AM: Bulls do it again

By Jani Ziedins | Intraday Analysis

May 03
S&P500 daily at 1:15 EDT

S&P500 daily at 1:15 EDT

AM Update

MARKET BEHAVIOR
Stocks smashed through resistance at 1600 following a better than expected employment report.

Source: Yahoo Finance 5/2/2013

Source: Yahoo Finance 5/2/2013

MARKET SENTIMENT
These jobs numbers hit the sweet spot between good enough to show economic progress, but not so strong to threaten easy money.  A big chunk of today’s buying is coming from short-covering bears expecting a lousy headline.  Will a wider group of buyers follow this move or will we see the more typical stalling after making a new high?

Obviously the expected breakdown is further delayed.  Cynics keep losing the argument and the market continues marching higher without them.  Their core argument is this market is overly bullish and bound to fail.  But lets not make the common mistake of confusing price with sentiment.  Here are two surveys from Yahoo Finance and these non-scientific polls show a gigantically bearish skew.  There are nearly three times as many pessimists as bulls responding to these polls.

Source: Yahoo Finance 5/3/2013

Source: Yahoo Finance 5/3/2013

Everyone is bearish for the same old reasons; weak economy, Europe, Sequester, etc.  These negative themes were thrown about for months, even years without much success, why will it be different now?  Everyone knows about them, yet the market doesn’t care.  Prices move on unexpected news, not the stuff baristas at Starbucks are talking about.  We had too-far, too-fast for a while and just added Sell-in-May to the list.  The market isn’t listening to this noise and neither should we.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  We made new highs on a surge of short covering.  It is hard to buy the market here since we often stall after making new highs, but the widely expected correction is much delayed.  The smart trade remains buying dips as long as we keep making higher-lows and higher-highs.

Alternate Outcome:
Today’s pop brings us one day closer to the end of this run.  Obviously it is foolish to short this market, but we must remain vigilant because tops happen when least expected.  It is too easy to doubt this market and is why we keep going higher, but once this market is easy to hold is when we need to become more careful.

Trading Plan:
We broke through another level of resistance and can move our trailing stops up to 1580 or 1590.  I have no idea how much further or longer this rally will last, but when in doubt stick with the trend.  The rally is in great shape as long as we stay above 1590.  This market is immune to negative headlines, so anything short of ending easy money can be ignored.  Sign buying is drying up is lower-highs and lower-lows and breaking the 50dma, until we see either of those stick with what is working.

INDIVIDUAL STOCKS
AAPL is holding the 50dma for the fourth day and trading higher along with the market.  Any holder should expect a near-term retest of the 50dma and how the stock responds will tell us a lot.  Slicing through the 50dma shows this bounce was just bottom-pickers.  Holding these levels through next week shows real buying from an audience far larger than just dip buyers.  Given how cocky the AAPL bulls are, I am still suspicious of the longer-term sustainability of this bounce, but as long as we hold the 50dma, keep doing what is working.

LNKD daily at 1:15 EDT

LNKD daily at 1:15 EDT

AMZN surged higher and is proving more resilient than many, including myself, expected.  Trading speculative names like this is always risky and usually we either strike out or hit home runs.  Succeeding in this style of trade is keeping the frequent losses small while waiting for a big score.  Right now AMZN is in no-man’s land between the 50dma and 200dma.   Another break of the 200dma is still shortable.

LNKD slid to the 50dma and a high-volume bounce off this level is a decent entry point, but we’ve come a good way and anyone with large profits should consider taking some off the table.  We cannot make all the money and it is foolish to try.  A trailing stop just under the 50dma is another way to hold for more upside, but make sure to protect profits.

Plan your trade; trade your plan

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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.

LT May 3, 2013

I agree but its so scary to buy the market this high. But with so much negative news, I dont think the power to be will allow the much needed correction so those who missed the train can jump in. But I am amazed how high this market has gone up without any good fundamentals backing it up. Hence why so many out there feel this market is rigged. My 401k must be doing well. But I care less, I cant use until Im 65. There might not be a 401k when I hit 65. This market is crazy. I just have no words for it.

    Jani Ziedins May 3, 2013

    Traders are underweight this market and their buying keeps pushing us up. I have no idea how long this will last because it’s gone further than I expected.

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