Monthly Archives: November 2013

Nov 05

Don’t be a pig

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a lot of ground in the first hour of trade, but recovered most of those losses by midday.  The market continues holding above 1750 as neither buyers nor sellers are showing up with enough force to move us out of this region.  Markets typically grind higher and fall swiftly.  Holding these levels for more than two weeks suggest this is more grind like since we are already moved beyond the window that qualifies as swift.

MARKET SENTIMENT
Holders are content holding and prospective buyers are sitting on their hands.  This limits supply and keeps a lid on new demand.  The result is tight, sideways trade.  At some point we will either run out of buyers propping up these levels, or those sitting on the sidelines will grow tired waiting for a pullback and jump in at current levels.  Since most of the profit taking and cynical, new-high shorting happened last week, the advantage shifts to the bulls.  The market swallowed that supply without missing a beat and will likely rise as the number of available shares dries up.

TRADING OPPORTUNITY
Expected Outcome:
It feels like the market wants to hold these levels for the near-term.  That means we should expect several failed breakouts and breakdowns before this consolidation is over.  When the market trades sideways, the best move is buying weakness and selling strength.

Alternate Outcome:
The market is more relaxed than it has been at any other point this year.  While that doesn’t automatically mean we are on the verge of selling off, it does make us more vulnerable to a new and unexpected headline.  While rallies often go longer and further than anyone expects, eventually it will end and we need to be ready to jump out before everyone else.

Trading Plan:
In sideways markets, buy weakness and sell strength.  Be wary of the obvious breakouts and breakdowns because the market is likely to throw a few head fakes at us over the near term..  While we are ultimately setting up for a continuation higher, the market will likely continue trading sideways for a bit longer as it consolidates recent gains.

INDIVIDUAL STOCKS
TSLA was hammered after-hours as it beat official estimates, but fell short of what the market was secretly hoping for.  While the company continues its strong growth, it isn’t taking over the world as quickly as the most optimistic bulls were hoping for.  Is this a buyable dip, or the end of the drunken euphoria?  That is hard to say for sure.  The best trade is letting this play out for a few days.  If the stock quickly finds a bottom, then we can buy the dip next week.  But if paranoid owners start rushing for the exits, it could get ugly and it would be foolish to try and catch that knife.  We are in this to make money and the only way to do that is by selling our winners.  There is nothing wrong with taking some profits off the table because we all know what happens to the pigs.

Plan your trade; trade your plan

Nov 05

Expect the choppiness to continue

By Jani Ziedins | Intraday Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at 1:22 EDT

S&P500 daily at 1:22 EDT

MARKET BEHAVIOR
Stocks slipped in early trade, but they found support at 1755 and recovered a large chunk of the losses by midday.  The market continues trading between 1750 to 1770 as it consolidates recent gains.

MARKET SENTIMENT
We are stuck in this range above 1750 since few are willing to sell their winning positions while others are afraid to buy near all-time highs.  This standoff will continue until we either run out of the modest number of buyers necessary to offset the normal churn in ownership, or we hold these levels long enough that prospective buyers feel more comfortable wading in.  Either way, expect the resulting sideways trade to remain choppy with failed breakouts and breakdowns as the market takes time to build critical mass for the next directional move.

TRADING OPPORTUNITIES
Expected Outcome:
This is a tough place to own stocks since these head-fakes higher and lower tempt us to act impulsively.  This price-action is better suited for day-traders that can respond to the intraday swings, or long-term traders that ride it out.  Swing-trading choppy markets is difficult because it gives off so many false signals.  Over the near-term, we are best suited buying weakness and selling strength over short periods of time.  Think of it like day-trading over 48 or 72 hours.

Over the next couple months, expect the market to drift higher into year-end barring any headline driven crisis.  Underweight money managers will need to stuff their portfolios with the right stocks before they close their books for the year.  That will keep a bid under the best performing stocks.

Alternate Outcome:
I am concerned about the lack of fear in the market.  While I don’t expect a bear market any time soon, we could see a swift move lower if the market starts obsessing about a new risk factor not already priced in.  The problem with unknown unknowns is we don’t know anything about them and it will catch most everyone off guard.  Hopefully by paying attention, we will respond before everyone else.

Trading Plan:
This market is best suited for day-traders or long-term investors.  The failed breakouts and breakdowns make it hard for intermediate traders.  If anyone must trade the market, trade the range by buying the dip and selling the rebound.

TSLA daily at 1:23 EDT

TSLA daily at 1:23 EDT

INDIVIDUAL STOCKS
A lot of volatility in TSLA ahead of its earnings.  Unless trading earnings is your thing, it is best to stay away from this for a day or two.  If Musk found the cure for cancer, then it is an easy buy after earnings.  Anything else and we will have a hard time pushing past $200.  Most, including Musk, recognize this stock is way ahead of itself.  While the “next greater fool” thing works great for a while, it always comes to an end and everyone in this name needs to have an exit plan so they don’t get left holding the bag.

