Monthly Archives: January 2014

Seesaw continues

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
US stocks gapped lower at the open on inflamed Emerging Market concerns that sent European markets tumbling.  This gap lower failed to breach 1,770 support and the market bounced off those early lows by midmorning.

MARKET SENTIMENT
Our markets are jumping all over the place on events happening a world away.  The lira, forint, and rand are all under pressure and sending US investors scurrying for cover.  If you don’t know what those are, don’t worry, you are not the only one.  If US politicians shutting down our govt and threatening to default on our debt was nothing more than a blip on the way higher, why are we allowing currency problems in countries smaller than individual US states to weigh so heavily on our markets?

Most investors are not overly concerned about these Emerging Market problems infecting our economy, but they are afraid of other investors being afraid of them.  They are not selling based on a shift in their fundamental outlook, they are selling the expectation that other people are going to sell these headlines.  Selloffs driven by selling because everyone else is selling are dramatic, scary, and fast, but rarely have staying power.  Once the frenzy subsides, everyone wonders how they could have acted so silly.  But we are clan animals and through our innate survival instinct, when the clan is nervous, we are nervous.  Many global markets were at all-time highs and most investors harbor a fear of heights.  They were looking for an excuse to sell and this excuse is as good as any.

TRADING OPPORTUNITIES
Expected Outcome: Modestly bullish – lower end of expected trading range
Recent volatility shook out most owners who were not committed to their positions.  Those left standing demonstrated comfort holding this risk and volatility.  The more confident the remaining owners are, the less supply we have on the market and the easier it is for prices to rebound.

1,770 is building as a key support level.  If there is one thing we know about support and resistance, markets like to breach them before reversing the other way.  A quick dip under 1,770 would trigger a wave of automatic stop-loss trading.  But unfortunately for those stop-loss sellers, that last dip under support will likely be the final purge before this market overcomes these Emerging Market fears.

Alternate Outcome:
Are we running out of sellers or dip buyers?  Every day the market presents us with two equally compelling scenarios.  The market price is the perfect balance point between these two contrasting outlooks.  Half the market expects us to go higher, the other half thinks we are headed lower.  A dip under 1,770 could do more than trigger one last wave of stop-loss selling, it could trigger another avalanche of emotional selling.

Trading Plan:
The longer we hold these levels, the more likely it is we are near the bottom of this selloff.  While we might dip under support at 1,770, that will likely be a quick lived shakeout that purges any remaining excess and clears the way for another move higher.  But we do have to be careful about these global headlines.  2008 taught us that on rare occasions, things are far worse than markets fear.

INDIVIDUAL STOCKS
AAPL is still struggling with $500 and any hopes for a v-bottom are quickly evaporating as value buyers are not impressed with these new discounts.  No doubt Apple is one of the greatest companies in the world and they have unbelievably loyal customers, but with 20% market share in smartphones, they might not deserve to be the largest company in the world.

TSLA  is adding to recent gains as it tries to recover prior highs.  This bounce is demonstrating staying power and the stock will likely breach $200 in coming weeks.

AMZN fell under the 50dma on disappointing earnings.  Is this the top everyone’s been expecting in this high-flying momentum stock, or just another dip along the way.  To see a larger selloff in AMZN, we need to see a fundamental change in the company’s prospects going forward.  AAPL fell on declining market share.  NFLX’s most recent collapse came after subscribers fled the planned split of the DVD and streaming business.  AMZN will bounce back if the original story remains in tact.

Plan your trade; trade your plan

Anatomy of a bounce

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks rebounded from yesterday’s 1,770 lows, shrugging off another overnight Asian bloodbath.  This is the fourth day the market held 1,770 and likely indicates, at least for the time being, the Emerging Market selloff is no longer a major worry for US markets.

MARKET SENTIMENT
With every headline, there are market participants who think it is a big deal and others that are indifferent.  Over the last week, those fearing developments in emerging markets sold, fearing this was the start of something bigger.  Those that bought from the sellers demonstrated a lack of fear of the same headlines.  Anyone holding the dip also showed a willingness to continue owning in the face of these risks.  Eventually we reach a point where everyone who is concerned is out and anyone left is indifferent.  That is the point where selloffs end.

Yesterday’s Fed Taper and last night’s Asian selloff was the perfect invitation for anyone worried about those events to sell.  The fact we didn’t selloff indicates there are few worrywarts left in and most holding stocks are comfortable owning these risks.  As long as those events maintain the same trajectory, we shouldn’t expect our markets to react since these expectation are now priced in.  Obviously if the situation deteriorates, it will trigger another round of selling, but most likely the worst is behind us.  Better yet, if the situation turns out less bad than feared, emotional sellers gave us another profit opportunity.  Their pain is our gain.

TRADING OPPORTUNITIES
Expected Outcome: Modestly Bullish – buy the dip
The Emerging Market selloff is taking a break and will likely turn into a near-term short-squeeze.  That doesn’t mean the coast is clear and we are coasting to 1,900.  Stay vigilant and look for the market to trade sideways in the 1,770 to 1,850 range for the remainder of the quarter.

Alternate Outcome:
There are still risks abound and this might be nothing more than a technical bounce if the Emerging Market situation flares up or January’s employment shows December’s disappointing numbers were not fluke.  If buying dips were easy, everyone would be rich.

Trading Plan:
Support is buyable for a swing trade.  When the market gets back to the 50dma, we will reevaluate sentiment to determine if this bounce is headed back to the upper end of the 1,850 trading range, or stall and tumble to new lows.

