IDA: Bouncing Back

Intraday Analysis

MARKET BEHAVIOR
Stocks recovered a portion of Wednesday’s losses and remain between 1,810 support and the 1,850 highs.

MARKET SENTIMENT
Wednesday’s selloff failed to gain critical mass because most weak owners were flushed out in January’s dip to 1,740.  Anyone that bought recent weakness demonstrated an appetite for risk and volatility, meaning they are less likely to flinch when 2 out of 14 Fed members suggested raising interest rates earlier than previously stated.  When most owners shrug off headlines, selling stalls quickly.

TRADING OPPORTUNITIES
Expected Outcome: In trading range, approaching upper end.
Regaining its footing here likely means the market is setting up to break 1,850.  It might take a few more days of consolidation between 1,830 and 1,850, but holding these levels in the face of worrying headlines shows this market is on firm footing.  The bigger question is what happens after we exhaust the short-covering and breakout buying above 1,850.  Since we are approaching the upper end of a potential trading range, this makes for a more interesting selling opportunity than buying one.  A lot of good news is priced into the market here and it is hard to think of any big headline that could send the market racing ahead here.

Alternate Outcome:
If the recent dip to 1,740 purged enough excess from the markets, we could resume last’ year’s uptrend following a breakout to new highs.  There is plenty of international and bond money leaving those markets and in search of a home.

Trading Plan:
While the immediate trend is higher, we are better off looking for a place to lock-in profits.  A break to new highs would make a great selling opportunity and failing to hold the breakout could create an interesting shorting opportunity.

INDIVIDUAL STOCKS
AAPL failed to hold the 50dma and finds itself under this key level again.  While the stock is stuck in no-man’s land after closing the earnings gap, a dip back under $500 spells disaster technically, while reclaiming $550 would be a big endorsement from the market.  Until then this story could go either way.  Since there is a lot of bullishness already priced in the stock and big buyers like Icahn and Cook have propped up the stock recently, the prognosis suggests further weakness once these whales finish buying.   As a side note, I find it somewhat ironic that people were afraid to own AAPL when Jobs fell ill and resigned the CEO position.  Many were worried about a lack of innovation without Jobs’s vision and leadership.  Yet here we are, three years later without any meaningful innovation from the company, but now the crowd is making excuses for AAPL, claiming the next category killer is just around the corner.

All I can say about FB’s latest acquisition is wow.  Is a smart phone app really worth more than half of the S&P500 companies?  TSLA is grossly over valued, but Whatsapp’s valuation would make even a TSLA bull blush.  Most of the articles written about the deal promote the huge growth opportunities ahead, but when the app already counts a material portion world’s population as active users, it sounds like it is closer to saturation than explosive growth.  The bigger concern for FB shareholders is this move by Zuckerberg reeks of desperation.  If he feels he needs to spend a major portion of FB’s marketcap on a defensive maneuver, it means he feels threatened by emerging social media companies.  Maybe FB doesn’t have as firm of a grip on its users as most investors assume.  At least Zuckerberg’s actions suggest that.

Plan your trade; trade your plan