IDA: Stalling at 1,850

S&P500 daily at 3:27 EST

Intraday Analysis

MARKET BEHAVIOR
Stocks continue hanging around 1,850, unable to build on Monday’s breakout to record highs.  As we approach the end of the February, the market is flat for the year, failing to extend last year’s bull market.

MARKET SENTIMENT
Markets often exhibit a consistent character through each quarter.  Big money managers are judged by their quarterly performance and this often drives their decision making.  If a quarter starts strong, they are forced to chase, motivated by fear of being left behind and end up prices higher into quarter’s end.  As soon as the calendar changes, they are given three-month’s of breathing room and what was an urgent buying frenzy the week before, becomes a far more laid back approach.

This played out perfectly over the last two quarters.  In the closing weeks 2013, we had managers push us to record highs nearly every day.  Big money was climbing over each other trying to buy all the stock they could find for their quarter and year-end reporting.  But that buying evaporated the first trading day in January since they were no longer pressured by an arbitrary, calendar driven deadline.  Since this quarter has not continued making new highs, managers don’t feel pressured to buy and is why we entered a sideways period.  Without any sense of urgency, expect March to be equally laid back as we continue consolidating 2013’s gains.

TRADING PLAN:
Expected Outcome:  Stalling at the upper end of an extended trading range.
Markets trade sideways more often than anything else, so holding between 1,750 and 1,850 for the next several months is likely outcome.  While most of us either classify ourselves as bull or bear, we must recognize the market trades sideways most of the time, making the best trade buying weakness and selling strength.

Alternate Outcome:
The 5% pullback to 1,740 did a good job of purging excess, making gains from here more reasonable and sustainable.  While the explosive upside seems limited, momentum remains higher and this bull market is alive and well.

Trading Plan:
Buy weakness and sell strength.

INDIVIDUAL STOCKS
AAPL struggles while TSLA explodes to new highs.  One is a story everyone loves and the other is a growth stock that terrifies anyone with common sense.  The problem with a loved stock is everyone already owns it, leaving few to buy it.  No matter how great a company is, prices fall when it cannot find new buyers.  On the other side, a terrifying stock keeps going higher because so few people have the courage to own it, meaning those that bought into the hype are unlikely to sell at any price, keeping supply extremely tight.  Basic laws of supply and demand; sell what everyone loves and buy what everyone is terrified of.

Plan your trade; trade your plan