INDIVIDUAL STOCKS
AAPL slipped under $500 for the first time since October as dip buyers are still shying away from what bulls claiming is a fantastic buying opportunity.  Part of AAPL’s problem is everyone who loves the stock already owns it.  Those not already drunk on the Koolaid are wary of the slowing growth and want to see AAPL reinvent another product category before pushing the stock back toward old highs.  At this point is seems like the best outcome for shareholders AAPL becomes another MSFT and trades sideways for the next decade.  Worst case is it follows the same trajectory as the other hot handset makers, PALM and BBRY.

FB shattered expectations again.  The IPO darling, turned Wall Street joke, turned juggernaut, shows just how emotional traders are toward high-flying stocks.   NFLX is another darling, goat, back to darling story, except this is NFLX’s third trip through the rodeo.  Best advice is sell what everyone loves and buy what everyone hates or is afraid to own.

Plan your trade; trade your plan

Down, but holding support

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks gapped lower at the open on renewed emerging market concerns, but are off those early lows in midday trade.  This morning’s dip failed to undercut Monday’s lows and continues trading sideways above support.  If we hold this level for a few more days, we might be establishing a wider 1,770 to 1,850 trading range that could last the remainder of the quarter.  Several months of sideways trade would go a long way toward refreshing this aging bull.

MARKET SENTIMENT
The headline everyone is waiting on is the Fed policy statement due at 2pm EST.  I’m not sure what people expect since the Taper policy was explicitly telegraphed last month.  Plan on another $10B taper and holding ultra low-interest rates.  If that catches anyone by surprise, they are clearly not paying attention.  If some are hoping a 3% “crash” in equities or monetary crises in small countries on the other side of the globe will force the Fed to change their carefully laid out plans, they will be disappointed.

Of course fundamentals and sentiment are two very different things and we all know markets trade sentiment in the near-term.  While we will likely put this emerging market turmoil behind us in coming weeks, that doesn’t mean traders won’t react emotionally to the headlines in the present.  It comes down to how upset the market is when Taper marches ahead despite emerging market worries and disappointing December employment.  But often when the market responds emotionally to news, that creates profit opportunities for those willing to take the other side.

Last year we had a “half-full” market that looked at the positive in every data point or headline.  Could these emerging market woes be a sign the market is shifting to a “half-empty” outlook?  If we see a fundamental shift in the market’s outlook and disposition, that could signal a reversal in trend.  For the time being, four days of selling is anything but conclusive, it is simply something to keep an eye on.

TRADING OPPORTUNITIES
Expected Outcome: Cautiously bullish – buy weakness
Every selloff in history has been a buying opportunity, the only question is how long it takes to show a profit.  This time is no different.  Currently the market is finding support above 1,770 for the third day.  We didn’t get a V-bottom like we’ve seen following other dips recently, but halting the emotional selloff is constructive.  Buyers are demonstrating a willingness to support the market at these levels and we’ve run out of panicked sellers.  The market is likely establishing an extended sideways trading range in order to digest all of 2013’s gains.

Alternate Outcome:
If holding 1,770 is constructive, falling under it is destructive.  Failing to hold support will elevate anxiety all over again and reignite emotional selling.  Be prepared for another leg down if we cannot hold support.

Trading Plan:
Maintaining 1,770 through Thursday is encouraging and suggests we are putting these emerging market fears behind us.  Quarters typically have personalities and ending this selloff likely means this one is finding a bottom and setting up to trade sideways.  Fail to hold support and all bets are off.

INDIVIDUAL STOCKS
Buyers have not rushed in to save AAPL and the stock is down modestly following yesterday’s plunge.  Bulls argue that AAPL is a software company not a hardware company, but given the market’s reaction to yesterday’s earnings, Wall Street thinks AAPL is little more than a phone company.  The company exceeded expectations on almost every metric expect phone sales.  Everyone agrees AAPL built an impressive and profitable ecosystem, but at its core is the iPhone.  Take that away and everything else falls down.  Maybe the Street is on to something when it focuses almost exclusively on the iPhone sales.

Plan your trade; trade your plan

Relief Rally

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks took a break from three days of selling and are up modestly in midday trade.  Yesterday we bounced off 1,770 support that comes from October, November, and December trade.

MARKET SENTIMENT
The global rout eased as Asian and European markets finished their sessions flat or higher.  This took pressure off US markets and we are experiencing a modest relief rally.  While it is nice to end the emotional, sell first, ask questions later trade that occurred over the last few days, everyone is wondering if this is just a temporary reprieve before another leg down, or if this is the end of the Emerging Market tantrum.

The slide paused as all those who wanted to sell already sold.  Now bulls and bears are watching intently to see what comes next.  Most weak sellers were purged in the relentless, three-day implosion.  Far more bold traders took their place, buying the dip and through those actions demonstrate little fear of this weakness.  The remaining group of owners we have to worry about are those formerly confident holders who are now riddled with doubt and paralyzed with fear.  This morning’s bounce brings them some relief, but no doubt that anxiety will flare up if prices reverse lower.

The recent slide already undercut most stop-losses, so we don’t need to worry about big waves of automatic selling if the slide continues.  The biggest risk is a continuation of the pain trade where owners cannot bear the thought of losing any more money and manually pull the plug.  While this dip feels dramatic, we must realize anyone holding a widely diversified basket of stocks is most likely still sitting on profits from last year’s monster gains.  While theoretically money is a commodity, many traders have a higher risk tolerance for profits than principle.  That means most of the longer-term holders are still quite comfortable and the only ones experiencing an inordinate amount of pain are short-term traders and late buyers of last year’s rally.  Since both of these groups are relatively small compared to the broad market, their emotional selling can only take us so far.  To continue the selloff, we need to flush out longer-viewed traders sitting on nice gains.  That is harder to do and a large part of the reason the emotional selloff didn’t last more than three-days or push us down much more than 4% from the highs.

