Seesaw continues

By Jani Ziedins | Intraday Analysis

Jan 31
S&P500 daily at 1:45 EST

S&P500 daily at 1:45 EST

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.

AMZN daily at 1:46 EST

AMZN daily at 1:46 EST

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

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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.