Monthly Archives: September 2013

Sep 30

AM: The party of NO

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:30 EDT

S&P500 daily at 12:30 EDT

AM Update

MARKET BEHAVIOR
Stocks gapped lower at the open given the high-probability of a govt shutdown, but within minutes bounced and recovered half of the losses.  This dip challenged the 50dma, giving back 50% of the recent rebound, but so far it is holding support.  Two-steps forward, one back.

MARKET SENTIMENT
Ironic how the Tea Party is acting just like a labor union by using extortion to get what they want.  If they don’t get their way, they shut the whole thing down and screw everyone.  They hate it when the other guy does it, but it is okay when they do it.  Of course it would be naive to think politics works any other way.

The unfortunate thing for the Republican party is this strategy is branding them as the party of “no”.  While Obamacare is not popular, most of the public concedes we need some kind of healthcare reform and is hungry for alternatives, yet the only idea out of the GOP is to go back to the old way.  They are missing a golden opportunity to win the public over by providing solutions.  The GOP made huge strides in the ’90 with its “Contract with America”, but that was back when they had ideas.  Now all they look like is crybabies throwing a tantrum.  The public is dissatisfied with Democratic leadership, but as long as the GOP looks worse, the Dems have nothing to worry about.

But enough politics, the early panic never gained momentum and was more of a buying opportunity.  Many traders expected budget problems, but they sold last week, meaning there were few left to sell the news today.  While there might be a few hopeful left that will sell tomorrow when there is no overnight resolution, most of the owners who held through the August swoon are not worried about this temporary budget speedbump.  While it dominates headlines, I have not heard anyone claim the gov’t will remain shut down for months, meaning this is not a major structural problem, simply some political noise injecting temporary uncertainty in the market.

TRADING OPPORTUNITIES
Expected Outcome:
The most successful traders buy fear, not sell it.  The time to sell was two-weeks ago when everyone was giddy and expecting the 100-point rebound to continue to the moon.  Many longer-viewed investors still in the market are probably better served weathering this storm.  No doubt we must stick to our stops, but hopefully any short-term investor with a trailing stop is long out of the market and actively looking for an attractive entry.

Alternate Outcome:
The Tea Party might cut off its nose to spite its face and is the big risk here.  This is a high-stakes game of chicken and things will get ugly if someone doesn’t flinch.  Dems feel the public is on their side and will come out ahead from a shutdown, so they are less willing to compromise.  Obamacare is Obama’s legacy and he will never sign a bill that guts it, so unless the GOP yields, this will get ugly.  We will soon find out if the Tea Party is willing to die for their cause and take the rest of us down with them.

Trading Plan:
The market is holding up remarkably well since the consensus is the gov’t will shut down Tuesday.  This shows a lot of the fear is already priced in.  That likely means we are on the verge of a buying opportunity.  No need to get in front of this thing, but if the market remains stable through a shutdown, that resilience is buyable.  Bears can hold their shorts, but they should look to lock in gains if we don’t crash lower on bad news.  That means most of the negative headlines are priced in and the coiled spring is pointed higher.

Plan your trade; trade your plan

Sep 27

AM: Down but hanging in

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:36 EDT

S&P500 daily at 12:36 EDT

AM Update

MARKET BEHAVIOR
Stocks slipped as traders fretted over the impending Congressional votes and potential govt shutdown.  We dipped under 1690, but early weakness didn’t trigger a cascade of stop-loss selling.  The market is nervous, but not panicked and we are only 2.3% from recent highs.

MARKET SENTIMENT
The half-full view is holders are confidently sitting on their positions, knowing this is the wrong time to sell.  The half-empty view is such a small pullback means there is still tons of downside left.  The truth probably lies somewhere in between.

Only the extremist thinks the US Govt is on the verge of going out of business.  Most rational traders expect the debate will be heated and ugly, but in a few weeks it will be ancient history.  There is little doubt Congress will increase the debt limit because they have no choice, the fear is how long this drags out.

In reality, this is just a bump in the road that comes up every couple of years.  Sometimes it slips under the radar when it is rubber stamped.  Other times political parties use it to extract concessions for programs they disagree with.  Right now the GOP is threatening to go nuclear over Obamacare.  The question for the market is if this is just political posturing and a negotiating tactic, or if the GOP is actually suicidal and willing to drive the car off the cliff.  That is the main source of uncertainty here, but this is nothing close to the structural problems we had in 2008 with the Financial Crisis.  Our politicians will figure something out and the market will rally on the relief.  Then it is on to the next worry, likely a return of Taper headlines.

