PM: Rip in after-hours

By Jani Ziedins | Intraday Analysis

Jul 10

PM Update

MARKET BEHAVIOR
Stocks closed flat for all intents and purposes, but eked out a miniscule gain so technically the streak of up-days continues.  Volume was well below average as holders keep holding and fence sitters keep sitting.

MARKET SENTIMENT
The market finished unchanged following the Fed minutes as it already digested the eventuality of tapering and was unfazed by growing calls from Fed members to slow monetary easing.  But shortly after the close, Bernanke answered questions and there was a huge surge in after-hours trade on his convincingly dovish answers.  Does it really matter if we start the Taper in September or January?  Some people think so, but the effect of Taper diminishes by the day as the market prices it in and is already looking past it.  Soon we will be able to add it to the long list of bearish headlines that failed to kill this rally.

TRADING OPPORTUNITIES
Expected Outcome:

If the after-hours gains hold into Thursday, we will see a nice up-day push us solidly back into the upper half of the Summer’s trading range.  While this a place where some will chase, anyone expecting volatility to persist will start looking for opportunities to sell strength and lock-in profits.

Alternate Outcome:
The rally could be back on and this is just the first step in a towering move higher.  If that is the case, there will be plenty of time to buy back in once the rally blows past previous highs.

Trading Plan:
As we move solidly into the upper half of the 1600s, we need to become increasingly cautious.  The swing-trader can lock-in profits proactively and the directional trader can continue holding while moving up a trailing-stop.  If we break 1670 on Thursday, 1650-1655 is a decent area to expect support and leave a stop.  Shorts can start sharpening their knives, but hold back and wait for the up move to stall before diving in with a trade targeting the 50dma.

Expect volatility to persist and keep buying weakness and selling strength.

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.