Monthly Archives: December 2013

Dec 11

Time to get out?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
It was a bloody day in the markets as we gave back all of Friday’s employment pop.  The market is a couple of points above support at 1,780 and a dip under this level will trigger a second wave of stop-loss selling.  The market remains comfortably above the 50dma, but we will likely test this level if we cannot hold 1,780.

MARKET SENTIMENT
The question on everyone’s’ mind this afternoon was “buy the dip or sell before it is too late?”  This selloff roiled the calm ride we’ve had to this point.  This is far from a crash but it did serve as a wake up call for many traders.

Volume was only 7% above average, showing an orderly selloff without much panic.  This tells us the decline was more a function of buyers not showing up than a mass rush for the exits.  Like everything in the markets, there are two ways to read this.  The bullish view is confident owners don’t sell weakness and the market will quickly bounce on the lack of shares available for sale.  The bear’s counter argument is we haven’t seen the real wave of emotional selling hit the market yet.

For the first eleven months of the year I believed in the bulls argument that confident owners keep supply tight and prop up prices.  But given the dramatic shift in sentiment and churn in ownership from value oriented dip buyers to momentum chasers, I no longer have confidence in the resolve of owners to keep holding in the face of weakness.  These are buyers who rushed to the market once the coast was free of doom and gloom headlines.  These new, fair-weather owners are likely to be scared by their own shadow their selling will pressure markets.

TRADING OPPORTUNITIES
Expected Outcome:
It doesn’t feel like the dip is done.  The low volume selling shows we haven’t hit the emotional capitulation that often signals a bottom.  We will likely break support at 1,780 on Thursday and that stop-loss selling will trigger another leg lower.  The next stop from there will be the 50dma.  After that it largely depends on traders emotions.  Will confident owners keep holding and end the selloff?  Or will headlines screaming Taper cause many to throw out all their carefully laid plans and allow the herd selling destroys their resolve?

Alternate Outcome:
Every other dip this year felt like the real thing, why is this one any different?  We dip a couple percent, everyone gets all worked up, selling exhausts itself, and we make new highs a week later.  While this pattern cannot continue forever, its been the best trade of the year.

Trading Plan:
While we might see a modest bounce in the morning as dip-buyers try to defend 1,780, expect a fresh wave of selling to hit the market if this support level doesn’t hold.  How each trader responds to this move largely depends on their timeframe.  Nimble swing traders can short this violation of support with a stop above 1,780.  Intermediate-term traders looking to buy the dip should wait for lower prices.  Longer-viewed traders need to get ready to buy their favorite stocks when emotional owners are selling them at steep discounts.

While I expect further selling, the one thing that will turn me into a buyer is if we slip under 1,780 but bounce back decisively.  Failing to trigger another leg lower after breaking support shows the selling exhausted itself and this is yet another dip buying opportunity.

Plan your trade; trade your plan

Dec 11

Where are the dip buyers?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:22 EDT

S&P500 daily at 1:22 EDT

Intraday Update

MARKET BEHAVIOR
This morning’s selloff wiped out all of last Friday’s employment bounce.  We slipped under support at 1,800 in early trade and its been all downhill since then.  The next meaningful support level is 1,780.  Failing to hold that likely means a trip back to 1,760 and the 50dma.

MARKET SENTIMENT
Dip-buyers are MIA.  Either they are sitting on their hands waiting for even better prices, or we ran out of them and this slide will continue until we reach levels far more thrifty value investors cannot resist.

The news is fairly benign and we don’t have a major headline event driving this selling.  We simply ran out of new buyers willing to chase stocks at all time highs.  This happens from time to time and why buying stocks when everyone is fearful is typically a better strategy than waiting until the coast is clear.  Regardless of how we feel, stocks have never been riskier as we marched to new all-time highs.  That is the great paradox of the market, the higher prices go, the safe we feel, the more risk we are exposed to.  There are plenty of great times to buy breakouts and hold stocks making new highs, but that is when we still have fear and cynicism to feed off of.  Since the budget deal in October, there has been little to worry about and most investors forgot their reluctance and finally embraced this market with open arms.  But as soon as everyone finishes packing their accounts full of stocks, we run out of new buyers to keep pushing prices higher.

