PM: Don’t look down

By Jani Ziedins | End of Day Analysis

May 14
S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks broke through the 1630 ceiling and finished at 1650.  Volume was only average, but quicker than recent days.

MARKET SENTIMENT
There are two kinds of traders in this market, those afraid of heights and those that don’t look down.  It is easy to claim this won’t end well, but people have been saying that for months, yet we keep going higher.  This has been the most trustworthy market that no one trusts.  Only after everyone believes in this thing will we finally exhaust the supply of buyers.

TRADING OPPORTUNITIES
Expected Outcome:
We are about to find out how far we can come in a month’s time.  So far we are 114- points above April’s low set less than a month ago.  A dip to 1600 is in order, but that doesn’t mean it will happen.  I am reluctant to buy here and it seems like a decent time to lock-in profits.

Alternate Outcome:
This rally will end at some point and the strong gains bring us closer to that day.  A five or ten percent pullback is normal, healthy, and expected, but if this market continues higher without pausing, the resulting correction gets bigger.  Strength into the fall means the next correction could lead to a bear market.  The higher they go, the harder they fall.

Trading Plan:
Locking in profits here is not a bad idea.  We are in this to make money and can only do that by selling our winners, often when we least want to.  The most confident can move their stops up to 1620 and see what happens next.  The most meaningful level of support is 1600; until we violate that, assume any weakness will bounce.   A day-trader should look for a possible pullback and take a quick ride lower, but this is only for the most nimble and experienced

TSLA at end of day

TSLA at end of day

INDIVIDUAL STOCKS
Horrible day for AAPL.  I find the midday plunge under $450 concerning.  This was obviously stop-losses getting triggered, but more significant than the few dollar loss is it shows many longs are not committed and simply trading the rebound.  This stock will only recover if it finds institutional sponsorship that doesn’t waver in the face of day-to-day volatility.  If it firms up and regains the $450 level, this was a false alarm, but if selling continues, it shows this bounce will end like all the others.

LNKD recovered the 50dma on huge volume.  As long as the broad market holds up, the stock is buyable.  NFLX ripped to the upside and continues proving bears wrong.  Same goes for AMZN as it recovered the 50dma after a brief flirtation with the 200dma.  Hopefully shorts got out when it failed to breakdown.  It is okay to be wrong, but fatal to stay wrong.  What can we say about TSLA, except wow.  If this isn’t a climax top, I don’t know what one is.

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.