PM: Constructive trade

By Jani Ziedins | End of Day Analysis

Jun 10
S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks traded flat on low volume, following last week’s decisive rebound from 1600 and the 50dma.

MARKET SENTIMENT
Following all the selling and subsequent rebound last week, everyone is standing around wondering what comes next.  Volume was light as few chose to trade, preferring to see what happens next, but this is bullish.  It shows holders are comfortable holding and no one is rushing to lock in profits or sell the bounce.  We have rallied the last six-months on tight supply and can continue doing it here.

The obvious top seems less obvious today.  We broke through key support at 1600 and the 50dma, but it failed to trigger a wider wave of selling.  We didn’t bounce because traders were complacent and rushed to buy the dip.  No it was quite the opposite, everyone expected the plunge as we were in the mist of the long-awaited correction.  Complacency and dip buying didn’t prevent the selloff; fear, panic, and a huge wave of selling ended it.  Once the pessimists and fearful were out or short, there was no one left to sell, supply dried up, and we popped.  Supply and demand at its most simple.

TRADING OPPORTUNITIES
Expected Outcome:

If this bounce is built on unsustainable dip-buying, it will fizzle Tuesday.  Anything that lasts at least four-days has wider buying behind it and is safer to own.  Last week squeezed many of the late shorts, but there is still an army of shorts holding on from higher up and hoping this bounce is a bull-trap.  Unfortunately for bears, they had the perfect setup to break this market last week and could not get the job done.  If a bear did not heed the warnings last week, there is still time.  It is okay to be wrong, it is fatal to stay wrong.

Alternate Outcome:
If the rebound collapses on Tuesday, it means this bounce was built on a foundation of sand and the selling is not done yet.  No matter what we think, we use stops to get us out of bad situations.  Failing to hold the 50dma or 1600 so soon after bouncing is not encouraging and shows bears gained the upper hand.

INDIVIDUAL STOCKS
AAPL’s early gains fizzled following their developers conference.  We have OS X 10.10, a fairly modest upgrade, but for me personally, the redesigned dual-monitor support is huge.  Apple barely supported dual-monitors since Snow Leopard and upset many of their professional users that carried the company in the pre-iPod days.  The new Mac Pro was also a nod to power users since many assumed the line was being discounted in favor of consumer grade computers.  The downside for investors is these power users don’t even add up to rounding errors on the income statement.

P at end of day

P at end of day

The big deal for average users is the completely redesigned iOS7 that finally moves the iPhone out of 2005.  It is still playing catchup to Android, but at least it isn’t as far behind.  But for AAPL investors, icon designs don’t drive phone sales, features do and expect AAPL to continue losing market share to cheaper and larger phones.  AAPL has a lock on expensive 4″ phones but that is because they are the only one selling $600 small screen phones.

iRadio is a joke, they even joked on stage that it was just like Pandora.  P spiked on the news of how little attention iRadio was getting and it seems more a novelty than anything that will drive sales or revenue.  At best it will drive a few iTunes sales, but they didn’t give any reason for people to change from Pandora or Spotify.

Plan your trade; trade your plan

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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.