Holding near highs

S&P500 daily at 2:36 EST

Intraday Update

MARKET BEHAVIOR
Stocks are modestly higher following the long weekend and continue holding the rebound’s gains.  We remain above the 50-dma, 1,830 support and less than 10-points from all-time highs.

MARKET SENTIMENT
Calm is returning to US and global markets following recent turmoil.  Nothing dramatic happened over our three-day weekend and stocks are still maintaining recent gains.  While the dip to 1,740 was unnerving, there is no such thing as an easy dip to hold.  If dips didn’t scare people, we wouldn’t have them because no one would sell.

This move purged the weaker and less committed, replacing them with more confident owners willing to buy the dip or hold through the volatility and uncertainty.  The market bounced as supply dried up when we ran out of nervous sellers and the confident continued holding.  But that was the justification for buying two weeks ago.  Now that we are 100-points higher, what comes next?

Shorts forced to cover losing positions provided much of the demand, as did swing traders and value investors buying the dip.  With prices returning to record highs, we’ve largely run out of shorts needing to cover, value buyers are less interested, and swing traders are more likely to sell these gains than buy them.  10-points from all time highs, the last surge of buying will come if/when we break 1,850.  That will squeeze out the last of the shorts and give breakout traders a buy signal.  But given how much buying we’ve seen over the last two weeks, this breakout is likely the end of the move, rather than the start of a new leg higher.  Once everyone who was ready to buy, bought, the rebound will invariably stall on lack of demand.

TRADING PLAN
Expected Outcome: Inside trading range, nearing upper bound
Markets trade sideways more than anything else, and given what a strong year 2013 was, it should be no surprise if we pause and consolidates over the next six months.  Sideways markets are best suited for buying weakness and selling strength.  Short-term traders can lock-in recent gains, long-term traders can wait for weakness before adding to existing positions, and shorts can start looking for the headline that will trip us up.

Alternate Outcome:
The dip to 1,740 shook many traders out of the market and turmoil in overseas markets has those foreign investors looking for a refuge.  Recent sellers and international demand could provide the lift that fuels another rally-leg higher.

Trading Plan:
Swing traders should start looking for an exit.  Longer-term investors should dial back purchases as we return to the upper end of the range.  Anyone still out of the market will be better suited waiting since chasing a market that ran 100-points in two weeks elevates the risk of an intermediate pullback.

S&P500 daily at 2:46 EST

INDIVIDUAL STOCKS
TSLA is poised to close above $200 for the first time.  The recent rebound off the 50dma is pushing the stock to all-time highs, but the time to buy the stock was weeks ago, not today.  While there are a few dollars of momentum left, expect it to consolidate recent gains near $200, giving a patient buyer time to get in later without exposing himself to extra downside risk by holding through a consolidation.

AAPL is also showing strength and ready to close above the 50dma for the first time since the Q4 earnings call.  Much of the strength came on the heels of AAPL’s aggressive buyback in recent weeks and expectations of a new product.  Hopefully this a new category killer and not another iMaps or iCloud fizzle.  A larger screen phone seem highly likely, but is that enough to get all the Samsung Galaxy defectors to switch back?  No doubt a large screen phone will sell well, but it is more like to be bought by existing AAPL customers upgrading and less likely to be stealing back market share from the competition.  Of course the biggest benefit will be finally slowing customer defections to large screen competitors.

Plan your trade; trade your plan