One of the things that keeps this pullback more constrained is many of the weak jumped out in August’s selloff.  Those that fear Debt Ceiling are likely afraid of the Taper too.  That means most of the potential Debt Ceiling sellers are already out of the market.  No matter what the headlines say, we need people selling stocks to push the market lower and so far few are selling these headlines.  Trade people and their portfolios, not the headlines.

TRADING OPPORTUNITIES
Expected Outcome:
The market is holding up relatively well given the headline risk.  Either owners are oblivious to the dangers, or the fearful have already bailed out.  The August dip cleared a lot of dead wood, meaning there is less to get rid of this time.  Likely this pullback is just a little cooling off following the sharp 100-point rebound.  The Debt Ceiling will be ancient history soon enough and these discounts are buying opportunities.

Alternate Outcome:
The Tea Party’s hatred for govt spending and Obamacare is the wildcard in the mix.  Do they have enough influence in the GOP to shutdown the govt to prove a point?  We will soon find out.  While the risks of driving off the cliff are great, the probabilities are slim.  This creates an interesting “black swan” trade.  Buying some cheap, out of the money puts is akin to playing the lottery.  The chances are winning are slim, but the rewards are great.

Trading Plan:
The market is holding 1680 as expected (50% retracement of recent gains) and is closer to a buy point than a shorting opportunity.  The longer we hold these levels, the safer it is to wade in despite of the headline risk.  Bears have the wind at their back, but still cannot get the job done, meaning they are far weaker than most realize.  Plan ahead of time where you will buy and sell and stick to that plan.

Plan your trade; trade your plan

Sep 26

AM: Day number 4

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:42

S&P500 daily at 12:42

AM Update

MARKET BEHAVIOR
Stocks surged at the open, but turned around nearly as quickly and we are trading near breakeven by midday.  So far the market continues holding near 1700 as neither bears nor bulls have the strength or will to break this logjam.

MARKET SENTIMENT
Typically the fourth day testing support reveals which side has the upper hand.  Sucker’s rallies and temporary support is driven by a small group of dip buyers.  Within days they run out of money and the selloff resumes.  Holding support for four plus days shows investors with deeper pockets are buying the dip, or alternately bears ran out of sellers and the move lower stalled because there is no one left to sell the fearful headlines and weak trade.

While today’s trade is weak, it doesn’t seem to be shaking many out of the market.  Recent volatility chased off anyone afraid of Taper and traders had an open invitation to sell Debt Ceiling headlines over the last week.  Those who feared these events had plenty of time to get out and anyone that bought demonstrated a willingness to own risk.

Markets crash when they are caught off guard and right now everyone sees Taper and Debt Ceiling coming from a mile away.  This rally will rollover like everyone one before it, but it will take something new and unexpected.  Ignore the headlines and fear the things no one is talking about.

TRADING OPPORTUNITIES
Expected Outcome:
The market is holding 1690 and we could see a little more weakness, pushing us down to 1675, but if the selloff stays calm and orderly, this is a buying opportunity, not a shorting one.  Selloffs are swift and violent.  Trading sideways with fractional declines is the opposite of swift and violent.  The churn is giving traders the opportunity to sell the Debt Ceiling, but expect those to rush back in when the situation is resolved.  In typical fashion, expect the market to rally in anticipation and anyone buying the news will be late to the party.

Alternate Outcome:
The market is uneasy leading into the Debt Ceiling and looming govt shutdown, contributing to this modest weakness, but most expect it will be resolved without too much fuss.  There is the risk our politicians act especially stubborn and force a govt shutdown.  While most know this will eventually be resolved, the uncertainty will pressure the market and nothing shakes investor confidence like a crashing prices.  At that point it becomes an emotional sell first, ask questions later.

Trading Plan:
There is no reason for the nimble own this sideways chop.  Hopefully many locked in profits up above and are looking to buy back in at lower levels.  Maybe we bounce off 1690, or maybe it is 1670, but keep watching for a good entry point.  Longer-term investors can ignore all this noise because in three months the Debt Ceiling and Taper will be ancient history.  As for shorts, holding near 1700 for a fourth day is not encouraging and they should look for opportunities to lock in recent profits.