While it is premature to call this a top, buying definitely stalled.  Between stronger than expected employment numbers last Friday and a new longer-term budget solutions in DC on the table, we should be higher, not lower.  Some will attribute this to renewed expectations of Taper, but never forget prices move on supply and demand, not fundamentals or technicals.  We simply ran out of new buyers willing to throw their money at the market and are selling off as a result.

The challenge for bulls is this third pullback under 1790 is making many current owners and prospective buyers nervous.  With so many bullish on stocks, that leaves us with a huge pool of potential sellers.  Few buyers and lots of potential sellers is rarely a good combination for stock prices.

TRADING OPPORTUNITIES
Expected Outcome:
Failing to capitalize on recent good news shows buying is stalling and we need to tread lightly.  The key levels to watch are 1,800 and 1,780.  Bouncing and retaking 1,800 shows demand is alive and well.  Slip under 1,780 and it will trigger a wave of stop-loss selling, pushing us down to 1,760 and the 50dma.  From there it will be a matter of seeing if that is low enough to trigger a counterbalancing surge of value oriented dip-buying.

Alternate Outcome:
Over the last 12-months owners have been conditioned to hold through any and all weakness because it always ends in a bounce.  This makes it far more difficult for weakness to shake supply free.  That lack of selling makes it easier for modest dip-buying to prop up the market and has been the foundations this 25% year was built on.  Markets go down when supply swamps demand and as long as owners keep their cool, supply will remain constrained.

Trading Plan:
Shorts can take a shot at this weakness with a stop above 1,800.  Buyers are best served waiting until the market regains 1,800 because it is better to be a little late than a lot early.  Owners need to decide how much pain they can tolerate.  Shorter duration traders should have already locked in gains.  Long-term traders should ignoring these fluctuations and use any weakness as a buying opportunity.

Plan your trade; trade your plan

Dec 10

Testing 1,800 again

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks slipped in modest trade as buyers took a break.  We remain near the upper end of the recent 1,780 to 1,810 trading range and barring any major headlines, we will likely bounce around these levels as the market consolidates recent gains.

MARKET SENTIMENT
It is not unusual for the market to cool off after Friday’s strong rebound and the previous 150-point run from the October lows.  While it is easy to grow enthusiastic following such strong moves, rationally we acknowledge that every day cannot be an up-day.  But is this just cooling off or hinting at far more insidious stalling?

Last Friday’s better than expected employment report erased a five-day losing streak, but since then buying has been fairly tepid.  Yesterday the market failed to punch through 1,811 three different times.  Market makers and HFTs love pushing us to new highs because that often triggers a short squeeze and stimulates trading that puts money in their pockets.  But if they didn’t have the strength to push us those last few points, we have to wonder if this latest rebound is already running out of gas.

Sentiment swung dramatically from the depths of the Budget Crisis and most measures of sentiment are near historical highs.  While these conditions can persist for long stretches of time, it does suggest upside is more limited if the crowd already embraced this market and is fully invested.  We need new buyers to keep pushing prices higher.

TRADING OPPORTUNITIES
Expected Outcome:
Previously 1,800 acted as support and it will be insightful to watch how the market responds now that we are just a couple of points above this support.  Do we bounce off it as the good times roll, or does last week’s slow-motion slide continue as we dip back into the 1,700s?  Supposedly our politicians are coming together around a budget deal, but if that good news fails to excite the market, that likely means most of the good news is already priced in and more selling is likely.

Don’t buy any of the chatter about bubbles, crashes, and the such.  Markets go up and markets go down.  It is as simple as that.  Don’t read too much into these periodic step back.

Alternate Outcome:
Bouncing off of 1,800 and setting new highs will prove there is still plenty of demand for this market at these prices and there is little else to do but hang on and enjoy the ride.

Trading Plan:
If the market is in a trading range, expect near-term weakness.  1,780 is an important level because we bounced off it and a large pile of stop-losses are littered under this level.  Slip under and it will likely set off a wave of selling and push us down to the 50dma.  If we bounce off 1,800 and make new highs, this rally is not ready to take a break.

