Struggling with 1,850 again

By Jani Ziedins | Intraday Analysis

Jan 21
S&P500 daily at 1:14 EDT

S&P500 daily at 1:14 EDT

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.

TSLA daily at 1:14 EDT

TSLA daily at 1:14 EDT

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

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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.