Is it Safe Yet?

End of Day Update:

Monday’s one-way selloff took a break Tuesday as we bounced modestly off the 200dma. The S&P500 reclaimed 2,070 twice through the day but was unable to hold those gains and closed closer to 2,060. Volume was even higher than Monday’s selloff as waves of nervous owners sold to eager dip-buyers.

Greece continues to dominate headlines, but now some are claiming Puerto Rico is the bigger contagion threat. I don’t see it, but if the extra excuse helps people rationalize their emotional trading decisions, then good for them.

Technically we still find ourselves above 2,050 support and the 200dma. Both levels provided meaningful support since late last year and that was enough for buyers to rush in and buy the dip. The risk is emotional selloffs typically end when we run out of emotional sellers. Today’s modest gains on elevated volume show there is still a decent number of sellers bailing out of this market. More interesting would be a low-volume bounce since that tells us we finally exhausted the supply of available sellers. Conventional wisdom claims we want to see a high-volume rebound, but given all the headline uncertainty, don’t expect aggressive buying to save the day. The way Greek politicians are handling the situation, a rational person wouldn’t expect a compromise since inmates are running the asylum.

The most encouraging trade would be holding 2,070 support over the next couple of days. That period of calm allows traders to make more rational decisions. The risk is if we slip under 2,050 and the 200dma, triggering another wave of reactive selling. I’m not encouraged by today’s high-volume, weak trade and it seems like prices still want to go lower. But even at the risk of further weakness, this is still a better time to be buying than selling. Stay strong and resist the temptation to join the emotional herd of sellers.

Individual Stocks:

$AAPL – Apple struggles alongside the broad market and it will continue to trade weak until the entire market finds its footing. There is no reason to sell AAPL here, but not much reason to buy it either.

$EBAY – Ebay showed resilience around $60 support and the strongly rising 50dma. While all stocks are vulnerable to widespread selling, Ebay’s strength today showed many owners still believe in this story and are not ready to give up on it.

$FEYE – FireEye also found support at its 50dma, but the stock has a larger hill to climb since it finds itself more than 10% off of recent highs. The faster the rise, the harder they fall and clearly that was the case here. It is critical to avoid high-fliers during volatile periods because their drawdowns will be multiples of more conservative stocks, but the reward will be equally impressive once the stock reclaims $50.

$ALGN – Align continues trading well and is acting like it is immune to Greece all the other stories dominating headlines. This is definitely one worth keeping an eye on when the broad market regains its footing.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $ALGN