Plan your trade; trade your plan

 

Dec 09

Don’t Worry, Be Happy

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
Stocks continued Friday’s strength and climbed three-points to finish at 1,808, setting a new closing high.  So far the market remains at the upper end of the recent trading range between 1,780 to 1,810 as it consolidates gains.  Are we about to hit our head on the upper end of this range, or breakout?  The market will let us know as early as Tuesday.

MARKET SENTIMENT
Friday’s stronger than expected employment report continues the “no worries” theme.  Traders no longer fret over impending doom and gloom the way they did through the first 10-months of the year.  We gradually eliminated all the major risk factors, including Fiscal Cliff, Sequester, Default, European Contagion, Shutdown, and Taper.  The market rallied strongly as these terrifying headlines turned into non-issues.  More evidence that buying when other people are fearful is a very profitable strategy.

But what happens to a rally that thrives on fear, runs out of fear?  So far momentum is continuing our ascent higher, but we must always ask ourselves who is the next  buyer?  Earlier in the year we had a plethora of money sitting on the sidelines in anticipation of the widely expected correction that never came.  As we conquered every risk thrown our way, reluctant money’s fear of a correction was replaced with a fear of being left behind.

It took a while, but the crowd finally embraced this market.  This is in stark contrast to this time last year when everyone was convinced the Fiscal Cliff was going to annihilate our fragile economy.  With hindsight as our guide, it is painfully obvious what a fantastic buying opportunity that was, but what about now?  Is it too easy to buy here?  Should that alone make us fearful?

TRADING OPPORTUNITIES
Expected Outcome:
When in doubt, stick with the trend.  That has been the right call all year and more recently we keep bouncing back from even the most benign dips.  Last week we were down an almost trivial two-percent from the highs before the employment rebound pushed us right back to record highs.  The question is if there are enough chasers left to continue buying these highs, or if last week’s five-day slide is a material sign of flagging demand.    While the economy is chugging along, markets rarely respond to fundamentals in obvious ways.  That would be too easy and we all know the market is anything but easy.

Alternate Outcome:
If I had a dollar for every time I heard someone say this market’s gone too far.  Those guys were forced to eat their words, so what makes this time any different?  If picking tops were easy, we’d all be hanging out on the beach in some tropical destination drinking ice-cold beverages instead of huddling around space heaters trying to survive this cold spell.

Trading Plan:
With so little fear remaining in the market, the probability of an explosive move higher is greatly diminished.  That leaves two options, a sideways grind higher, or the selloff everyone’s been waiting for.  We are quickly establishing a trading range between 1780 and 1810.  Since we are at the upper end of this range, look for recent strength to stall.  Depending on how dip-buyers respond, we could bounce at 1800, or slip to 1780.  Recent weakness set a floor at 1780 and many traders will use this level as a stop-loss.  Breaking through will trigger a wave of selling and we will quickly test the 50dma.  If we bounce, it becomes another routine dip-buying opportunity.

Plan your trade; trade your plan

Dec 08

Employment saves the day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks recovered two-thirds of recent losses on Friday following a stronger than expected employment report.  We gapped higher at the open and held these gains through the close.  Reclaiming prior support at 1,800 is a big win for the rally and the market is establishing a trading range between 1,780 and 1,810.

MARKET SENTIMENT
Bulls are breathing a sigh of relief as this employment report snaps a five-day losing streak.  While the modest selloff made holders uneasy, it wasn’t deep enough to convince a large number of them to dump their shares.  Much of the recent selling was likely bears shorting the weakness and Friday’s strength forced many of them to buy back those shorts for a loss.  Short-squeezes are strong, yet temporary and the bigger question following Friday’s rebound is if this strength will attract a sustainable wave of new buyers to the market.

With bullish sentiment at levels we haven’t seen in years, it is hard to get excited about owning this market.  The challenge of trading sentiment is it is just as hard to pick a top in sentiment as it is to pick a top in the market.  While sentiment doesn’t give us a timing signal, it does provide insight into how large resulting moves might be.

Stocks only move when people change their minds.  This is when they adjust their portfolio to reflect their new outlook and the resulting buying and selling moves prices.  The problem with widespread bullish sentiment is there are fewer people remaining to convert to buyers and that limits the potential upside.  On the other hand, a huge crowd of bulls creates an ample supply of prospective sellers.  While we can continue higher as we attract the last of the holdouts, there is far more risk of a large downside move simply because of how crowded the bull side has become in recent weeks.