TRADING OPPORTUNITIES
Expected Outcome: Cautiously Bullish – buy weakness
Anytime emotional selling takes a break, it is a good thing.  This gives owners a chance to regroup and evaluate the big picture.  Buyers also often wait for the selling to stall before jumping in and this pause gives them the opportunity to buy at prices we haven’t seen since October.

We typically get a couple 5% pullbacks a year.  10% pullbacks are less common and  happen once a year or less.  20% pullbacks are rare and only happen every few years.  Straight probabilities suggest this weakness is more likely the 5% variety than a 10% or 20% correction.  When in doubt stick with the trend and the high probability trade.  If buying dips were easy, everyone would be rich.

Alternate Outcome:
Through most of 2013, we ricocheted off each dip’s low.  This rebound is taking its time.  Either this is not the actual bottom, or the market’s character is changing.  Both of these are concerns we need to pay attention to.  Markets rarely implode from the highs, instead they step lower.  So while the market might bounce here, we need to be wary of further weakness if the market is unable to make new highs.

Trading Plan:
We only make money by taking risk.  Buying dips when everyone is fearful of continued selling is never an easy trade, but more often than not it is the right trade.  But at the same time, there are no guarantees in the market and we always need a contingency plan.  If the selloff truly stalled and the market is ready to rebound, we should not retest Monday’s lows near 1,772.  Dipping under this level likely means another round of pain is coming.

INDIVIDUAL STOCKS
AAPL beat expectations on almost every metric but iPhone sales and the stock is getting crushed for it, down about 8%.  Tim Cook and bulls point to supply constraints and other issues that lead to slower sales, but Wall Street is not buying these excuses.  Most likely investors are frustrated by the lack of innovation.  The biggest risk is AAPL’s sentiment transition from great company with explosive growth to rock solid company with above average growth.  The nuance is minor, but to the market it is the difference between reclaiming $700 and trading sideways for a decade.  Many of the greatest companies in the world traded sideways following epic stock runs.  There is no reason to expect AAPL’s stock will be any different.  At this point we have dividends, buybacks, product refreshes, and China Mobile, but so far nothing is moving the needle.  Wall Street wants another new must have device and the stock will likely trade sideways until AAPL disrupts another product category.

Plan your trade; trade your plan

More selling

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks sold off for a third straight day and are testing prior support near 1,770.

MARKET SENTIMENT
Emerging market fears continue embroiling stocks and buyers are unwilling to step in front of this selloff.  This price decline is shaking the resolve of previously confident owners and many are choosing to sell this weakness rather than endure the pain of seeing the market fall any further.

As rational traders, we need to decide if currency issues in Turkey and Argentina will materially affect the US economy and corporate earnings.  In years past we’ve seen our markets tumble over downgrades of US debt and the risks of financial contagion in the Eurozone. Those issues threatened our financial infrastructure and brought flashbacks of the 2008 meltdown.  Obviously we cleared those terrifying hurdles on our way to all time highs last year.  In the big picture current emerging market issues are far less threatening to our economy and will likely pass through the system even quicker.

This selloff is more about sentiment than fundamentals.  We should ignore these relatively minor headlines and instead focus on how other traders are responding to this weakness.  Most traders are not overly concerned about these fundamental issues on the other side of the globe, but there is just enough uncertainty to make them nervous.  Then when they see everyone else panic and run for the exits, it is hard to resist the urge to join the hysteria.  Everyone knows markets go up and down, but it is easy to forget that when we see prices tumble.

The last three days of weakness has flushed out a large chunk of the excess enthusiasm.  Dramatic moves lower chase off most of the holders who are inclined to sell.  Those owners still holding are far more confident in their analysis and not interested in selling no matter what near-term moves the market makes.  It is on the backs of these confident owners that the market will find a bottom and bounce higher.  This periodic purging of weak owners is how markets refresh themselves.  Recent sellers and shorts will eventually push the market higher when they buy back in over coming weeks.

TRADING OPPORTUNITIES
Expected Outcome: Cautiously bullish – buy weakness
Everyone wants prices to pullback so they can get in at lower levels, but every time the market gives us what we ask for, many are too nervous to take the gift.  Profit opportunities come from volatility and this weakness is exactly what we want to see.  Emotional owners are selling at discounts as compared to what they thought stocks were worth last week and that creates profit opportunities for those willing to take a risk.  We buy their fear and sell their greed.

Alternate Outcome:
Every 20% selloff starts with that first 4%.  While the market could bounce at any time, there nothing more effective at shattering confidence than a relentless selloff.  While these headlines seem unworthy of a large decline, the market rarely does what we expect it to do and if the crowd reaches full-blown hysteria, there is no telling what it could do.

Trading Plan:
Buy weakness and sell strength.  Define your risk and take what other traders are giving away.

INDIVIDUAL STOCKS
AAPL earnings are on tap after the close.  The stock is up quite a bit from last year’s lows and it will take impressive results to continue the recovery.  If the company blows away expectations, look for the strength to continue.  If bulls don’t get what they are hoping for, the stock will struggle as it runs out of catalysts to justify high growth expectations.  This earnings will like set the tone for the next three months of trade, so go with the momentum.