FB daily at 12:43 EDT

FB daily at 12:43 EDT

INDIVIDUAL STOCKS
Who would have thought FB  would be one of the hottest momentum stocks?  This is a perfect example of sentiment trading.  It was the biggest and most talked about IPO in a generation.  It dominated headlines and countless funds were buying shares over the counter in anticipation of a huge surge following the IPO.  Unfortunately for many, the IPO hype marked the top  and the stock crashed, eventually becoming the butt of many jokes.  The stock everyone wanted to own was soon the stock no one would admit to buying.  The most loved company quickly because the most hated company and that was finally the time it became buyable.  Don’t trade technicals or fundamentals, trade people.

Plan your trade; trade your plan

Sep 25

PM: The 2% crash

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks finished at the lows of the day and continued the streak of consecutive down days.  The market closed under 1700 for the second day, but for all the bleeding, the market is only down 2.1% from all-time highs.  The market seems attracted to the 50dma and the 1680 level that provided resistance and support stretching back as far as May.

MARKET SENTIMENT
This selloff feels scarier than the numbers indicate.  Five consecutive down days is the biggest losing streak of the year, but the damage is only pushing us back to levels first seen last week.  Emotion driven selloffs are swift and breathtaking.  The only breath this dip is taking is from all the people talking about it.  It is crazy the number of naysayers that are promoting the end of the world and pointing to a 2% decline from all-time highs to prove their point.  Sure this weakness is making recent buyers uneasy, but that is how hot markets cool off before continuing higher.

All the media coverage is focusing on the impending govt shutdown, but we’ve been down this road before and anyone who reactively sold that weakness came to regret that decision as the market bottomed and resumed the uptrend weeks or months later.  Complacency is the accusation bears are constantly throwing around, but I hear far more talk about a Debt Ceiling/Taper collapse than bulls talking about buying the dip and 1800 here we come.

While I agree complacency is creeping into the market as every dip this year has been buyable, but complacency by itself is not a fatal flaw and is more often a bullish catalyst.  Complacent owners continue holding through thick and thin, keeping supply tight and allowing smaller demand to keep pushing us higher.  Complacency isn’t the enemy here, but lack of demand.  So far there has been enough better than expected news to force bears to buy back their shorts and win over some of those sitting on the sideline.  That is why this “complacent” market keeps making new highs.

Many are waiting for all these scary headlines to pass before believing in this market, but by then it will be too late and they will be buying the top.

TRADING OPPORTUNITIES
Expected Outcome:
The market keeps looking for a bottom and might dip to 1675ish before this rebound finds its footing and resumes the climb higher.  We will bounce on some constructive debt ceiling headline and everyone will credit that random news story for the surge to new highs, but the recent pessimism flowing into the market is the fuel that will propel the bounce.

Alternate Outcome:
While the market is uneasy approaching the Debt Ceiling negotiations, most traders expect a compromise to be reached within a reasonable timeframe.  If both sides dig in, refusing to budge and threatening to default on debt payments, that nuclear option isn’t priced in and could lead to a swift 10%+ selloff.

BBRY daily at end of day

BBRY daily at end of day

Trading Plan:
If the market regains 1700 on Thursday and holds it through the close, it appears like the selling is drying up and all it takes is one optimistic headline to launch another leg higher.  If we continue sliding, that means buyers are shying away and the lower we go, the closer we get to the tipping point of emotional selling.  Holding 1700 is buyable and accelerating through the 50dma is shortable.

INDIVIDUAL STOCKS
BBRY is proving that something that looks too low often keeps going lower.  Anyone who bought the dip is learning first hand the dangers of catching knives.  It will ruffle a few feathers, but can we identify any similarities between the ubiquitous “crackberry” and the unmatchable iPhone?  BBRY failed to keep up with an evolving market.  Is AAPL falling victim to the same tech turnover?  Looking at the nonstop slide in market share for the iPhone and iPad, it sure is hard to argue “this time it’s different”.

Plan your trade; trade your plan

Sep 25

AM: How negotiations work

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:29 EDT

S&P500 daily at 12:29 EDT

AM Update

MARKET BEHAVIOR
Stocks sank under 1700 in early trade for the third consecutive day, but so far the weakness failed to trigger a cascade of stop-loss selling.  Constrained selling after a large move is a normal and healthy part of moving ahead.  While we might still have a date with the 50dma, orderly selloffs and consolidations are typically bullish.

