PM: Holders keep holding

PM Update

MARKET BEHAVIOR
The volatile trade continues as the market gave up nearly half of Thursday’s gains.  Volume was extremely light as no one felt like trading ahead of next week’s Fed meeting.  The market remains above the 50dma and so far is respecting this widely followed technical level.

MARKET SENTIMENT
The market fell on a lack of demand, as indicated by the light trade, not a surge in selling.  This shows owners are content holding and those sitting out of the market are staying out.  Confident holders are bullish because they don’t sell modest weakness, keeping supply tight.  Those sitting out of the market will eventually come around because there are few things as persuasive as seeing other people make money.  The rally from the November lows made everyone forget about Obama’s reelection, the fiscal cliff, debt ceiling, sequester, and Europe.  In no time people will forget about the QE overhang too.

We don’t trade fundamentals or technical, we trade other traders.  When everyone fears something, they trade it, diffusing the situation by pricing it in the market ahead of time.  All this chatter over QE ending is good because those that fear it are already out of the market.  Anyone left isn’t worried about it and won’t panic when it happens.  In fact the market will probably rally on the end of QE simply because after everyone sells, supply dries up, and there is nowhere to go but higher.  But I’m getting ahead of myself, tapering many months away and the Fed will likely continue buying bonds for at least another year.

TRADING OPPORTUNITIES
Expected Outcome:
As long as the market continues holding support we have the green light to buy dips.  The market is entering a volatile summer consolidation, so take long and short profits quickly because they will likely evaporate days later.

Alternate Outcome:
Keep an eye on support and move to a defensive stance if the market retests those levels next week.  Eventually this market will run out of buyers and we will get the correction everyone’s been waiting for, but it will come long after everyone gave up waiting for it.

Trading Plan:
It is okay to hold here, but keep stops just under the 50dma or 1600 level.  We have no idea if the market will survive another test of these levels, so the most conservative thing is stepping aside.  It is better to be out of the market wishing we in than in the market wishing we were out.  Don’t short the market until we break support and hold longs until we get close to 1670.

INDIVIDUAL STOCKS
AAPL closed under the 50dma on extremely light volume.  The half-full side shows holders are not rushing for the exits and comfortable holding a little technical weakness.  Selling often begets more selling, so seeing calm and restraint here is positive.  The half-empty side shows dip-buyers are no longer defending this level.  While holders are calm following a modest dip, if the slide continues, expect anxiety to pick up again.  Anyone long this name with a stop under the 50dma should either be out, or on their way out if they gave themselves a little extra cushion.  There is no reason to hold this stock for another leg lower.  The first loss is always the smallest.  If the stock reclaims the 50dma, it is easy enough to buy back in.

LNKD reclaimed the 50dma on huge volume.  This is a valid entry if someone was looking for an excuse to buy.  Put a stop near or under the recent consolidation.  If someone is short, this is your warning to cover.

Plan your trade; trade your plan