TRADING OPPORTUNITIES
Expected Outcome:
Trends are more likely to continue than reverse, but the larger potential move is to the downside.  How each person trades this is up to them.  Someone swinging for the fences will short the market since that is where the biggest pile of money is.  Someone happy with small gains will continue squeezing nickels and dimes out of the rally.

Alternate Outcome:
Treasuries keep falling in price, chasing many out of that market and they need to find a place to park their money.  Given what a great year it’s been for equities, many will be tempted to chase this strength.  Their buying can continue pushing us longer and higher than anyone imagines.

Trading Plan:
The market is consolidating in the 1780 to 1810 range.  We can buy the weakness and sell the strength until the next directional trade breaks out or breaks down.

Plan your trade; trade your plan

Dec 05

Five in a Row

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

End of Day Analysis

MARKET BEHAVIOR
Stocks slipped for a fifth consecutive day.  While that sounds worrisome, the declines are measured in tenths of a percent and after all that selling we are only 1.5% from all-time highs.

MARKET SENTIMENT
While the seemingly chronic weakness is weighing on the market’s spirit, it has not been enough to convince most traders to change their outlook or positions.  They keep holding in anticipation of the expected bounce and the selling has been so mild it isn’t applying pressure to holders.  Markets refresh after strong runs by flushing out the excess.  So far these five days have not provided us with a meaningful flush that forces weak hands from the market.  While we can bounce to new highs at any time, failing to reset the giddy sentiment will prevent it from being a meaningful and sustained move higher.

Friday morning brings the November jobs report.  The market was blown away by October’s unexpected strength in the face of the Gov’t shutdown and this week’s ADP numbers were also stronger than expected.  Both of these prior beats lay the framework for high expectations.  The challenge for bulls is finding their Goldilocks number.  Too high and it threatens easy money.  Too low and it signals economic weakness.  But what happens if we slip perfectly between these two landmines?  Do we surge higher, or are the raised expectations already priced in and there is little upside remaining.  Potentially we face a no-win situation if we run into a sell-the-news even if employment hits the sweet spot.  Too highs and traders sell, too low and traders sell, and just right, no one buys.  While this hypothetical is a bit exaggerated, it sure seems like there are more reasons to go down than up and that skew creates a trading opportunity.

TRADING OPPORTUNITIES
Expected Outcome:
Today’s failed follow through on the heels of yesterday’s impressive intraday bounce reveals cracks in the rally.  Every other time this year a strong reversal would leaded to a sustained move higher.  This time buyers are either waiting for more attractive levels or we exhausted the supply of new money.  While it is always risky to go against the trend, today’s weak trade following yesterday’s strong rebound signals a potential change in character.

Alternate Outcome:
The market hates being predictable and buying the dip is getting way too easy.  While the market could continue higher, it wants to convince everyone it is going lower first.  That means continued weakness until most bulls give up and most bears get cocky.  Only after that reversal in sentiment will prices bounce back with a vengeance.  The market moves on its schedule and it is often more patient than the rest of us.

Trading Plan:
As long as we remain under 1800, we need to be cautious.  Owners can lock in profits and dip-buyers should sit on their hands.  Wait for the market to prove itself by reclaiming and holding 1800 before jumping back in.  While we could pop above this support level soon after the jobs report, wait to see if the gains hold before chasing.  On the other side, bears can use any weakness to add shorts while keeping a tight stop above 1,800.

AAPL daily at end of day

AAPL daily at end of day

INDIVIDUAL STOCKS
All the good news is out for AAPL. We have new iPhones and iPads in time for Christmas and AAPL bulls got an early present with the leak that China Mobile will start selling the iPhone in coming weeks.  This was the most anticipated announcement all year, yet the stock closed up less than $3.  A good rule of thumb for retail investors, if you know something, then it is likely everyone else also knows it and it is already priced into the stock.  Today’s non move on the China Mobile headline is more indicative of a buy the rumor, sell the news trade and any owners should move up their trailing stops.