MARKET SENTIMENT
The unbridled enthusiasm for continued QE vanished as quickly as it arrived.  We know Tapering is coming, so a three or six month reprieve is not that big of a deal in the big picture.  The same thing would have happened if the Fed started taper.  While the knee jerk reaction would have been in the opposite direction, it would have quickly recovered because markets look forward 6-months.  It came to terms with Taper this summer and already moved on to the next thing.

Now that Syria disappeared from the headlines, the focus turned to the impending Debt Ceiling.  There are two things the public doesn’t want to know how they are made, sausage and laws.   Republicans and Democrats are already positioning themselves for the negotiations.  There is a pretty standard template for negotiating that applies equally well to buying a car or negotiating arms treaties with other nations.  Step one, act aloof.  Step two, ask for absurdly more than you are willing to accept.  Step three, call off the negotiations and walk away halfway through.  Step four, reach a hard-fought compromise at the very last second.  That’s how it worked every other time and is how it will work this time around.

People often complain about how dysfunctional Congress is, but those people only show how little they understand negotiations.  Further, a ridiculously low approval rating means our govt is working, not broken.  At the end of negotiations, if someone is happy, it means the other side got screwed.  Remember this the next time you buy a car.  If the dealer is smiling and in a good mood, you are not getting a good deal.  Only when the dealer is grumpy and on the verge of kicking you out, have you finally reached rock bottom.  When both Republican and Democrat constituents feel they are getting screwed, we finally reached the ideal compromise between the two positions.  If Congress had a 50%+ approval rating, it means someone is getting screwed big time because someone else is getting everything they want.  Negotiations work best when both sides leaved pissed off.  Each side had to give up some things that were important as a concession to get the things that really mattered.  Neither side has a monopoly on the truth and the best solution lies somewhere between the two positions.

That is the lowdown on why we should expect ugly Debt Ceiling discussions, but don’t need to worry about them.

TRADING OPPORTUNITIES
Expected Outcome:
As long as the selling remains contained, the rebound is intact.  We broke under 1700 multiple times and didn’t trigger a wave of stop-loss selling, meaning there are not a lot of fearful traders on the verge of hitting the panic button.  While complacency will eventually be a problem, in the meantime it keeps supply tight and is propping up this market.

Alternate Outcome:
While we know the Debt Ceiling debate will be ugly but will eventually be resolved, getting sucked into the heated argument will make the market nervous since it often worries about the worst-case.  We could see the market pullback if the Republican standoff carries us over the line and they threaten default again.  They likely learned their lesson from the markets last time, making casual comments about default unlikely, but you never can tell with these guys.  They want to blow up Obamacare and might go nuclear to do it.  While that is a reason to be cautious and respect our stops, the volatility creates buying opportunities as we buy discounted shares from the fearful.

Trading Plan:
Holding near 1700 for another day shows this is more than just dip buying.  The profit-taking, preemptive selling, and out right shorting run their course in the first few days of a pullback.  Once that selling dries up, it clears the way for a continuation higher.  Three-days into this is a little early to claim the coast is clear, but things are looking better.  Even a pullback to the 50dma is not a lot to worry about as we consolidate recent gains.  Any bears that were lucky enough to short the top of the market, look to lock in profits if the market doesn’t continue the move lower by tomorrow.

Plan your trade; trade your plan

Sep 24

Holding support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:40 EDT

S&P500 daily at 3:40 EDT

MARKET BEHAVIOR
Stocks bounced back from early weakness and reclaimed support at 1700.  This is the second day we’ve tested and held this level.

MARKET SENTIMENT
The euphoria following Summer’s withdrawal evaporated as quickly as it came.  We gave back all those gains and any late buyers are sitting on losses.  This is why savvy traders buy when everyone is fearful and sells when everyone is getting comfortable.

The market got a little ahead of itself, rallying 100-point in three-weeks and this pullback is normal and expected.  While it rained on the bulls’ parade and brought life back to demoralized bears, that is exactly what it needs to do before we can continue higher.  As we discussed earlier, big money hates buying breakouts and all-time highs.  They wait for the euphoria to pass and buy the pullback.  So far they are buying 1700 and is why we are finding support.  Of course two-days doesn’t make a bottom and we need to hold this level for two more days before we can feel more confident big money supports these levels.  Without their endorsement, this brief pause at support will continue lower as soon as the dip-buyers run out of money.

