Time to cool off?

By Jani Ziedins | Intraday Analysis

Dec 03
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

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

Peto1 December 3, 2013

“I believe the future lies in full featured tablets and MSFT/INTC are the only ones providing these capabilities.”

Yeah, absolutely – for all the “real” work you gotta do …
[lol]

    Jani Ziedins December 4, 2013

    YTD performance
    AAPL 6%
    MSFT 43%

    Success in the market comes from trading what other people don’t see, not what everyone already knows.

      peto1 December 4, 2013

      I know, right. It’s weird though, because:

      MSFT 3YR Performance – 43%
      AAPL 3YR Performance – 76%

      Real success in the market comes from investing in quality companies and being patient despite short term price fluctuations …

        Jani Ziedins December 5, 2013

        Very few high flying stocks survive beyond their growth phase before being knocked out by a younger, more nimble competitor. Those that do, mature and trade sideways for a decade or longer. MSFT doubled earnings and revenue over the last decade, yet the stock remained stuck in the $20. Wall Street greeting AAPL’s China Mobile deal with a yawn likely mean AAPL is entering its mature phase. Growth investors chase the hottest stories and its been years since AAPL wowed us with something truly innovative. With declining margins and earnings, bulls have resorted to hyping up valuation as the most attractive reason to own the company. That usually signals the end of the momentum story and its become a value story. The problem with value investors is they are notoriously stingy and only buy things at a discount.

          Peto1 December 8, 2013

          There is no Apple/China Mobile deal until the parties themselves announce it – which they have not. When they do – whenever they do – then I think you’ll see a nice bounce in the stock price. Apple will be bringing a number of new product categories to market in 2014 which should wow us all as they will be truly innovative. As a result Apple’s margins and profits will improve and momentum will return to the stock …

          Jani Ziedins December 8, 2013

          As an Apple customer, I hope you are right. iCloud, iMaps, Siri, iRadio, etc have been all sizzle and little steak. Lion and Mavericks were a yawn. iPad mini was a me-too product. iOS7 was a big upgrade, but it only gave us things Android users have had for years and didn’t break any new ground. The last time AAPL really wowed me was three years ago with the Retna display on the iPhone4. Since then the upgrades have been very incremental and these days AAPL is more often the one playing catch up.

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