AM: Holding near highs

AM Update

MARKET BEHAVIOR
Stocks are holding recent highs for a third day as the improbable rally keeps defying skeptics.

MARKET SENTIMENT
When markets run out of buyers, prices collapse fairly quickly.  Holding these levels for multiple days shows a large number of investors remain willing buy these new highs.  Just as important, holders continue holding, keeping supply out of the market.  The rate of gains makes people nervous, but this cautiousness is why this rally has been sustainable.  As long as buyers and holders remain comfortable up here, expect the uptrend to continue.

TRADING OPPORTUNITIES
Expected Outcome:
Stay cautious, but holding these levels through Wednesday shows demand is strong and the next move is likely higher.  It is late in the move to be rushing in because the chances of a pullback are elevated, but the risks decline the longer we hold near these highs.  A strong afternoon on Wednesday presents a buying opportunity.

Alternate Outcome:
While every dip has been buyable thus far, we have a date with a dip that should be sold, not bought.  No one knows when that will be, but it is coming and we need to remain vigilant when everyone else becomes complacent.  Disciplined uses of stops will keep us out of trouble.  The harder question is when the market becomes shortable and now is clearly not that time.

Trading Plan:
Stick with what is working.  1650 is a decent trailing-stop.  If a traders sold into strength or missed this rally, a small consolidation here presents an interesting entry point. Buying this late in the move brings larger risks with it, but there is no such thing as a safe trade in the equities market and our long-term success depends on prudent risk management.     New money or old profits, both traders need to be increasingly cautious and nimble.  While the trend is higher, we cannot let the market take back our hard earned profits.

INDIVIDUAL STOCKS
AAPL is finding a bid at the 50dma for a second straight day and shows recent selling exhausted itself, at least temporarily.  The level to watch is $466, where the previous rebound failed.  The market typically moves in waves, so the recent weakness was expected.  The harder question to answer is if the selloff is over and the stock is finally buyable or if this strength is one last chance to get out before the next leg lower.  A stop at the 50dma is prudent risk management and would have saved many traders a lot of money over the last seven months.  It is better to be out of the market wishing you were in, than in the market wishing you were out.  We can trade the expected bounce, but there is no excuse for sitting through another $70 decline.

GLD gave back half of yesterday’s short-squeeze as the volatile, speculative trade continues.  The recent plunge did a lot of psychological damage and it is hard to say if the selloff is done since Gold lost its credibility as conservative hedge against volatility.

LNKD  continues finding support above the 50dma and makes a better buy than short.  There is no reason we need to own this speculative stock, but it is suicidal to short it.

Plan your trade; trade your plan