Source: Stocktwits 9/24/2013

Source: Stocktwits 9/24/2013

Bullish sentiment on Stocktwit’s SPY stream went from 26% to 60% over a couple of weeks as the market bounced off 1630 and notched new all-time highs.  The last few days brought that back to a more palatable 46% percent.  Recent sellers and shorts will be buyers of the next leg higher.  Of course we might need to see a little more selling or sideways trade before we are ready for the next move.  A dip to the 50dma creates an even more irresistible entry point for big money.

TRADING OPPORTUNITIES
Expected Outcome:

While the medium-term outlook is positive, near-term we might see a little more selling.  Buying here is picking a bottom and we typically wait at least four days before buying support.  A dip to 1680 is attractive because it creates an even better entry point for the swing trader.

Alternate Outcome:
Discussion of the debt ceiling is heating up and while most are aware of it, we have short memories and often forget just how ugly these things get before a compromise is finally reached.  Last time the threat of a default lead S&P to downgrade the nation’s credit rating.  Obviously that was a joke because bonds rallied on the news, but it shows just how contentious these things can get.  Expect the rhetoric to heat up and spook investors as we approach the deadline.

Trading Plan:
Buy the market if we firm up around 1700 over coming days and short crashing through the 50dma.

The recent dip to 1630 shows us how we make even more money when we are wrong.  If we originally bounced off 1680, that is 50 fewer points we could make on the rebound.  Sure we lost a little when we got stopped out, but I appreciate the volatility because that creates bigger opportunities.  While I would be “right” if we bounced off 1700, I would make more money if we dipped to 1650.  This is just one reason why being right and making money are two very different things.

AAPL daily at 3:40 EDT

AAPL daily at 3:40 EDT

INDIVIDUAL STOCKS
AAPL is flirting with $500, but has yet to break through this key level.  The company smashed sales records with its iPhone5s/c launch, but this is also the first time the company sold phones in China on the launch day, so obviously that skews the data and makes direct comparisons meaningless.

Clearly the company sold a lot of phones to the faithful that are willing to stand in line to have the newest AAPL gadget, but this is a small sliver of the market.  While it is great PR to have the news show people lining up to buy the latest Apple phone, the only thing that matters is how attracted average people are to these upgrades.  The smartphone market is evolving in two directions, larger screens and cheaper phones.  Right now AAPL is stuck in no-man’s land with a small and expensive phone, explaining most of their market share losses over the last couple years.  While the stock market cheered the 9 million phone sales, this pop is selling opportunity, not a buying one.

TSLA is bouncing around the $180 level, but it sure would be nice to see the stock form a base and shake out some of the momentum chasers.  Even a dip under the 50dma would be a great way to clear the deck.  Locking in profits at $185 is not a bad trade since the stock will inevitably pass through this level again in a future dip or rebound.  Even if you believe this is the next GM, take some profits and look to buy it back cheaper.

Plan your trade; trade your plan

Sep 23

Pulling back to support

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks dipped to support at 1700 in early trade.  100-points over a few weeks is a big move and retesting support should not come as a surprise; the bigger question is how the market responds.  We are at the upper end of the summer’s trading range and that gravity is trying to pull us back in, but every trading range ends and so will this one.  The transition from summer to fall is often a directional catalyst and why Sept and Oct often lead to large moves.  So far big money is more willing to buy than sell and that pulled us off the 1630 lows.

MARKET SENTIMENT
Nothing like 30-points of selling to rain on the Bull’s parade.  Current headlines promote an impending showdown over funding Obamacare and a potential govt shutdown.  From what I gather, many are not bearish because they expect fiscal calamity, but because they think other people will panic.  That is a very nuanced, but important distinction.  Selloffs happen when people become scared and sell, not when they expect others to become scared.

To breakdown under the strain of DC politics, we need people to be caught off guard by the headlines and right now a budget showdown is widely expected.  Anyone afraid of these impending headlines is already out of the market, meaning there are fewer left  to sell the news.  Further, recent examples of political discord were buying opportunities, not a cause for concern, so expect far fewer traders to impulsively sell the headlines.  That likely means this “sell the rumor” dip will be a bump in the road.