TSLA is consolidating recent gains following the German stamp of approval on the car’s batteries.  Any broad market weakness will likely hit this stock doubly hard, so it is still a no-touch until both the market and stock prove they are ready to continue higher.  For TSLA that means clearing the 50dma.

Plan your trade; trade your plan

Dec 05

Nickels and Dimes

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

S&P500 daily at 1:15 EDT

MARKET BEHAVIOR
The slow grind lower continues for a fifth day as the market gave up an almost trivial three-points in early trade.

MARKET SENTIMENT
Five days of selling that only manages a 1.5% decline from all-time highs is hardly worth paying attention to, but maybe that is the plan.  The market might try to lull us to sleep before it robs us blind.

There are two kinds of market declines, the spectacular crashes that take everyone’s breath away, leaving us paralyzed with fear and indecision.  The other is a painfully boring slide that chips away nickels and dimes under our nose.  We all know the market is imploding when we wake up one morning and a huge chunk of our portfolio is missing, but when we slip a few points here and there, no one seems pay too much attention.  These are the losses we can easily rationalize away because no one is afraid of 0.1% and 0.2% declines.

But the thing is the slow-moving selloff tend to last longer and do more damage than their faster moving cousins.  Everyone remembers the Financial Meltdown that crippled global markets in the Fall of 2008, but many forget the market had already been selling off for a full year prior to the crash.  Drop five percent in a day and it is headline news.  Drop five percent over two months and no one notices.

TRADING OPPORTUNITIES
Expected Outcome:
The 1.5% dip from all-time highs doesn’t seem to be enough to attract a new wave of dip-buyers and we continue languishing under 1,800.  Sometimes holding near new highs supports recent price gains, other times it signals dwindling demand.  Most stock owners have been conditioned to continue holding weakness because every time they sold, they came to regret that decision as the market quickly rebounded to new highs.  That attitude is keeping supply tight and supporting prices as owners refuse to sell the weakness.  But we also need to worry about the other half of the equation, demand.  With as optimistic as the market’s become in recent weeks, many of the people who wanted to buy this market already have. Without a supply of fearful holdouts to convert into buyers, it is less clear who will fund the next leg higher.

Alternate Outcome:
Markets consolidate gains one of two ways, the first is pulling back, the second is trading sideways for extended periods.  While it seems likely this market will reconnect with the 50dma in coming weeks, it could do that by simply staying at these levels and letting the moving average catch up to it.

Trading Plan:
There is a little something for everyone.  A bear can short the market with a stop above 1800.  A bull can continue holding with a stop under  1,780.  For the person out of the market looking to get in, wait until we reclaim 1,800 before buying.  It is better to be a little late than a lot early given all the clear air under the market.

Plan your trade; trade your plan

Dec 04

A wild ride to nowhere

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
A wild ride to nowhere.  Gap 10-points lower at the open, surge 15-points an hour later, collapse 20-points a few hours after that, only to reclaim another 15 just before the close.  If anyone is keeping track that, there was more than 60-points of up and down through the day, easily the wildest ride in quite some time.  But for all that amazing volatility, we finished down a trivial 2-points!

MARKET SENTIMENT
There was a little something for everyone in today’s trade.  For bears, tops are often volatile as the battle between bulls and bears heats up.  This is because previously dominant bulls start losing their grip on power and bears are finally able to put up a competitive fight.  Today’s back and forth certainly qualifies as a competitive fight.  For bulls, everything was clearly going the bears way when we slipped under 1,780, yet they couldn’t hold that ground as a wave of dip-buying bowled them over.

Markets often break down faster than they climb.  There are plenty of human and crowd psychology reasons for that, but what is important is bears had a golden opportunity to break this market wide open, but they just couldn’t get it done.  That clearly shows buyers are not rolling over here and they still have sufficient strength to defend these levels, at least for the time being.

While today’s rebound is impressive, it is hard to be bullish when everyone else is.  Investor Intelligence bullish readings are near 5-year highs (57.1%) and bearish levels are setting new 5-year lows (14.3%).  While these readings don’t give us definitive trading signals, they indicate an imbalance that will invariably swing back the other way at some point.  Maybe it won’t be tomorrow, next week, or next month, but it is coming and that makes it hard to get comfortable with these levels.

