AM: No news is good news

By Jani Ziedins | Intraday Analysis

Jul 30
S&P500 daily at 3:25 EDT

S&P500 daily at 3:25 EDT

AM Update

MARKET BEHAVIOR
The sideways meandering continues as we started higher, fell under breakeven by midday, and regained positive territory by late trade.

MARKET SENTIMENT
After early volatility, the Summer Doldrums are finally here.  Big money decision makers are on vacation, meaning we are not seeing any material buying or selling.  The market largely came to terms with all the negative headlines from Obamacare to Tapering and we are in a holding pattern waiting for what comes next.

The last couple of weeks had multiple false selloffs that quickly bounced back.  This cathartic process is purging weak hands and tempting aggressive bears to short.  The thing these pessimists need to be wary of is how easy and obvious the bear trade is given “too-far, too-fast”.  The big red flag is the easy trade hasn’t happened after multiple opportunities.  When the market has a perfect invitation to break wide open, yet bounces instead, that is a cheap warning the bearish thesis is flawed.  Fortunately for bulls, most traders are stubborn and hold their position well beyond the obvious exit.  With each passing day, bear’s confidence grows and they are building short positions because this is finally their moment to shine.  Unfortunately for them, while the previous 130-point move exhausted demand, this sideways trade is setting the stage for the next round of short squeezes.  There is nothing wrong making a bearish bet after such a strong move, but when a trade fails to work as expected, that is the time to get out, long before mounting losses force us out.

TRADING OPPORTUNITIES
Expected Outcome:
The longer we hold these levels, the more likely a continuation becomes.  Unsustainable buying climaxes within days.  Support here shows buyers keep holding and the path of least resistance is always higher when supply is tight.

Alternate Outcome:
Three-months ago the market went too-far, too-fast, yet here we stand at all-time highs.  The more people fight something, the longer these things go, but no matter what, this rally’s days are numbered.  It isn’t that the pessimists are wrong, just early.  At some point buying will exhaust itself and we will collapse into a correction when everyone least expect it.  The best sign will be stalling after an obvious bullish catalyst.  If this rally fizzles after breaking 1700, that is a great invitation to short.  There will be a lot of money made shorting this market, but the bull thesis needs to fail first.

FB daily at 3:25 EDT

FB daily at 3:25 EDT

INDIVIDUAL STOCKS
AAPL is just shy of making its first higher high in nearly a year.  Clearly shorts are providing a lot of this fuel, making a great short-term buying opportunity, but the bigger question is if this rebound is sustainable or just another bull-trap.  Swing-traders should move up their trailing stop and longer viewed traders can continue holding with a stop under the 50dma.  It is hard to imagine AAPL regaining its former glory since so many were burned by the recent selloff, but there is a lot of money to be made buying weakness and selling strength.

FB is making a push for its IPO price.  This has been a perfect sentiment trade.  Everyone loved it when it IPOed, meaning it had nowhere to go but down.  Then it dragged along for over a year and became the butt of jokes, which was the best time to buy it.  There are a lot of people short this name and this rally is not done yet.  Much like how NFLX was reborn, FB is following the same game plan.  Many are hoping AAPL will do the same, but the difference is revenue is growing strongly at NFLX and FB, where it is peaking at AAPL.  Similar technical setup, but the underlying stories are day-and-night.

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.