Stalling shy of 1,850

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