Is it Time to Sell?

End of Day Update:

The indecisiveness continues as yesterday’s attempted breakout becomes today’s breakdown. Early strength on Wednesday convinced many the market was finally ready rally, but this morning’s dip under 2,100 spins the exact opposite story. Can we believe this is the start of the real selloff, or is it just another head-fake?

Cutting through the 50dma and closing under 2,100 will prove insightful over coming days. Either it triggers an expanding wave of emotional, technical, and stop-loss selling, or it bounces as quickly as Wednesday’s upside breakout fizzled.

The thing to be careful of with these intraday moves is they are primarily driven by the small subset of day-traders. What they lack for in size, they more than make up in volume. But their limited account size prevents them from driving sustainable moves. While they can kick things off, they don’t have deep enough pockets to keep them moving. Only big money managers have the dollars behind them to keep the ball rolling. And so far this year big money hasn’t flinched following these countless breakouts and breakdowns. When the institutional bulls stay bullish and the institutional bears stay bearish, every attempted move fizzles and we quickly return to the status quo.

To answer the original question on if we should believe in this breakdown, it all comes down to how stock owners respond. Is this selloff dramatic enough to spook previously confident bulls that ignored every other attempted breakdown this year? Is there something bigger this time? In my opinion, it really feels like this weakness is more of the same and is just as likely to bounce as all the other failed breakdowns this year. (For those pointing to the imminent collapse of Greece, read yesterday’s blog post for my analysis of that situation.)

While today’s dip didn’t feel like capitulation and we likely have a little more downside left, we should be getting ready to buy the dip, not joining in the herd’s emotional selling.

Individual Stocks:

$AAPL – Apple’s selloff today was less than the market’s and shows owners want to continue holding ahead of next week’s developer conference. The thing to be wary of is if this turns out to be a buy the rumor, sell the news event. There is no reason for the long-term holder to worry about these minor gyrations, but a more nimble trader could take profits ahead of the conference and buy back in at a discount a few days after.

$EBAY – Ebay’s breakout is on firm ground as it bucked the broad market’s weakness and finished in the green. That strength tells us this breakout is the real deal and we should keep holding.

Jani

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