AM: Choppiness continues

AM Update

MARKET BEHAVIOR
Stocks dipped to 1608 at the open, but rallied through mid-day.

MARKET SENTIMENT
Japanese markets are imploding, but not weighing on our markets too much.  Anyone afraid of QE ending and the Nikki meltdown is already out of the market.  After everyone jumps out the window, markets stop falling because there is no one left to sell.  Understanding the relationship between supply and demand is far more helpful when trading than anticipating market moves based on fundamentals.  Many claim the market is irrational when it doesn’t behave as expected, but the truth is markets are extremely logical when we understand what really drives price.

TRADING OPPORTUNITIES
Expected Outcome:
Expect the choppiness to continue while prospective buyers remain gun-shy and downside moves fizzle when they fail to shake existing holders out.  Market plunges are emotional and quick.  Holding 1600 for a couple of weeks broke any downside momentum and deflated much of the fear-based hype bears built up.  Look for the market to trade sideways for the remainder of the summer.  Currently we are at the lower end of that range and the market remains buyable.  But as we’ve seen over recent weeks, we need to capture profits early and often because they will likely evaporate days later.

Alternate Outcome:
Recent support at 1600 could be nothing more than a bull-trap.  Selling begets selling, so any major violation of support could shake the resolve of previously confident holders.  The best way to avoid all the emotional selling is using stops to get us out.  Continued trade near 1600 means we must remain defensive.

Trading Plan:
We continue holding support and are at the lower end of the range, making the market buyable.  Given this market’s propensity to bounce, shorting it before it breaks support cost late bears a lot of money.  Short the bounce or violation of support, but don’t short tests of support.    And like always, often the best trade is sitting this choppiness out.  There are better things to do than chase our tails all summer.

INDIVIDUAL STOCKS
AAPL closed under the 50dma for the first time in a few weeks.  So far it has not set off a cascade of stop-loss selling, which is encouraging, but it is also discouraging the stock cannot leverage this stability to entice dip buyers back into the stock.  At this point the best trade is buying the breakout or shorting the breakdown   Right now it is just dead money.

GLD remains between $130 and $140 following the recent plunge.  Just like AAPL, we are better off trading a breakout or breakdown.  Once the market gets past this uneasy period between QE and Japan, look for more selling in gold as the willingness to pay a safety premium dwindles.

NFLX is finding support at the 50dma, but for it to flash a legitimate buy signal, we need to see strong volume on the bounce, something absent today.

Plan your trade; trade your plan