PM: How high can we go?

S&P500 daily at 1:15 EDT

AM Update

MARKET BEHAVIOR
The market’s run continues for another day.

MARKET SENTIMENT
We are well beyond what anyone thought possible, yet the market keeps going.  It is tempting to say this is “too far”, but people have said that for months.  What makes this time different?

A large chunk of the buying is bears getting blown out and forced to buy back their shorts.  Big money hates buying breakouts and new highs, so they are likely sitting on their hands, waiting for the inevitable pullback.  Everyone knows the rate of gains cannot continue at this pace, so either we dip or consolidate.  But dip is relative, pulling back to 1600 is still supportive of this rally.

The world is getting better, not worse, so those predicting a market crash are on the wrong side.  Everyone says this market is overly bullish, but overly bullish markets top and come down, not rally sustainably like this one.  Truth is bearishness and worry was institutionalized following the 2008 meltdown and ever since traders have been afraid of their shadow.  Traders are not overly bullish, just less bearish.  While this market is due for a five or ten percent pullback, we are in a secular bull market and there is plenty of upside left in coming years.

TRADING OPPORTUNITIES
Expected Outcome:
Dangerous to fight this market, but it is increasingly dangerous to own it too.  I prefer selling into strength and tend to get out early, but that is just my style and strategy   Another viable approach is following this market  with a trailing stop.  Remember the risks are greater at higher prices, so don’t let recent gains lull us into inaction.  Too often people treat profits differently, but profits are real money and we need to protect those with the same vigor as our initial investment.  We are in this to make money and can only do that when we guard our profits.

Alternate Outcome:
This market keeps going and widespread doubt is fueling each move higher.  No one believes in this rally and is underweight.  Even bulls are taking profits this recent run.  And aggressive bears are actively shorting.  With all that selling already behind us, there is clear sailing in front.  This market will correct, but only after everyone stops fearing it.

Trading Plan
Protect recent gains.  Either sell into this strength or use a trailing stop to guard profits.  A pullback to 1600 is normal, healthy, and should not be feared.  In fact we should be more concerned if the market does not pullback because the inevitable correction will be longer and deeper.  Until we break 1600, assume every dip is buyable, but always use hard stops to protect us in case we are wrong.

INDIVIDUAL STOCKS
Rabid AAPL bulls are having a bad day as the obvious recovery is not so obvious anymore.  We knew the rate of gains were unsustainable and a test of the 50dma was inevitable.  Today we tested and broke through this widely followed moving average as buyers keep their distance.  The lack of dip-buyers is a big concern for the viability of this bounce.  For this stock to make a real recovery we need big money to support the stock and so far they are MIA.  Any disciplined trader needs a hard stop-loss to prevent riding this stock even lower.  The trend remains lower and expect new lows if big buyers don’t show up and save the stock soon.

GLD daily at 1:16 EDT

GLD is having the same problems as AAPL and for many of the same reasons.  The obvious bounce is not so obvious and many dip-buyers are on the verge of slipping into the red.  Expect selling to accelerate as uncommitted dip-buyers flee when the market turns up the heat.

GOOG is the new tech darling and is where former AAPL investors are moving their money.  Smart money has been selling AAPL and buying GOOG.  Do they know something we don’t?  GOOG is also taking the innovation crown from AAPL and look for the gap to widen through the year as AAPL milks their existing products and GOOG explores new opportunities.

NFLX is squeezing bears yet again at is pushes toward $250.  Fundamentals don’t matter in momentum stocks and cynical bears are giving a lot of money to NFLX bulls.  What cannot go any higher keeps going higher.  I’m not a fan of buying NFLX after the recent surge, but I sure wouldn’t short it.

Plan your trade; trade your plan