Cannot Fight the Market

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