Markets don’t move on what traders expect others to do, but how they trade their accounts.  Most of us are wired with the same biology and learned trading from similar schools of thought.  That means more often than not, what we see and think is what everyone else is seeing and thinking.  If we are afraid of an impending collapse and sell ahead of time, a lot of other people did the same thing.  This shared view is what leads to the appearance irrationality.  People are convinced the market should do one thing, yet it does the complete opposite.  The market isn’t acting irrationally, it simply reacts to a supply and demand the only way possible.  When the crowd sells early, it prices in what everyone is afraid of and paradoxically the market will go higher when the news comes out because there is no one left to sell.  Right now the crowd anticipates problems over Taper and debt ceilings, meaning they already acted on this “insight” and it is already mostly priced in.  It is irrelevant that we are all-time highs, the only thing that matters is most people are aware of this impending calamity and those that fear it already sold.  This doesn’t mean we cannot selloff another couple dozen points, but it does mean much of the downside is already priced in and we have far less to fear than the naysayers claim.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks retested support as expected, so no one can claim the sky is falling just yet.  Even another 20-points of selling is a normal 50% retracement of recent gains.  Two-steps forward, one back.

Alternate Outcome:
The market is far less fearful of the debt ceiling.  Politicians are quickly becoming the boy who called wolf with all this grandstanding and posturing.  While it will be ugly, most expect a deal to get done at the last-minute and is what the market is pricing in.  What isn’t priced in is a catrosphoic game of chicken where both sides go down in a ball of flames.  While the high probability outcome is a workable resolution, the black swan is a complete breakdown of reason, leading to a far larger move.

Trading Plan:
While the high probability outcome is higher, we must respect the risks and honor our stop losses.  Bouncing off support is buyable.  Slicing through the 50dma is shortable.

Plan your trade; trade your plan

Sep 20

Sliding to support

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks are lower for a second day following Wednesday’s breakout to all-time highs.  The market remains above the summer’s 1600/1700 trading range leaving us to decide if the market is entering a new phase of directional trade or if the sideways trade sucks us back in.  Buy the breakout, or sell the strength, that is the million dollar question.  Friday was options expiration, so the extremely high volume is not comparable to typical trading days.

MARKET SENTIMENT
Traders are notoriously afraid of heights and reluctant to chase breakouts, especially when they are nervous about impending headlines.  Watching buying pause here is normal and expected, but what we are most interested in is how owners react to these new highs.  Are they locking-in profits and selling too-far, too-fast, or are they holding on for more gains?  The modest pullback over the last couple days suggests most are still holding.  Obviously in a group as large as the market we will have some traders sell the breakout and this is contributing to modest weakness over the last two days, but current selling is more stream than tidal wave.

Even when most buyers remain reluctant, we can still move higher if existing owners continue holding and keep supply tight.  That is the stuff low-volume rallies are made of.  While conventional wisdom says we cannot trust low-volume moves, that is a myth.  We are 10-months into a low-volume rally that keeps making higher-highs.  Demand is only half of the picture, tight supply is just as powerful.

Source: Yahoo Finance 9/20/2013

Source: Yahoo Finance 9/20/2013

There were a couple more Yahoo Finance polls the last couple days showing just how “overly bullish” the market is at all-time highs.  Twenty percent are not worried about a bigger selloff and in a different poll, another twenty percent think stocks are a bargain.  I would hardly call one out of five “overly” bullish, especially since in both polls the bullish response was the least popular choice.  Remember, don’t confuse price with sentiment, they are two very different things.  A true contrarian trades against the crowd, not the price.  Right here the contrarian trade remains believing in this market.  All the doubters are already out of the market, meaning there is little selling pressure left.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  No matter what the headlines say, this market continues making higher-highs.  Expect some near-term weakness as profit-takers pressure the market, but once this wave passes and selling dries up, look for the market to add to recent gains.  Markets grind higher, especially in later stages of a rally so we need to be patient.  The most nimble traders locked in recent gains and will buy a bounce off support, but at this stage there is no reason to doubt this breakout.

Alternate Outcome:
Triple-tops, double-bottoms, a person can see whatever they want in the charts.  What we are looking for is strength where there should be weakness and weakness where there should be strength.  While this rebound to new highs caught many off guard, we need to tread lightly if this breakout fizzles and rolls over too quickly.  The expected outcome is support near 1700, anything less and we need to reevaluate our bullish thesis.

