AM: No profit taking yet

S&P500 daily at 1:49 EDT

AM Update

MARKET BEHAVIOR
The market is holding current levels following last week’s bounce off the 50dma.

MARKET SENTIMENT
Traders are not selling the rebound, showing renewed support following a nerve-wracking 5% pullback.  Most unsustainable bounces fail within a couple of days as the dip-buying dries up.  Trading flat is encouraging and holding here through Tuesday shows the runaway selling is over.

Much of the selloff was driven by predictions and anticipation of the widely expected selloff.  This flushed out many momentum based bulls, but after a certain point we run out of people willing to sell and that point was last Thursday.  If recent dip-buyers are optimistic, they will continue holding for higher gains instead of quickly flipping the stock and locking in profits.  Keeping supply tight is what will keep the rebound going.

TRADING OPPORTUNITY
Expected Outcome:
Holding these levels through Tuesday means anyone betting on a market crash is going to be disappointed.  We shouldn’t expect the rally to continue racing ahead and sideways consolidation is normal.  Buy weakness and sell strength.

Alternate Outcome:
Buying the dip is the most predictable and tired trade of the last six months.  One of these days it won’t work and the masses jumping in will get run over.  While the trend is our friend and we need to assume every dip is buyable until they are not, we cannot be nieve about it.  Be deliberate with our entry points and always use stops to protect us from the inevitable time when we get it wrong.

Trading Opportunities:
It is a little late to buy the dip, but continued support gives us the green light to continue holding.  We are likely falling into a range between 1600 and 1700, but trading it is far easier said than done.  At any point within this range the market can bounce or breakdown, making timing entries and exits difficult.  In situations like this buy weakness and sell strength, taking profits when we have them and look for the next entry.  Getting greedy and holding too long will likely lead to those profits evaporating.  An alternative for more sophisticated traders is selling time premium in the option market.

For the near-term we likely have more upside left in the bounce, but keep a hard stop-loss under 1600.  Failing to hold this level so soon after testing it means more selling is in store.  If we break 1650, that is a good place to move up a trailing stop.  If someone likes the gains they made over the last couple days, there is nothing wrong with cashing those in too.

INDIVIDUAL STOCKS
This is AAPL‘s big developer conference key-note.  While the stock started higher, it’s been flat to slightly lower once it started, but channeling Job’s ghost, expect Cook to save the good stuff for the end.  Right now investors are looking for another home run and will likely leave disappointed with a base hit.  A music service is a sideshow, the real meat will be hints on a large screen phone and a cheap phone, two markets AAPL is currently giving away to Android.

Plan your trade; trade your plan