Holding 1700

MARKET BEHAVIOR
Stocks rallied back above 1700, recovering yesterday’s slide into the close.  This is the second day the market traded around this level as it waits for the next wave of buying or selling.  We are at the upper end of the 1600/1700 trading range and challenging all-time highs.  The biggest gains are early in a move and the nearly year-long rally is slowing down.  That doesn’t mean the rally is dying, just resting.

MARKET SENTIMENT
Amazing what a couple of weeks does.  Two weeks ago bullish sentiment on Stocktwits was in the 20s and today it is pushing toward to 60%.  Obviously this is far from a scientifically valid sample and cannot be extrapolated to the investing public, but it does give us a good sense of who is proudly promoting their outlook online.  Two weeks ago bears were bragging about their investing prowess and now it’s bulls turn.  Nothing turns fear into relief as quickly as rising prices.  Seventy-five points later and the world doesn’t look so bad.  The question is if there is anything more to this move than a simple short squeeze.  Can we find real buyers to prop up this market and push us to new highs?

The Taper is coming, but everyone already knows that and it is already priced in.  Sure we can argue what month it will start, but a difference of a couple of months is trivial to a market that is already looking forward six months.  Military strikes seem increasingly unlikely, so that uncertainty is quickly evaporating.  The race for Bernanke’s replacement was recently shaken up, but the eventual successor will no doubt realize the economic risks of abruptly changing policy and the market should not fear drastic action.  Any weakness from this debate will likely be just another buying opportunity.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks are holding up as few are actively selling this rebound to 1700.  Most of the nervous sold in the dip to 1630, leaving us with a far more confident core group of owners.  Their willingness to hold volatility paradoxically eliminates volatility since they keep supply out of the market.  Anyone who reactively sold the market this year came to regret that decision and traders are being conditioned to keep holding no matter what.  Eventually this will end in disaster because it always does, but in the meantime stability is buyable and bullish.

Alternate Outcome:
Predicting the market is easy, getting the timing right is where all the money is made.  Everyone who says this market will correct will eventually be proven right, unfortunately for their account they’ve been a tad early.  Watch for stalling and a retreat back under the 50dma.  Of course any short trade is a counter-trend trade and we need to take profits early and often.  Anyone who is greedily waiting for a big selloff let a lot of short profits slip through their fingers.  Don’t be that guy.

Trading Plan:
Anyone who owned the rebound to 1700 can take those well deserved profits.  Of course for the more adventurous, we can move our stops up and see if there is more upside.  The market is behaving fairly well, but two-days of sideways trade doesn’t qualify as support.  If we continue holding 1700 by Thursday, that means the higher probability trade is higher and anyone that missed the rebound can buy the breakout.

INDIVIDUAL STOCKS
AAPL recovered some of yesterday’s losses, but most disciplined bulls were stopped out dozens of dollars higher.  Many people made a lot of money in AAPL over the years, but don’t let what happened in the past skew our view of the future.  AAPL had its time in the spotlight, but unfortunately like most companies in the technology space, it is hard to stay on top.  Some analysts are predicting an iPhone market share as low as 13% next year, hardly the dominating force of just a couple of years ago.  source  The technology space is fiercely competitive and there is no reason to assume AAPL won’t be like all the other disgraced tech titans before it.  We trade the future, not the past.  While AAPL is still highly profitable, Wall Street is already writing the obituary and we should pay attention.  The market is far better at predicting the news than the news is at predicting the market.

Plan your trade; trade your plan