AM: Buyers keep buying

By Jani Ziedins | Intraday Analysis

May 07
S&P500 daily at 1:29 EDT

S&P500 daily at 1:29 EDT

AM Update

MARKET BEHAVIOR
Another modestly higher day following Friday’s breakout.

MARKET SENTIMENT
Holding these levels supports the bull case because it shows owners are comfortable holding these levels.  The little profit taking and shorting is easily matched and outpaced by willing buyers.  Two-days of buying is not enough to qualify as solid support, but it is encouraging.  Staying above 1615 through Wednesday shows big money is buying this breakout and we might avoid the typical stalling seen after recent highs.  If that is the case, look for the creep higher to resume after March and April’s rejuvenating consolidation.

No matter what people say about this market, we trade price and the price is clearly moving higher.  The widespread pessimism is already factored into current prices and the market keeps climbing as reality is less bad than feared.  Cyprus was a non-issue.  Status quo in Italy.  I can’t remember the last time I saw Greece in the news.  The Euro is holding together.  Impact of the Sequester is minimal.  Inflation contained.  Economy continues adding jobs.  Consumers keep buying.  Commodity prices are falling.  And the Fed is committed to their money printing policies.  So far all the paranoia is unjustified.  The market will stumble at some point, but as long as traders obsess over what is wrong, it will be easy for the market to continue exceeding expectations.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  We might or might not pullback to support at 1600, but as long as we hold above 1580, everything still looks good.  A conservative trader could move his trailing-stop up to 1600, but it often helps to give the market a little more slack to avoid getting shaken out unnecessarily during a minor and temporary penetration of support.

Alternate Outcome:
 The higher we go, the harder we fall.  Occasional selloffs are a core component of sustainable rallies.  The more stretched we are, the less stable the market becomes.  This market will correct at some point, the longer we put it off the more it will hurt.  But that is then and this is now.  Everything shows this market wants to continue higher and until we see real cracks, assume the uptrend remains in tact.

Trading Plan:
If the market holds 1615 through Wednesday, a pullback to support becomes less likely and buyers can step in.  Temporary buying from short-covering and breakout buying exhausts itself quickly, so multiple days at these levels shows a wider pool of buyers is supporting the market.  Assume every dip is buyable until we break key support and establish a trend of lower-highs and lower-lows.

INDIVIDUAL STOCKS
AAPL is down modestly following its strong run up to $465.  We all know stocks can not put up 10% moves week after week, so a consolidation, sideways trade, or pullback is expected.  How the stock responds to this consolidation will tell us if there is more upside left in this move.  Previous bounces failed quickly.  Anyone lucky enough to hold gains here should consider locking in profits and buy the stock back after it demonstrates big money is finally supporting this stock again.  Holding $450 into next week will be that signal.  Assume the prior downtrend remains intact until proven otherwise.  The stock needs to hold these levels and end the streak of lower-highs and lower-lows before we can proclaim the correction is over.

TSLA daily at 1:29 EDT

TSLA daily at 1:29 EDT

GLD retreated to $140 as the buyers are taking a break.  $140 has been support over the last couple weeks and holding this level is bullish, but failing it could set off another wave of selling.  Any trader needs to have a plan that includes a hard sell stop.  Stick to your plan.

AMZN is still trading sideways between the 50dma and 200dma.  Traders are buying the dip to the 200dma, but is this big money with deep pockets, or swing-traders with limited firepower?  If the stock cannot hold the recent bounce we’ll have our answer.

LNKD is bouncing off the 50dma and setting up an interesting entry point.  Use a stop-loss under $170 to protect against another leg lower.

TSLA is increasingly volatile.  I have no idea how this is going to end, but it will likely burn both bulls and bears before it is done.  Trades like this are better left to experienced day-traders who lock-in profits early and often.

Plan your trade; trade your plan

Follow

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.