Source: Yahoo Finance 9/19/2013

Source: Yahoo Finance 9/19/2013

Trading Plan:
A bounce off support is buyable.  Don’t short until we break through support.  Locking in recent gains is not a bad trade given how far we’ve come in a few weeks, but be ready to get back in when the market firms up.

INDIVIDUAL STOCKS
As an iPhone5 owner, I’m  impressed with iOS7 and am glad AAPL finally moved its user interface out of 2007.  As big of a leap as this update is, it is only playing catch up with Android and not a compelling reason to buy an iPhone, just less of a reason to go with Android.  The problem AAPL continues having is it is Jony Ive vs the entire Android community when it comes to finding the next great software innovation.  Because Android is an open operating system, they have thousands of developers tinkering and will likely continue beating Apple to the punch on most software features.  While the Apple faithful waited in long lines to buy the iPhone5s, that was never in question.  We want to know is what the casual smartphone user thinks and we won’t know that for months.

Plan your trade; trade your plan

Sep 19

Holding the breakout

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:21 EDT

S&P500 daily at 2:21 EDT

MARKET BEHAVIOR
Stocks are holding most of yesterday’s breakout through midday trade.  This shows a wave of selling and profit taking has not hit the market and enough buyers are willing to step up and pay these prices.  No matter what the headlines say, the market continues making higher-highs and when in doubt, stick with the trend.  Former resistance at 1700 becomes support and we will see if the gravity of this summer’s trading range is strong enough to pull this young breakout back to earth.

MARKET SENTIMENT
Obviously bulls are happy with recent gains, but even they have a fear of heights and are tentative following recent gains.  Given the headline risk, few are actively promoting 1800.  Compare this to many bears’ outlook a couple of weeks ago when they were certain we were destined for 1500.  We have cautious optimism from bulls and extreme negativity from bears.  That skew in sentiment is the fuel that keeps this rally alive.

Obviously the market moves in waves and we go up and down all the time, but the next major down move will only happen when sentiment flips and bears are cautiously pessimistic while bulls are enthusiastic.  Remember, we don’t trade fundamentals or technicals, but people and their portfolios.  As long as traders remain wary of this rally, that means we have a large pool of prospective buyers sitting on the sidelines.

TRADING OPPORTUNITIES
Expected Outcome:

If this breakout holds 1700 over coming weeks, expect the market to finish the year strong.  Traders are notoriously afraid of heights and their reluctance to own this market for the last 10-months left many sitting out.  As these watchers warmed up to this market, or more likely were afraid of being left behind, they started chasing, creating the demand that elevated this Teflon rally to all-time highs.  The more people fear a market, the more prospective buyers we have.

Alternate Outcome:
While current headlines are already priced in, we need to watch for something the market is not prepared for.  Debt Ceiling is the next bogie on the horizon.  Politicians keep kicking this can down the road and the market is growing immune to all the political noise.  Fear of the Fiscal Cliff last fall created an outstanding buying opportunity.  Chances are this time around fewer sellers are going to show up simply because anyone who sold political uncertainty last year regretted that decision.  But this lack of selling ahead of time leaves the market more vulnerable to a worse than expected political trainwreck.  More likely than Debt Ceiling is unquantified risk from a headline that isn’t even on our radar yet.  Stay cautious and defensive.

Trading Plan:
Proactive traders can sell the pop and wait for a pullback to 1700.  Others can continue holding after moving up their trailing stop to just under recent resistance at 1700 or 1709.  Being short here is nothing more than trying to pick a top and we should wait for a material violation of support before betting against this breakout.

INDIVIDUAL STOCKS
AAPL continues the bounce off $450 and recovered half of the recent selloff on favorable reviews of the new iPhone5s.  While no one disputes the build quality fo AAPL products, the question is if these new “innovations” are enough to reverse the market share losses to Android.  In order to compete for market share, they need a large screen phone and a cheap phone, something we still don’t have.  As a business, I respect AAPL’s decision to stick with what they know best, high quality, premium priced hardware.  They have a great brand, reputation, and company and will be a force in the industry for years to come.  But what they are not is the largest and most successful company in the world.  The recent bounce is a good chance for longs to get out and bears to short.  We could make it all the way back up to $500, but it will likely act as a ceiling and the stock will rollover once the initial buzz from the iPhone5s fades.  Longs can hold as long as we stay above the 50dma, but have and respect your stop-losses.

