Slow holiday week

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a modest 0.1% in a light, holiday week session.

MARKET SENTIMENT
Most of the senior traders are on vacation, leaving junior guys in charge of the trading desks.  That explains the light volume, but it also gives us insight into the kind of moves we might expect.  Most of the intelligent thought occurs on the buying side of a trade and is the domain of the most experienced managers.  On the selling side, they largely have set profit targets and stop-losses that trigger sales.  With the senior guys on vacation, we shouldn’t expect rookie traders to initiate new positions or buy dips without the oversight and approval of their bosses.  On the other hand, they do have their orders to sell when stocks hit predetermined price levels.  Limited buying authority and strict sell rules create the potential for a larger than normal selloff  since there will be fewer buyers ready to catch the dip.  That doesn’t mean this will happen, but we should expect fewer dip buyers if we stumble into some weakness.

TRADING OPPORTUNITIES
Expected Outcome:
With few traders looking to buy aggressively this week, we shouldn’t expect a strong move higher.  On the other hand, crossing stop-losses could trigger a wave of selling and we could fall further than expected without the support of dip buyers.

Alternate Outcome:
We have stop-losses on both sides of the market and any strength could trigger a short squeeze, sending us even higher.  Given the low volume of the holiday week, it doesn’t take much buying to move the markets sharply higher.

Trading Plan:
This skew between buying and selling authority over the holiday week sets up a favorable short given the potential for limited dip buying in the face of any weakness.  Or the simpler move is sitting out the low-volume week and taking a well deserved break from the markets.

FB daily at end of day

INDIVIDUAL STOCKS
FB continues to struggle following its most recent earnings call where the company hinted at weakness among young users.  On the opposite side, NFLX seems to be recovering from its earnings call driven selloff when Reed Hastings suggested the stock might be ahead of itself.  While not close to the post-earnings spike, the stock is staying well above the 50dma and challenging $350.

AAPL is consolidating recent gains and letting the 50dma catch up as owners hope for a strong holiday season.  With all new iPhones and iPads, this is the time for the company to reverse the market share losses and reclaim some of its mojo.  AAPL bulls are wishing for a China Mobile deal for Christmas, but while they’ve been waiting years for this deal, Android has become the smartphone of choice and AAPL’s China marketshare is in the single digits.  Will wealthy Chinese really dump their five-inch Android phones for the cool looks of an iPhone?  Only time will tell.

Plan your trade; trade your plan