Plan your trade; trade your plan

Who’s the sucker

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks undercut prior support near 1,810 and slipped under the 50dma for the first time since October.  The market is testing the lower bound of the recent trading range after failing to break above it earlier in the week.

MARKET SENTIMENT
Markets are nervous following recent Asian and emerging market weakness and this anxiety is flaring up among short-term traders.  Stocktwits’ SPY sentiment survey has seen bullishness drop from 80% in December to 39% today.  Last week’s AAII sentiment survey showed bullishness dip under 40% for the first time since November.  What was record high levels of bullishness just a few weeks ago has cooled off dramatically and is a healthy sign.

When analyzing sentiment, it is helpful to segregate market participants by timeframe.  We have day-traders, swing-traders, position-traders, and buy-and-hold-forever.  Stocktwits is comprised primarily of active day and swing traders.  This group has clearly grown bearish recently, suggesting many liquidated longs and some have even gone short as sentiment on those boards plunged.  We can largely ignore the buy-and-hold-forever crowd since many of these 401k types don’t follow the market daily and a 3% dip over two days is unlikely to send them running for cover.  That leaves medium-term position traders.  How are these traders positioned and what are they think will go a long way to telling us what will happen next.

Many of position traders are fully invested following 2013’s monster run.  Last year they flinched anytime the market showed weakness, but every dip turned into a buying opportunity and anyone who sold kicked themselves for being so foolish and weak.  After getting burned a couple of times, these position traders learned to hold any and all weakness.  When confident/complacent owners hold the dips, they keep supply off the market, making it easier to bounce.  With fewer people hitting the sell button, markets don’t selloff as much, and as we’ve seen in recent months, volatility decreases.

The headline roiling global markets is Asian and emerging market weakness.  Most short-term traders have either been shaken out as the market dipped under their stop-losses, or they used the violation of support as a signal to go short.  No doubt a lot of the selling over the last couple days has come from this highly active group of traders.  The buy-and-hold-forever crowd isn’t selling, so we can ignore them.  The million dollar question is if weakness in emerging markets is enough to shake the confidence and resolve of position traders.  These guys held through Shutdown, Debt Ceiling, and Taper as we bounced off those lows.  If those significant headline issues that hit close to home didn’t make them flinch, why would a manufacturing index data point on the other side of the world all of a sudden turn them into scared sellers?  That’s a good question.

TRADING OPPORTUNITIES:
Expected Outcome: Bullish – at lower end of trading range
Stocks dipped under support and the 50dma in early trade, triggering many stop-losses in the area and tempting bears to short the weakness.  At this point either the selling accelerates as the weakness shatters the confidence and resolve of a wider pool of owners, or supply dries up as we run out of sellers and the market bounces like it has so many times before.

Who’s the sucker here, nervous sellers or excited dip buyers?  Asian markets have been selling off since December, so why it became big news yesterday is curious.  Most likely this was just an excuse for the nervous to sell and the cooling sentiment is a healthy part of moving forward.  Dips wouldn’t refresh the market if they didn’t convince everyone this time it is real.

Alternate Outcome:
Nothing shatters confidence like a screen filled with red.  It doesn’t matter why the crowd is selling, just seeing other people sell makes us nervous.  This dates back to our days in the wild.  When everyone else started running, those that waited around to see what all the fuss was about quickly became lion food.  It doesn’t matter if these headlines are legitimate or not, price is truth and emotional selling often leads to more emotional selling.

Trading Plan:
If the recent trading range holds and selling doesn’t accelerate, this is clearly a buying opportunity.  Continued carnage in the emerging markets is a real risk, but the best profit opportunities always feel risky.  The conservative trade is to wait another day or two for this trade to play out.  A trader with a higher risk tolerance can try picking a bottom if the selloff stalls this afternoon.

Plan your trade; trade your plan

Bouncing around the trading range

By Jani Ziedins | Intraday Analysis

Intraday Analysis

MARKET BEHAVIOR
Stocks gapped lower at the open and slipped to 1,825 by midday.  The market is still above recent support/prior resistance near 1,810 and well within the 1,810 to 1,850 trading range.  The 50dma continues marching higher and is catching up to 1,810 support.

MARKET SENTIMENT
Headlines claim this weakness is driven by disappointing earnings and manufacturing data out of China, but take those explanations with a grain of salt.  Journalists are paid to come up with a fundamental reason for every gyrations, whether real or imagined, but the truth is markets often move for no discernible fundamental reason.  Over the last few weeks traders have been reluctant to buy new highs and demand dries up each time we approach 1,850.  So far this dip doesn’t appear to be any more than a continuation of that aversion to buying 1,850.

For a material decline to take place, the market needs to become inundated with excess supply.  That means currently complacent owners hitting the sell button.  So far they have proven unwilling to sell and every move lower stalls when supply dries up.  For the last 12-months each dip has been a buying opportunity and owners quickly learned selling weakness is a poor trading decision.  Now they confidently hold any and all weakness, keeping supply tight and making it easy for the market to bounce on modest demand.  To see more meaningful and sustainable selling, we need to shatter the confidence of holders and send them rushing for the exits.  If the recent announcement of Taper didn’t concern owners, I doubt some footnote about manufacturing in China will all of a sudden trigger a wave of emotional selling.

TRADING OPPORTUNITIES
Expected Outcome: Modestly Bullish – Inside Trading Range
Without a fundamental reason for the market to collapse, today’s weakness is likely another buyable dip.  This sideways churn is refreshing the market and setting the stage for the next move higher.  Unsustainable markets rollover quickly and holding this levels for nearly a month suggest higher prices are in our future.  But the market could dip under recent support at 1,810 in coming days, flushing out the last of the weak hands before bouncing higher.

