AM: No cracks yet

S&P500 daily at 2:26 EDT

AM Update

MARKET BEHAVIOR
Stocks opened weak, but recovered losses by midday.  Rallying markets often see early weakness followed by late strength and that is the case in recent weeks.

MARKET SENTIMENT
This market continues proving the doubters wrong.  Even bulls expect near-term weakness, but we keep marching higher.  Anyone waiting to buy the dip, or worse short this market, is frustrated by its resilience.

Markets are efficient when we have diversity and independence of opinion, but lately everyone is falling into the “too-far, too-long” camp.  Common sense says the market should do what everyone thinks since it is a direct function of the crowd’s view and outlook.  While that is true, it overlooks the simple fact the crowd already influenced current prices.  Bears and cynics sold, but their selling was unable to slow this bull down.  There is nowhere to go but higher once this cautious and pessimistic selling exhaust itself, and that is exactly what we’ve seen.  Understand what people think and how they are positioned and all of a sudden this ‘irrational’ market starts making a lot more sense.

TRADING OPPORTUNITIES
Expected Outcome:
Why stop what working?  We are halfway through May and the worst trade has been “sell in May”.  We are over 50-points above the May 1st close and while May could still end lower, a trend is always more likely to continue than reverse.    This move is further proof that we can safely ignore what everyone is talking about because it is already priced in.

Alternate Outcome:
While it’s been a nice ride, it will come to an end at some point.  Obviously it is suicidal to argue with this market, but we need to keep an eye out for stalling and a change in momentum.  1600 is now the level to watch.  While breaking 1600 is not bearish by itself,  it is a good level to lock in profits and become more cautious.  We can always buy back in if the market bounces.

Trading Plan:
As long as we remain above 1600, we have the green light to hold stocks.  The market ran a bit in recent weeks and it is riskier to initiate new positions since we are vulnerable to a modest dip.  But as long as we give our new position a little more slack, we can buy here.  If someone wants to wait for the pullback, that is not a bad call either.  I doubt this is the last time we will see 1630 even if we continue higher over coming days and weeks.  Healthy  markets always check back to support periodically and it is simply an exercise in patience.  1600 is a good place for a trailing stop and a dip under this level will make us more defensive.  The market could bounce at this level and that becomes our invitation to buy back in.

INDIVIDUAL STOCKS
AAPL is still holding above $450 as buyers are willing to support the stock at these levels.  This is the sixth-day at these levels and shows uncharacteristic strength since the 2012 highs.  This bounce wants to stick around for a while, but that doesn’t mean the selloff is finished.  A 40% correction in the world’s most owned stock is not the same thing as a 40% dip in a high-growth, small-cap stock.  At best AAPL will trade sideways for the next year and we should buy weakness and sell strength.  Buy and hold investors will recover some of their losses but will ultimately be disappointed by the lack of sustained gains.

GLD is stuck under $140, but given Friday’s selloff, holding these levels is encouraging.  Another few days here is building support and reducing the risk of another crash lower, but I would resist the urge to buy until we see the support.  The trade will likely remain volatile as speculators game the commodity.

Plan your trade; trade your plan