AM: Seesaw continues

AM Update

MARKET BEHAVIOR
Stocks gave up half of Thursday’s gains by midday as the volatile trade continues.  While this is the third down-day out of the last four, surprisingly we are still in the middle of the selling range because of Thursday’s powerful gains.

MARKET SENTIMENT
As bad as it feels, very little real damage occurred.  While everyone is freaked out about Japan and the Fed, we are only 3.5% from all-time highs.  There is a lot more bark to this selloff than bite.  This further reinforces the notion there are few potential sellers left in the market.  Everyone holding stock is in it for the long haul and not worried about near-term volatility or weakness.  This keeps supply tight and prices strong.  As much noise as bears are making, the price action simply doesn’t support their investment thesis.

TRADING OPPORTUNITIES
Expected Outcome:
Volatility is just a way of life this summer.  Bulls and bears betting on the breakout/breakdown will be chasing their tail all summer.  The obvious selloff resulted in an obvious rebound, which was followed by today’s decline.  In environments like this buy weakness, sell strength.  Don’t chase moves and lock in profits when we get them because they won’t last long.

Alternate Outcome:
We still need to keep a way eye on the 50dma and 1600.  The longer we hold near these levels, the larger the pile of stop-losses under this level becomes.  Obvious support is trouble for markets because it leads to everyone running for the exits at the same time and that surge of supply crushes prices, triggering even more selling.

Trading Plan:
Yesterday’s bounce shows supply is tight and it is okay to hold this market, but expect volatility to persist.  Take profits early and often because no one knows where the next zig or zag will happen.  A swing-trader with a slightly longer view can hold into the upper half of the 1600/1700 range before locking in profits.  Any violation of the 50dma will force us to get defensive and evaluate the potential for more weakness.

INDIVIDUAL STOCKS
AAPL cannot breakaway from the 50dma.  There is plenty of support for AAPL here as income investors buy up the recently increased dividend, but these buyers are extremely price sensitive and demand dries up quickly any time the stock ventures too high above current levels.  With this week’s developer conference, another bullish catalyst came and went without reinvigorating investors.  Like any other popular trade before it, favorite stocks come and go.  GOOG is the new cool kid on the block and has the best shot at break the quadruple-digit ceiling that everyone was predicting for AAPL last summer.  Success in the markets is about identifying the next winner, not stubbornly holding on to yesterday’s.

Plan your trade; trade your plan