Alternate Outcome:
Sometimes markets rollover before the crowd understand why.  This happens when the market is most bullish and everyone already owns all the stock they can hold.  Without new buyers, prices fall under their own weight.  If we slip far enough, previously confident owners turn into nervous sellers.  Major market tops occur when the crowd is most bullish and is how this one will likely end too.  While it is hard to know when sentiment gets too extreme, price will always let us know with a pattern of lower highs and lower lows.  Since we are less than 2% from all time highs, calls of a market top are clearly premature.

Trading Plan:
As long as the market stays inside the trading range, continue buying weakness and selling strength.  A dip under 1,810 presents an interesting buying opportunity if the market finds support.

Plan your trade; trade your plan

Not much going on

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks are trading sideways in a tight range today as we continue consolidating recent gains.  The market remains inside the 1,810 to 1,850 trading range.

MARKET SENTIMENT
Many companies have already reported earnings, but few investors are changing their mind based on what they hear.  Prices only move when people alter their outlook and make adjustments to their portfolios.  So far few traders are buying or selling based on the results companies are posting.  Bulls are staying bullish, bears are staying bearish, and those out of the market remain reluctant to chase.  Even though we are still early in the earnings cycle, enough companies have reported reasonable results that is it unlikely the back half of earnings seasons will bring any macroeconomic surprises.  Obviously there will be big moves in individual companies, but for the most part the fragile recovery is no better or worse than people thought coming into this.

In this case no news is good news.  Stocks have a natural upward bias and without a reason to sell, most owners continue holding.  The resulting tight supply supports prices and makes it more likely the next move will be higher.  The sideways trade is wringing out some of the euphoric bullishness seen in December.  AAII’s sentiment survey shows the percent of Bulls dipped under 40% for the first time since November.  It is also worth nothing that the number of bears is also falling in recent weeks as the percent of Neutrals swelled to the largest level in months.

With the self-identified Bulls and Bears, it is obvious what their outlook is and how their portfolios are likely positioned.  I don’t like the term Neutral because a person can be an underweight Neutral or an overweight Neutral.  When looking for the next market move, it will likely be driven by these Neutrals since the are the most uncommitted and easiest to persuade.  Why it is important to know how they are positioned is because if they are fully invested, there is only one move they can make.  If they are out of the market, then for the average investor, there is only one move they can make.

By itself the Neutral reading doesn’t give us a lot of information directly.  But digging one level down, we see bullishness since Dec decreased 16% and bearishness only increased 3%.  That means most of the growth in Neutral outlook came from former Bulls.  Coming from a bullish bias, that makes me suspect our current crop of Neutrals is more overweight than underweight, especially since we have not seen a gut wrenching selloff trigger a large wave of emotional selling.  Most of these former bulls are less optimistic than they were a month ago, but their portfolios likely still reflect a bullish bias.

TRADING OPPORTUNITIES
Expected Outcome:
Cautiously Bullish – Inside Trading Range
Unsustainable markets rollover quickly and holding these levels for nearly a month suggests  a solid foundation under the market.

Alternate Outcome:
While the a move higher is more likely, with such a high level of comfort and complacency in the market, it is vulnerable to a wave of panic of hitting owners, triggering a mad dash for the exits.  So far owners have grown immune to modest selloffs, but be on the watch out for that one event that turns confident owners into nervous sellers.

Trading Plan:
Holding these levels suggests the next move is higher.  Long-term investors can continue holding.  Bears should avoid shorting.  Swing traders can sell strength and buy weakness until we breakout out of this trading range.

Plan your trade; trade your plan

Struggling with 1,850 again

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks stalled following an early assault on 1,850, finding themselves down 15-points from those initial highs.  This is the third time the market turned back from 1,850 in recent weeks and this level is quickly transitioning into meaningful resistance.  Support lies back at 1,810 and the market is holding within this range as it consolidates recent gains.

MARKET SENTIMENT
There is a lot of headline chatter about earnings, but so far traders are unmoved by what they see.  Owners keep holding and those out of the market remain reluctant to chase new highs.  The resulting standoff is building a sideways trading range between 1,810 and 1,850.

Bullish sentiment is cooling off as we consolidate recent gains.  Investors are ratcheting back their wildly bullish expectations as the choppy sideways trade gives them second thoughts.  Rallies refresh either by giving up some of the recent gains, or through time.  This market seems to be taking the latter approach.

TRADING OPPORTUNITIES
Expected Outcome:
Unsustainable markets typically rollover quickly, so holding near record highs for almost a month suggests we are building a foundation for further gains.

Alternate Outcome:
We are one bad headline away from everyone rushing for the exits.  By itself complacency is bullish since confident owners keep supply tight, the risk is if something happens that shatters this confidence.  We can continue holding stocks here, but stand near the exits and be one of the first to get out if fear starts taking hold.

Trading Plan:
Inside trading ranges we sell strength and buy weakness.  Longer viewed investors can continue holding this complacency as it keeps supply tight and props up prices.  Keep a close eye out for that inevitable headline that turns complacency into anxiety.

INDIVIDUAL STOCKS
TSLA is adding to its recent high volume bounce off the 50dma.  The stock recovered more than half of the recent pullback and is likely headed to new highs.  Things that seem too high often keep going higher.

AAPL keeps flirting with the 50dma and recovered this level on light volume today.  Unless volume picks up dramatically, this bounce is suspicious and not a valid buy point.  No doubt most traders are already looking forward to next week’s earnings and we will likely trade sideways until then.  It will be interesting to see how the refreshed iPad sales fare.  The biggest risk to sales is satisfied customers who see little reason to upgrade from a perfectly usable device.

