great. It feels like we are closer to everything is great here.

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