TRADING OPPORTUNITIES
Expected Outcome:
Markets decline for one of two reasons.  The more obvious is unexpected bad news causes investors to lower their expectations of the future and thus the price they are willing to pay for stocks.  The second is running out of new buyers because the crowd is extremely bullish and everyone who believes in the rally already owns all the stock they can hold.  While the first case leads to a terrifying and breathtaking plunge, the second scenario sneaks up on us as we slip lower without raising alarms.  Since current worries are few and far between, we can discount the imminent plunge and instead need to be watchful of the benign grind lower.  While it is clearly premature to be talking about a correction 1% from all-time highs, with so many bulls already in the market, it is hard to figure out who the next greater fool is.

Alternate Outcome:
When in doubt, stick with the trend.  So far we have seen little concrete data or technical behavior to suggest this market is running out of gas.  Even if we pullback for a few days, all that does is shake free weak owners who will soon be forced to chase this market as it continues higher without them.  Reclaiming 1,800 and setting new highs above 1,813 will go a long way to showing this rally still has legs.

Trading Plan:
The market is at a critical juncture.  Either we bounce or we don’t.  It is hard to be more clear than that.  Failing to reclaim 1,800 shows buyers are becoming scarce and a test of the 50dma is likely.  On the other side, another humiliating defeat of bears at 1,780 likely means we have new highs in the near future.  Trade each of these scenarios according to your outlook, but keep stops close incase the market doesn’t respond as expected.

INDIVIDUAL STOCKS
The WSJ is reporting AAPL finally landed China Mobile, something AAPL bulls have been eagerly waiting for.  Now that it is finally here, we get to see how much of this news is actually priced in the stock.  While we will no doubt see a strong reaction to the news, the more meaningful trade will occur after the initial excitement settles down.  Will the stock keep adding to those early gains, or is this a buy the rumor, sell the news event?  If we see a nice pop, it would be hard not to take profits off the table given how far the stock’s come in recent months.  This is not unexpected news, so it is unlikely it will cause a lot of investors to change their mind about the stock.  Those that were bullish before this news will remain bullish, and most bears are bears for reasons unrelated to China Mobile and equally unlikely to change their outlook.

Plan your trade; trade your plan

Dec 04

Volatility increases

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:18 EDT

S&P500 daily at 2:18 EDT

MARKET BEHAVIOR
A wild ride this morning as we gapped lower, surged higher, and then plunged under the early lows by midafternoon.

MARKET SENTIMENT
Volatility is often a sign of shifting trend as many stubbornly continue trading what has been working, but their declining numbers mean they don’t hold the same sway over the market.  For the last 12-months every dip has been buyable.  While most resisted buying the dips in the first half of the year because they expected a pullback, now everyone is buying the dips because that has become the most obvious trade.  But what happens when everyone starts buying the dips?  After a while the crowd ends up fully invested and there is no one left to buy.

The last few months has seen a dramatic shift in sentiment as we went from countless headlines of doom and gloom to a complete lack of fear.  Markets move when people change their mind and as people warmed up to the market, their buying pushed us to all-time highs.  Now that we are at a point where everyone feels pretty good, there are fewer bears left to convert to bulls.  That means price gains will slow down.  Even more worrisome is this new, large pool of bulls is ripe to change their minds their selling will push us lower.

While sentiment is not an exact science, it gives us insight into probabilities for a move.  While we can easily continue making new highs, the large shift in sentiment makes us vulnerable to a pullback.  While we cannot use this as a timing signal, it gives us an idea of the actual risk/reward of owning the market.

TRADING OPPORTUNITIES
Expected Outcome:

Fear and uncertainty is only just starting to creep back into the market.  By nature the market is a fearful creature and the last six weeks has been unnatural.  Nothing brings fear back into the market like sliding stock prices.  It really doesn’t matter what reason people attach to it, they are simply trying to rationalize what is nothing more than the laws of supply and demand taking over.  While it seems likely we are destined test the 50dma in coming weeks, it won’t be a smooth ride and expect the choppy volatility to continue.