Plan your trade; trade your plan

Stalling shy of 1,850

By Jani Ziedins | Intraday Analysis

Intraday Update

MARKET BEHAVIOR
Stocks were down modestly for a second day following Wednesday’s record highs.  1,850 is acting like resistance as the market consolidates recent gains.  The 50dma continues its ascent higher and is over 1,800 for the first time.

MARKET SENTIMENT
Bullish sentiment is cooling off following Monday’s sharp selloff and a fear of heights is creeping in.  A recent Yahoo Finance poll shows 57% expect a major correction and Stocktwit’s SPY sentiment gauge is down 20 points since the December highs.

Even in the face of a shifting outlook, we continue holding near record levels.  Markets refresh one of two ways, through a pullback or alternately sideways churn.  So far sideways churn is doing a reasonable job taming the euphoria.  Nervous owners are selling a fair number of shares as almost every day this year has seen above average volume, but so far there have been plenty of new buyers willing to step in at these levels.  If the market continues higher, expect many of these recent sellers to chase the market and buy back in at higher levels.

The one big concern is the lack of concern.  By nature the market is a worrier and since we cleared the Debt Ceiling and Taper fears last fall, there hasn’t been anything to fret over.  Is this the calm before the storm?  With so few worries priced in, the market is vulnerable to a panicked rush for the exit if it gets caught off guard.  Both traders and investors should embrace the selling as an opportunity to buy discounted shares.  It is nice to see our accounts grow every day, but the big profit opportunities come from volatility.

TRADING OPPORTUNITIES
Expected Outcome:
While most people come to the market with predictions of moves higher or lower, we trade sideways far more often than anything else.  So far the market appears to be establishing a trading range between 1,810 and 1,850.  We will likely bounce around this range until traders get bored.  Only after they stop buying the breakout or selling the breakdown will we get the next move.

Alternate Outcome:
With the market so happy-go-lucky these days, it is hard to imagine a headline that will trigger a surge higher.  The downside is a far different story.  Complacent owners can turn into panicked sellers at the drop of the hat.  The last time we saw such bullish sentiment was back in 2011 prior to the US Debt downgrade plunge.  Without a doubt we are skating on thin ice and vulnerable to a selloff, but we need that catalyst to break the ice before we fall in.  Until then the party continues.

Trading Plan:
Near the upper end of the trading range, there is not a lot to do.  Those out of the market can wait for an upside breakout, swing traders can lock-in recent profits, and buy-and-hold types keep holding.  Without a doubt we will dip under 1,800 at some point this year, the only question is when and how high we go first.  It is easy to predict the market, but all the money is made in getting the timing right.

INDIVIDUAL STOCKS
The China Mobile deal hasn’t been the  catalyst many AAPL bulls expected.  So far it seems more of a buy the rumor, sell the news story.  While the stock is up huge over the $400 lows of last year, last year’s catalysts failed to reignite the growth story.  It is still a great company with a strong balance sheet, but companies like TSLA and GOOG are doing a better job of capturing the imagination of growth investors.

TSLA‘s huge bounce off the 50dma on Tuesday might have created an interesting entry point for the most aggressive momentum investor.  The huge volume suggests a lot of traders are onboard this rebound.  Expect volatility to persist, but if this bounce holds, we will likely break $200 in the not too distant future.

Plan your trade; trade your plan

Pausing near all time highs

By Jani Ziedins | Intraday Analysis

Intraday Analysis

MARKET BEHAVIOR
Stocks paused after setting new highs yesterday.  We are at the upper end of a two-week consolidation that started in the final week of 2013.  Weak markets roll over quickly, so holding these levels for two-weeks suggests the market is not on the verge of collapse.  That leaves us with the two remaining possibilities, breakout to new highs or continue consolidating.

MARKET SENTIMENT
Monday’s selloff flushed out many weak hands.  While not as effective as a bigger selloff, churn like this keeps the rally from overheating.  Breaking under prior support triggered a wave of stop-loss selling from recent buyers and aggressive shorting by bears.  Those sellers will provide fuel for the next leg higher when they buy back in at higher levels.

TRADING PLAN
Expected Outcome:
Holding current levels for a few weeks suggests this market is on solid footing.  Most likely this it will trade sideways for another week or two before continuing higher.  Of course sideways is not a synonym for easy.    Monday’s plunge was part of this sideways trade and consolidations only work if the dips convince many traders a collapse is imminent.

Alternate Outcome:
Without any fear priced into the market, we are vulnerable to an unexpected headline that catches the market off guard.  Markets have a tendency to overreact, so when this unexpected event surprises us, look for the market’s imagination to blow things out of proportion.

Trading Plan:
Bears need a spooky headline to shake the confidence of complacent owners.  Until then expect every bout of selling to stall quickly as confident owners continue holding, keeping a lid on supply.  For bulls, markets never go straight up, so take profits into strength and buy the dip.  Longer viewed owners can continue holding on for higher prices.

Plan your trade; trade your plan

Bouncing back

By Jani Ziedins | Intraday Analysis

Intraday Analysis

MARKET BEHAVIOR
Stocks broke 1,850 for the first time as the market fully recovered Monday’s selloff.

MARKET SENTIMENT
We are in the early days of earnings season and so far traders are happy with what they hear.  The market was spooked on Monday, but that selling appears impulsive since we rebounded so quickly.