TSLA daily at 2:22 EDT

TSLA daily at 2:22 EDT

TSLA is the stock that just keeps on giving, breaking above a recent consolidation today.  We can split this story in two pieces, there is the car company and the feeding frenzy around the stock.  For the company, the make a well received, high-priced car.  It is a very niche brand and more like Maserati than Porsche.  Sure Tesla could expand their product line, but they will eventually face stiff competition from the major auto companies.  The drivetrain is one of the simpler pieces to making, marketing, and selling cars in large volumes.  It won’t take much effort for a F, GM, TM, or BMW to convert an assembly line to electric vehicles and pump those cars through existing distribution channels.  Tesla and Musk have done an impressive job creating a new car company, but it is foolish to think they have a sustainable competitive advantage over other auto companies.  The greatest asset Tesla has is the buzz around the brand, and as we’ve seen with Apple’s rapidly falling market share, those advantages only last so long once lower priced competition shows up.

As for TSLA the stock, it is the go-go momentum stock of the moment.  The strength is aided by the fact many shareholders are insiders and not selling.  The small number of shares available for trade make it easy for limited demand to drive the prices to insane levels.  It is a great ride, but just realize this is only a ride and have an exit in mind.  While the stock can keep going higher, fear a misstep by the company, the “Qwikster” equivalent that sent high-flyer NFLX down 75% over a couple of months.  I have no idea what that might be, it could be a PR disaster like cars catching fire or a fundamental data point like slowing sales once the initial backlog of cars is delivered.  What I wouldn’t fear is analyst downgrades.

Plan your trade; trade your plan

Sep 18

Buy the fear

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:17 EDT

S&P500 daily at 3:17 EDT

MARKET BEHAVIOR
Stocks surged 15-points on news the Fed was not Tapering in September and continued charging higher through the afternoon.

MARKET SENTIMENT
This pushed us well past all-time highs at 1709 and put the hurt on anyone betting against the rally.  Now that we are back in clear air above previous highs, everyone with a diversified portfolio is sitting on profits and we no longer have sellers trying to get out at break-even.  With fewer people selling, it is easier for the market to continue making new highs.

Five-percent pullbacks always feel like the end of the world, that is why they work.  It spooks out the weak and seduces the naysayers to short.  When we have all this reactive selling after only a few point decline, it clears the market of weak holders and replaces them with confident owners.  Once the reactive selling dries up, the market rebounds on tight supply.  Don’t fear the five-percent selloff that feels like the end of the world, buy it.  The dip we have to watch for is a selloff that the crowd is making excuses for because everything looks so good.

The explosive nature of today’s breakout shows just how negative the market’s been.  The coiled spring sprung to the upside because everyone was positioned for a move lower.  I agree with the bears that this delay only puts off the inevitable and is fairly trivial in economic impact, but remember, we don’t trade fundamentals, we trade people and their portfolios.  When the crowd fears Taper, they sell proactively ahead of it.  This creates an asymmetrical trade.  Since modest Taper was already priced in, modest Taper would leave the market flat.  Anything above modest Taper leads to a rally and it takes a bigger than expected Taper to send the market lower.  Only one out three outcomes leads to a selloff, meaning the better trade was buying Taper, not selling it.

TRADING OPPORTUNITIES
Expected Outcome:

The market convinces us we are wrong just before proving us right.  It was tough being bullish at 1630, but clearly that was the better trade.  We’ve come nearly 100-points since then and now we need to figure out what comes next.  When in doubt, stick with the trend.  While we might check back to 1700 in coming days, finding support at this psychological level is bullish and suggests a continuation into the end of the year.  For 10-months now people have called for a pullback and that fear of the market is what keeps pushing us higher.

Alternate Outcome:
Every rally comes to an end and so must this one.  The thing to be wary of is an acceleration higher, signaling unsustainable buying.  We can continue holding gains, but be ready to step off and lock-in gains at some point.

Trading Plan:
Move trailing stops up to at least 1700 and possibly 1709.  We are sitting on nice gains and don’t want to give those away.  100-points over a couple of weeks is a big move and not a bad place for the cautious to lock-in profits.  This continues to be a bad place to short, wait for a violation of support before betting against this market.

Plan your trade; trade your plan