BBRY is a dead man walking.  It really feels like the company could not find a buyer at any price.  That doesn’t bode well for anyone holding the stock in anticipation of an acquisition.   With MSFT taking NOK, it is hard to see another natural fit for someone else in the tech space looking to break into this market.  Unfortunately for many optimists, BBRY still looks like a long-term short.  In the near-term, a gambler could play for a bounce back up to $7.50.

GLD struggles to find a home as fears of contagion, inflation, and all the other justifications for stockpiling gold evaporate.  Over the next couple years it will probably slip into triple digits.  While some claim everyone should hold some gold in their portfolio, I’m far more partial to things that increase in value.

Plan your trade, trade your plan

Nov 04

Overly bullish

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks made a small move higher, reclaiming some of last week’s equally minor selloff.  We are 0.4% from all-time highs and closed above 1740 for the 10th consecutive session.  Markets that roll over tend to do it fairly quickly.  Holding near the highs this long suggest we still have upside ahead of us.

MARKET SENTIMENT
While it is hard to throw a stone without hitting someone who claims this market is overly bullish, I have a hard time finding all these bulls everyone else keeps talking about.  There was another Yahoo Finance poll over the weekend.  While Bullish easily beat Bearish and Neutral, can we really say 42% is overly bullish?  Does the average guy on the street think stocks are a safe and easy way to make a fortune?  Has everyone already forgotten about the 2008/2009 market crash?

The one thing that makes me confident we are not near the end of this bull market is just how many times a day I hear people say we are at the top.  People still don’t trust this market and these all-time highs terrify them.  Many traders have PTSD and all they see in every chart is another market correction.  Every dip over the last four-and-a-half years has been buyable, yet they still cannot bring themselves to trust a market that goes from the lower left to the upper right.  But that is the secular story, as traders we want to know what will happen next week and next month.

Source: Yahoo Finance 11-04-2013

Source: Yahoo Finance 11-04-2013

TRADING OPPORTUNITIES
Expected Outcome:
Profit takers and short-sellers already leaned into the market over the last two-weeks.  They sold what they were going to sell and the market barely flinched.  That bodes well for a continuation, especially as the newly laid shorts get squeezed as we set yet another new high.  There are no guarantees in the market, but holding above 1740 for two-weeks shows this market is not running out of buyers willing to pay these prices.

Alternate Outcome:
Call a top for long enough and eventually you will be right.  Bears will inevitably be right and they will be right when we least expect it.  Its been a good year in spite of Debt Ceiling I and II, Sequester, Cyprus,  Taper, Shutdowns, and all the other stuff I already forgot about.  But here’s the thing, markets rally in the face of fear and right now we are running short of the stuff.  About the best the critics can come up with is that we are “too high”.  The lack of a meaningful worry means the market is vulnerable to a new obsession sweeping over traders, causing them to hit the panic button.  It might not come next week or next month, but it is coming and we need to be prepared for it.

Trading Plan:
Holding recent gains makes it more likely that the next move is higher.  But at the same time, without a lot of fear left in the market, that means we don’t have much of upside potential either.  At best we have a slow grind higher, at worst we stumble into year-end.  A high probability of modest gains or a low probability of large losses.  Given what a strong year its been, now might be a nice time to lock in gains and coast into year-end.  For those trying to eek out the last few dollars of profit, stay alert and remain nimble.

TSLA daily at end of day

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA and NFLX roared back after slipping in recent days.  Fear of an imminent broad market top leads many traders to cut their exposure to the highest beta stocks first, and there are few stocks with higher beta than TSLA and NFLX.  Both of these names also suffered a recent bout of CEO’s talking down the stock.  As a momentum investor, I have no idea of such comments will let the air out of these bubbles, but as a fundamental investor, it is really hard to argue with the CEO and founder of both these companies.  If they are concerned, then we might take a hint.  Remember, the goal of this game is to make money, not sell at the top.  The most successful investors often claim the secret to their success is selling too early.  If we want to be more like them, maybe we should take the hint.

TSLA has earnings tomorrow and it is increasingly difficult for the company to surprise bulls to the upside.  Maybe they do it again, one errant comment out of the earnings call like we saw with NFLX and FB and the stock will be down 20-points.

Plan your trade; trade your plan

Nov 01

Still hanging in there

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks ended a two-day losing streak with a nice 0.3% gain.  Friday was the sixth close above 1750 as the market consolidates recent gains and is building support at this level.

MARKET SENTIMENT
We are holding within 1% of all-time highs as recent fears are fading from memory.  The market exploded higher as the weight of Taper/Shutdown/Default was lifted from its shoulders, but while we feel better about the world, most of the upside has already been realized.  We get paid for owning risk, not buying comfort and anyone chasing up here is a day late and a dollar short.  Most often the best trades are buying what we don’t want to buy and selling what we don’t want to sell.