As we’ve seen in recent months, complacent owners are not concerned by modest weakness.  Their confidence in the future keeps supply tight and prevents selloffs like we saw on Monday from gaining momentum.  Selling pressure stalls quickly when most owners are not interest in selling.

Contrary to popular opinion, complacency is often bullish.  Running out of new buyers is what we need to fear.  Weakness in the bond market over the last nine months is flushing money out of those securities and they are pumping those funds into equities.  As long as people keep throwing new money at the market, it will continue defying gravity.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to fight what is working.  The market has been given multiple invitations to breakdown, but every time this weakness fails to trigger wider selling.  This rally is long in the tooth and it is realistic to expect the rate of gains to slow.  The most vocal in the marketplace are debating between big gains or a correction.  More likely the answer lies between these two extremes.

Alternate Outcome:
With little fear left in the market, it is vulnerable to a large wave of selling if complacent owners are spooked by an unexpected bad headline.   While we can continue marching higher on the back of complacency, stay near the exits and get out quickly if it appears like a wave of fear and uncertainty is infecting the market.

Trading Plan:
If the market wants to consolidate recent gains, the best trade is buying weakness and selling strength.

Sideways is constructive

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks closed practically unchanged for the third consecutive day as buyers keep holding the market near all-time highs.  While we ended flat, there have been countless sharp intraday declines that always bounced back nearly as quickly as they came.  No matter how swift the dip, it never picked up momentum and the selling stalled.  Volume has been elevated the last three days, showing a good amount of churn.  Is this smart money getting out, or day traders chasing their tail as they overreact to every head fake the market throws at them?  We will know the answer soon enough.

MARKET SENTIMENT
Friday’s headline event is December’s employment report.  Many expect respectable gains around 200k as the recovery slowly picks up steam.  But to be honest, it’s been years since good or bad employment numbers triggered sustained moves.  Lately we’ve seen near-term volatility immediately after the release, but then the market quickly moves on to other ideas and concerns.  Of course looking back over the last year, no matter what headline or report came out, the market kept marching higher.

While this rally cannot continue forever, seeing the market bounce after every attempted selloff is supportive.  Fragile markets crack easily and this one is extremely resilient with all these bounces off 1,830.  People sell for many reasons, but they only buy for one, because they think prices will continue higher.  No matter how much selling bears and profit-takers throw at the market, buyers soaked up all that supply.  Markets typically roll over quickly and holding 1,830 for 6-days after repeated attempted selloffs is bullish.

TRADING OPPORTUNITIES
Expected Outcome:
While many expect decent employment numbers in the morning, it is only one piece traders are using to evaluate the market and economy.  A little above or below expectations will be a non-issue.  Since Taper is a done deal, the market no longer fears too good, so we don’t need to worry about that.  No matter what numbers we put up, it will remove one more risk factor and uncertainty.  As long as it isn’t horrible, expect the prior trend to continue.

Alternate Outcome:
Recent high-volume trade could be interpreted as distribution.  If smart money is getting out, we could see the market roll over fairly quickly once we run out of “next greater fools”.  Of course the best signal this is happening is declining prices.  As long as we remain near all-time highs, we have a sufficient supply of buyers willing to support the market.

Trading Plan:
Either we coast higher or collapse lower.  Holding 1,830 is supportive and expect new highs.  But if we violate support, especially the 50dma and 1,800, this will turn into the correction people have long been calling for.

Plan your trade; trade your plan

Cannot Fight the Market

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks keep bouncing off 1,825.  We tested this level five times since the start of the year and every time buyers prop it up.

MARKET SENTIMENT
Weak markets roll over quickly and this one had plenty of opportunities to breakdown, but the inability to do so is a gigantic signal to us.    Today’s trade had two sharp dips near 1,830, yet the selling never gained momentum and we bounced right back.  With every invitation to selloff, yet holding firm, shows this market is not ready to pullback no matter how bullish sentiment appears.  Holders continue holding and buyers keep buying.  While this market is getting overheated, there is no reason it cannot keep getting hotter, and that is exactly what keeps happening.  In spite of conventional wisdom, complacency is extremely bullish…….until it isn’t.  As long as owners continue holding the dips, supply remains tight and it only takes modest demand to push us to new highs.

TRADING OPPORTUNITIES
Expected Outcome:
Clearly I’ve been premature with my expectations of demand drying up, and in the market early is the same thing as wrong.  Strong bullish sentiment makes this market vulnerable to unexpected surprises, but expect clear sailing until then.

Alternate Outcome:
We can ride this wave higher, but the margin for error gets smaller with each uptick in sentiment.  Stay paranoid and be ready to bail at the first signs of trouble.

Trading Plan:
This market wants to go higher.  Reasons don’t matter, we just need to ride along.  We can own here with a stop under recent lows, near 1,823.  Expect market participants to keep finding reasons to buy and continue holding until something scares them out.  Just make sure we stay close to the exits.

INDIVIDUAL STOCKS
AAPL hasn’t enjoyed the markets recent strength as it retests the 50dma following the widely expected China Mobile deal.  What many bulls predicted to be a huge upside catalyst was instead met with a yawn.  Everyone points to the great valuation, but when so many people are bullish on a stock, it is often better to take the other side of the trade.  Those who want AAPL already own it and there are few left to buy it now that all the widely predicted catalysts are behind us (buyback, dividend, product refreshes, and now China Mobile).

Tech hardware is a brutal business and few thrive for more than a single product cycle.  AAPL’s had the unusually good fortune to hit three consecutive home runs with the iPod, iPhone, and iPad, but its been nearly four years since AAPL disrupted the industry with radically innovative products.  While they continue printing money with their existing devices, it seems feels like they are being out-innovated by the competition.

