PM: Why we keep going up

By Jani Ziedins | End of Day Analysis

Jun 18
S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks broke above recent resistance at 1649 on light volume.

MARKET SENTIMENT
Stocks move for one of four reasons, rush of buying, rush of selling, lack of buying, or lack of selling.  Today’s low volume rally was built on a lack of selling.  Holders are very comfortable holding and anyone who wanted to buy had to pay a premium to pry shares from the market.  There is a lot of noise surrounding the Fed meeting and Bernanke’s tenure, but the uncertainty doesn’t faze holders. No matter what anyone says about this rally and market, confident holders equals tight supply equals higher prices.

TRADING OPPORTUNITIES
Expected Outcome:

The market had the perfect invitation to selloff the last few weeks, but the rebound shows it isn’t ready for the widely expected correction.  No matter what our outlook is, we must respect the price-action.  While the rally might not continue at the previous rate, betting on a market crash is the wrong trade.  Expect the volatility to persist, but use it to buy weakness and sell strength.

Alternate Outcome:
One of these days bears will get it right, most likely after their accounts are dead and buried, but they will be right.  Predicting the markets is easy, getting the timing right is where all the money is made.  Keep watching for signs buying is drying up, but don’t short the market before then.

Trading Plan:
We are pushing into the upper half of the trading range and should move up our stops and look for strength to sell.  I have no idea if this rebound will stall at 1660, 1675, or 1700; the best we can do is figure out how much profit is enough and let someone else pick the top.  I still think there is a little more upside remaining, but move our trailing stop up to 1650 and be ready to sell when we are most reluctant to sell.

TSLA daily at end of day

TSLA daily at end of day

INDIVIDUAL STOCKS
GLD had another bad day, but remains above support at $130.  Any knife catchers need to use a stop-loss to avoid being pulled down by another leg lower.  The market wants to test $130 and from there it could go either way.  Buy the bounce or short the breakdown, both with a tight stop near $130

TSLA is holding up and will likely put the hurt on bears yet again.  Climax tops collapse fairly quickly and holding near $100 for several weeks is anything but quick.  There is no reason to own this stock here, but it is suicidal to short it.  There is nothing wrong with shooting at a highflier, but recognize when the trade is not working and pull the plug.  Betting against a strong stock takes patience and discipline.  Note stubbornness is not on that list.

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.