It Gets Worse Before It Gets Better

By Jani Ziedins | End of Day Analysis

Jun 09
S&P500 Daily at end of day

S&P500 Daily at end of day

End of Day Update:

The S&P500 finished flat after modest moves lower and higher failed to stick. Volume continues to be below average as we slip further into the summer doldrums.

While economic indicators, corporate earnings, mergers, Fed statements, and other headlines come and go, the market remains stuck in neutral. The biggest item hanging over us is the impending Greek default if a deal cannot be brokered in coming weeks. It seems many with cash are waiting for a resolution before they feel comfortable buying stocks near all-time highs. And so we trade sideways while we wait for the situation to unfold.

A common saying is you never get hit by the bus you see coming, and that clearly applies to this Greek debacle. The Grexit has been in and out of the spotlight for years. While the global financial system was vulnerable early on, most Greek debt has since been absorbed by the ECB and other European nations, leaving the wider private sector largely immune to a Grexit. While stock prices are held back by a fear of the unknown, the Grexit will actually be a bullish catalyst once it turns out far more benign than most fear. But the market trades on perception, not reality, so we should anticipate near-term volatility as this standoff comes to a head over coming days. But when scared owners start offering stocks at steep discounts, that is our opportunity to step in and profit once the storm passes.

Individual Stocks:

$EBAY daily

$EBAY daily

$AAPL – Apple opened weak the day after its developer conference keynote failed to excite investors. But we knew this was coming. Short-term traders can trade around near-term volatility driven by broad market weakness, but the iPhone story remains intact for long-term investors as long as $122 holds. If we slip to this level, we will have to watch the situation more closely and reevaluate.

$EBAY – Ebay is testing the breakout level, giving those that missed the initial move the opportunity to get in. Of course given human psychology, it is far harder to buy the pullback than the breakout even though the real risk is actually reduced as we slip a few points from the highs. The key is holding $58/$59 support. For the breakout or dip buyer with a $60ish entry price, this represents a fairly attractive risk/reward, but for those that chased the stock up near $63, the risk is quite a bit larger.

$FEYE – FireEye is doing a good job holding recent gains, but it is up 10% from the breakout point and anyone tempted to chase only needs to look at EBAY for what can happen if you show up late to the party. Either wait for a pullback, an alternate entry point, or simply look for another trade. There is no need to chase, especially given the recent weakness in the broad market.

$ALGN – Align is also pulling back as the wider market softens. This continues to be an interesting story, but very few stocks can stand up in the face of a weak market. As soon as we get the green light from the market, these individual stocks will start trading strong again.


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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and writer who has successfully traded stocks and options for more than a decade. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes manufacturing engineering at Fortune 500 companies, structural engineering, small business consultant, collegiate instructor, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two young children.

Tom June 10, 2015

So assuming the Greece can is kicked down the road by end June, are you expecting a big up month in July (meaning new highs above 2034)? I would say it’s a 50:50 possibility of 2 outcomes in the event of can kicking:

1) Mkt rallies to old highs and the rally is sustained

2) Mkt rallies to near highs, fails to break upwards and we have a sharp move downwards to 2045 or maybe lower. If this outcome plays out, there might be a sharp bounce in Aug to 2100 (buybacks kicking in) just like Feb, followed by possibly a correction in Sep/Oct.

Let me know what you think.

    Jani Ziedins June 10, 2015

    I think the market is growing tired of can kicking, especially if it is only a couple of month reprieve. That probably means we continue trading sideways through the summer. Of course sideways means anything between 2,000 and 2,150

      Tom June 10, 2015

      If the juice from the Fed (QE) would have continued to flow, the market could not care less about can kicking. But now that that is not the case anymore, things are different. More than anything else, I think the impending drama/suspense about the first hike is killing the market. Till it actually happens we just might continue to trade sideways. The longer the Fed continues to drag it’s feet, while at the same time keeping on reminding about the coming hike, the worse it will get.

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