Plan your trade; trade your plan

New Mood

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks showed healthy gains for the first time in 2014 and we finished up 0.6%.  We recovered the last two days of losses and are only a dozen points off the New Year’s Eve highs.  The market broke above recent resistance at 1,810 and is in the upper end of a trading channel that stretches back to the November 2012 lows.

MARKET SENTIMENT
2013 was a great year and many think we cannot produce a repeat performance in 2014.  A recent Yahoo Finance poll shows most people expect more modest gains this year.  As contrarians, if we discount what the crowd predicts, that leaves us with three other outcomes; up a lot, down a little, and down a lot.  While intuition tells us lightening doesn’t strike the same place twice, the market often strings together multiple years of eye-popping performances during powerful bull markets like the unstoppable 80’s and 90’s.  Modestly lower is always a possibility if the fragile recovery stalls for a few quarters.  Recent gains were predicated on the expected recovery and any hiccups in company earnings will pressure stocks.  Much lower requires dramatic new developments traders don’t see coming.  Since worries are few and far between, the market is vulnerable to a cascade of selling like we saw following the US debt downgrade in 2011.

If a person is bullish, then they can be really bullish.  If a person is bearish, they need to decide if that is modestly bearish because they think the market is a little ahead of itself, or if they are a lot bearish because they think the market is oblivious to major risk factors not currently priced in.

Today’s bounce following three days of modest selling shows owners are content owning and few are locking in recent profits.  While complacency is often seen as a bad word in markets, in reality it is often bullish because complacent owners hold through volatility and that keeps supply out of the market.  Only after we run out of buyers does complacency become a problem as traders continue holding while the market keeps sliding lower.

TRADING OPPORTUNITIES
Expected Outcome:
How do we tell the difference between bullish complacency and bearish complacency?  Easy, the market keeps going higher on bullish complacency and bearish complacency  forms a series of lower highs.  Since we are within 1% of all-time highs, it is premature to call this complacency bearish.  That doesn’t mean we cannot see normal gyrations as the market consolidates recent gains, but so far recent market trade points to bullish complacency.

Alternate Outcome:
Quarters often exhibit different personalities as the herd changes trading strategies.  Sometimes they chase the market higher, other times they all sell together, and most often they cannot make up their mind and we get stuck inside a trading range.  Q4 of 2013 was a chasing quarter.  If the market changes its mood, that leaves us with either a sideways consolidation or a reversal of trend.  Time will tell, but price will give us tradable clues.

Trading Plan:
It always comes down to timeframe.  Longer-term holders can continue holding for the eventual economic recovery.  Shorter-term traders can look for a trading range to develop following the strong Q4 performance and swing trade the consolidation.  Value investors are finding it increasingly difficult to identify good buys.  Some are digging to the bottom of the barrel and betting on laggards catching up, but patient managers are waiting for the inevitable five or ten percent dip that happens every year.

Plan your trade; trade your plan

Welcome to 2014

By Jani Ziedins | End of Day Analysis

Intraday Analysis

MARKET BEHAVIOR
Stocks slipped for a third consecutive day as they stumble into the new year.  Volume was slightly above average as traders return from Christmas vacation and get back to work.  The market cleared prior resistance near 1,810 and broke to new highs in the final weeks of 2013, but it would not be unusual for it to retrace those low-volume gains and test support at 1,810.  Holding support shows broad support for these new highs and builds a solid foundation for further gains in coming weeks.  Failing to hold the breakout shows big money doesn’t support the move orchestrated by a smaller pool of holiday traders.

MARKET SENTIMENT
Stocks ran up in light volume over the holidays, quarter end, and year-end, but investors have shown less enthusiasm in buying these new highs following a change in the calendar.  No doubt there was lots of portfolio shuffling into quarter and year-end for window dressing and tax reasons.  But now that we are in a new year and these strictly bureaucratic maneuverings are behind us, few are willing to continue bidding up stocks.

The only overhang coming into December was the inevitable Taper.  Some feared a selloff on the winding down of easy money, but in typical market fashion we saw the exact opposite as the market surged on the news.  With Taper anxiety and uncertainty behind us, there is nothing holding this market back.  While that sounds extremely bullish, we must remember that strong moves follow heavy weights being lifted from the market as reality turns out less bad than feared.  Without fear to fuel this rally, the only thing left is letting momentum carry us higher, and so far that’s been working.

The risk is when the market doesn’t have fear, there is plenty of room for it to become fearful.  While no one knows what the market’s next obsession will be, the market is a worrier by nature and we all know it is coming.  The last time the market was this complacent we fell nearly 20% on a US credit downgrade.  While it is always possible to skate obliviously on thin ice for hours without falling in, all it takes is one bad headline to ruin our day.

TRADING OPPORTUNITIES
Expected Outcome:
The market needs to consolidate the low-volume holiday gains and three days of selling is hardly alarm-worthy.  Failing to hold support at 1,810 and 1,800 is where things get interesting, but without any fear inducing catalyst, expect momentum to continue carrying us higher.

Alternate Outcome:
Rallies die only after most stop calling for a top.  While recent strength silenced most of the critics, has complacency finally sucked in the last of the buyers and set the stage for a reversal on lack of demand?  Price is truth and failing to hold support will be our best signal the supply of willing buyers is drying up.

Trading Plan:
Look for support near 1,810 to demonstrate support for recent gains.  Hold these levels into next week and expect new highs.  Fail to hold support and things get interesting.

Plan your trade; trade your plan