Politics aside, the biggest risk facing the market is an abrupt overhaul or repeal of Obamacare. While there are plenty of stories on how Obamacare affects business and hiring, it is a known quantity that markets have come to terms with.  Upsetting this balance would toss a big portion of our economy into near chaos if the bill was gutted and left for dead.  What would happen to insurance policies?  People with preexisting conditions?  Subsidies?  Insurance company actuarial tables that were designed around expected enrollments?  Abruptly overhaul or repeal Obamacare and all of a sudden no one knows what the rules of the game are anymore.  Markets hate uncertainty and that would pull the floor out from underneath nearly 20% of our economy.  There is a good reason the market surprised many pundits when it shot higher following the Supreme Court’s ruling upholding Obamacare.  The market hates uncertainty more than it hates Obamacare and the last thing it wants to do is reopening the healthcare debate.

TRADING OPPORTUNITIES
Expected Outcome:
There are two ways hot markets cools down, giving up a portion of recent gains or churning sideways for an extended period.  130-points over 15-trading sessions was an amazing run and no one is surprised the market is taking a break.  The bigger question is if we pullback to support, or simply trade sideways before resuming the up-trend.

If the market holds 1750 on Monday, that shows it doesn’t want to pullback any further.  It had every opportunity to slide on profit-taking and cynical bears shorting all-time highs in recent days, but this resilience is noteworthy.  It shows dip-buyers are aggressively chasing even the most modest pullbacks and their money is putting a floor under the market.

Alternate Outcome:
With so little fear in the market, it is vulnerable to a new, previously unaccounted for risk factor.  Keep an eye out for anything that could send traders scrambling for the exits.  There is always risk of the unknown, but we can protect ourselves if we see it before everyone else.

Trading Plan:
Shorts should get ready to cover if the market doesn’t stumble in coming days.  It is always better to get out proactively when our investment thesis isn’t working as expected and our losses are modest. Avoid the stubborn pride that makes us stick around until the market moves so far against us pain forces us out.  Longs can buy continued support, but expect a slow grind higher since most of the explosive move is behind us.

Plan your trade; Trade your plan

Nov 01

Another rest day

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks finished lower for a second day, but the losses were fairly modest in comparison to recent gains.  The market started weak, but recovered early losses by midday as traders bought the dip.  Unfortunately for them, things unraveled in the final hour of trade and we closed near the day’s lows.  Of course “unravel” is bit strong to describe today’s 0.38% decline.  The market is still well above support and a little cooling off is expected and healthy.  This is nothing to sound the alarm over yet.

MARKET SENTIMENT
Many traders bought the midday rebound, but it was short-lived as we slid into the close.  Given yesterday’s “engulfing candle”, prospective buyers remain cautions and today’s weak close justified that sentiment.  While the long-term trend remains solidly intact, 130-points over three-weeks is a hell of a run and a little pullback here is long overdue.

Bears love to talk about how “overly-bullish” this market is.  When we keep setting record high after record high, how can this be anything but over-bought?  Here is another Yahoo Finance poll that shows an “overwhelming” plurality of traders have “no fear”.  The 42% bulls far outweighs all the other categories, but is this the right way to look at the data?  What if we combined everyone fearing a bubble and compared them against those that think the world isn’t in such bad shape?  Then we find 42% think things are okay, while 68% fear we are on the verge of some kind of bubble.  Framing it that way, it is hard to claim this market is overly bullish and traders are complacent when nearly two-thirds of all traders think we are standing on a trapdoor.

Source: Yahoo Finance 10-31-2013

Source: Yahoo Finance 10-31-2013

TRADING OPPORTUNITIES
Expected Outcome:
Given today’s weak close, we probably have a little more selling in the near-future, but this is nothing more than two-steps forward, one-step back.  Look for a retest of 1730/1740 support before a larger legion of dip buyers jump in and buy the discount.

Alternate Outcome:
While most markets go up and down, occasionally we run into a market that goes up and up and up.  It’s been a strong year and this outcome is less likely given where we are, but it is possible big money will buy any and every dip no matter how small.

Trading Plan:
While the trend remains intact, expect some near-term weakness as prospective buyers wait for the market to dip to support.  Maybe they will rush to buy before we get there, or maybe they wait to see how far we will go.  I don’t have a crystal ball and we will evaluate the situation as it develops.  Prospective buyers should wait a little longer to see if we get better prices. Shorts can hold for a little more downside.  But both sides should realize this will be a modest dip, so don’t wait too long to initiate new positions or cover shorts.

Real-Time Trade Alerts
A free look into my portfolio:  As of this writing, I am 300% short the SPX through the SPXU leveraged ETF and have been since Wednesday morning.  My target is the 1740 region and depending on how the market responds to this level, I will look to cover and go long if we find support.  To get more trade ideas like this, subscribe to the Real-Time Trade Alerts using the tab above this post or follow this link.

Plan your trade; trade your plan