Alternate Outcome:
Every dip is buyable until it isn’t.  We are only 1.5% from all time highs and it is certainly premature to be calling a top.  Every dip purges excess from the markets and this choppiness might be all we need to refresh the market and set the stage for the next leg higher.  If the market recovers recent losses, that shows dip-buyers are alive and well.

Trading Plan:
Given the large shift in sentiment recently, it is hard to justify the risk/reward of buying such a minor dip.  Let this move play out and we will likely get the opportunity to buy at even more attractive levels in coming weeks.

Plan your trade; trade your plan

Dec 03

Time to cool off?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks opened under 1,800 and failed to reclaim this nice round support level by the close. The market is still 50-points above the 50dma following its 160-point, nearly straight-up bounce off the October lows.  This is the eighth-week the market’s been above the 50dma and is the longest stretch since we did nine-weeks back in January and February.  No matter what side of the bear/bull debate we fall on, it is perfectly reasonable to expect the market to retest support at the 50dma in coming weeks.  Sometimes that involves a pullback, other times it simply means pausing so moving average can catch up.

MARKET SENTIMENT
The last few weeks have been worry-free once our politicians quit their bickering and raised the debt ceiling, removing the risk of a catastrophic default.  Since then it’s been clear sailing with the tail winds of Yellen’s confirmation hearing and stronger than expected October employment numbers.  But the thing is the market is a worrier by nature and it cannot go long before fear over some impending disaster creeps in.  Today’s weakness is largely attributed to a bad day on the German markets and increasing concern over Taper in our part of the world.

Markets often move in waves as the pendulum of sentiment swings between fear and greed.  It’s been a good run and we should expect a move the other direction at some point.  But when the fear creeps in, embrace it, don’t be afraid of it.  Nervous sellers dumping shares at a steep discounts is the way confident traders make money.  Their fear is our profit.

TRADING OPPORTUNITIES
Expected Outcome:
Anyone holding out for higher prices in the near-term needs to see the market reclaim 1,800.  This proves dip-buyers are alive and well.  Without that, we could see the market slip back to the mid 1,700s as value oriented buyers wait patiently for more attractive prices.

Earlier this year the traditional “sell in May” was a bad idea, as was the conventional wisdom  that September and October are horrible months to own stocks.  Now we have many of those same people pointing out how strong December traditionally is.  2013 hasn’t payed much attention to conventional wisdom, so I wouldn’t count on the Santa Clause Rally either.

Alternate Outcome:
Reclaiming 1,800 and setting new highs this week shows this rally isn’t ready to take a break and wants to keep going.  While we can debate the sustainability of such a move, only price pays and we cannot argue with a rallying market.

Trading Plan:
Traders need to quickly decide on what timeframe they are using.  Longer-term investors will sit through any near-term weakness and use these opportunities to buy more of their favorite stocks.  Shorter-term investors should lock in recent profits and look to buy back in at lower levels.  The most aggressive can short the market with a stop above 1,800.  If we reclaim and hold 1,800 we need to reevaluate expectations of near-term weakness.

MSFT daily at end of day

MSFT daily at end of day

INDIVIDUAL STOCKS
TSLA blew up in shorts faces as a German regulatory agency deemed the car safe following recent reports of battery fires. That sent the stock up $20.  But is this a fundamental catalyst that will get the momentum bandwagon going again?  That is harder to say.  I have my doubts, but if the stock reclaims the 50dma, then let the party continue.  If it hits its head on this level, we likely still have more selling in front of us.  No matter how safe the car is, the public if fascinated by this story and expect any future car fires to be front page news.  This is no different from the TM gas pedal incidents or Gulf Coast shark bite scares.  The more rare the event, the bigger the news it is, especially when someone catches video of it on their smart phone.

AAPL is off to the races again as the iPhone and iPad are flying off the shelves this holiday season.  While that was expected, more surprising is the PBS News Hour reported that MSFT‘s Surface was the best-selling tablet at Best Buy over the weekend.  While this was aided by aggressive pricing, buyers might actually be looking for more utility out of their tablets than Angry Birds and Candy Crush.  I believe the future lies in full featured tablets and MSFT/INTC are the only ones providing these capabilities.  While many accuse MSFT/INTC of falling behind the times, I actually think they are ahead of the pack on this one.

Plan your trade; Trade your plan