Testing 1,850 support

Intraday Update

MARKET BEHAVIOR
Stocks slipped in early trade, but bounced off 1,855 by midday.  1,850 was resistance over the first couple months of the year and appears to be providing support here.  Currently we find ourselves in the middle of the trading channel that dates back to November 2012.

MARKET SENTIMENT
There are few explanations to justify the last couple days of weakness and many in the media are chalking it up to “profit-taking”.  Volume has been below average, showing this dip is more a product of weak demand than active selling.  Owners are comfortable and confident.  While many contrarians say that is a sign of bad things to come, in the near-term, that confidence keeps supply tight as few owners are willing to sell.  For the market to rollover, we either need a fearful headline to shatter this complacency, or to run out of buyers willing to pay top-dollar for stocks.

TRADING OPPORTUNITIES
Expected Outcome: Momentum is higher, but gains are getting harder to come by
The run since the November 2008 lows is nearly 17-months old.  It is not unusual to see gains taper off as the market prices in future expectations and then waits for the confirming fundamentals to catch up.  The market needs to consolidate recent gains and will likely trade sideways until the 3rd Quarter.  That doesn’t mean we cannot hit 1,900 in the near-term, but it suggests the upside potential is far more limited than the downside risk.

Alternate Outcome:
Momentum is clearly higher and history has examples of rally legs lasting multiple years.  As long as there is new money ready to chase this market higher, there is nothing that will stop it.

Trading Plan:
Long-term investors can continue sitting on their investments, but they should hold off on adding to their favorite positions since we will likely see better prices in coming months.  Short-term traders should take profits proactively or use trailing stops to protect recent gains.  With so little fear priced into the market, there are few headlines that could trigger a surge higher, but one bad headline could send us tumbling.  That doesn’t set up a favorable risk/reward.

INDIVIDUAL STOCKS
AAPL is retook the 50dma after struggling with this level since 4th quarter earnings.  It is widely expected the iPhone6 will have a larger screen to stem the market share losses to Android competitors, so that is unlikely to be an upside catalyst for the stock.  We haven’t had anything new and exciting out of AAPL since Steve Jobs resigned as CEO and is why the stock is well off the highs.  Can Tim Cook pull something out of the hat this year?  AAPL bulls are certainly hoping so.

TSLA is bouncing today following recent weakness, but it wouldn’t be surprising to see the stock close the gap and allow the 50dma to catch up before resuming the up-trend.

P is reclaiming the 50dma on above average volume, signaling a potential buy-point.  Since so few traders love this stock, it means there is upside if it continues to defy the skeptics as it successfully fights off competition from AAPL and others.

Plan your trade; trade your plan