All Posts by Jani Ziedins

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About the Author

Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, 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 children.

Sep 19

Holding the breakout

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:21 EDT

S&P500 daily at 2:21 EDT

MARKET BEHAVIOR
Stocks are holding most of yesterday’s breakout through midday trade.  This shows a wave of selling and profit taking has not hit the market and enough buyers are willing to step up and pay these prices.  No matter what the headlines say, the market continues making higher-highs and when in doubt, stick with the trend.  Former resistance at 1700 becomes support and we will see if the gravity of this summer’s trading range is strong enough to pull this young breakout back to earth.

MARKET SENTIMENT
Obviously bulls are happy with recent gains, but even they have a fear of heights and are tentative following recent gains.  Given the headline risk, few are actively promoting 1800.  Compare this to many bears’ outlook a couple of weeks ago when they were certain we were destined for 1500.  We have cautious optimism from bulls and extreme negativity from bears.  That skew in sentiment is the fuel that keeps this rally alive.

Obviously the market moves in waves and we go up and down all the time, but the next major down move will only happen when sentiment flips and bears are cautiously pessimistic while bulls are enthusiastic.  Remember, we don’t trade fundamentals or technicals, but people and their portfolios.  As long as traders remain wary of this rally, that means we have a large pool of prospective buyers sitting on the sidelines.

TRADING OPPORTUNITIES
Expected Outcome:

If this breakout holds 1700 over coming weeks, expect the market to finish the year strong.  Traders are notoriously afraid of heights and their reluctance to own this market for the last 10-months left many sitting out.  As these watchers warmed up to this market, or more likely were afraid of being left behind, they started chasing, creating the demand that elevated this Teflon rally to all-time highs.  The more people fear a market, the more prospective buyers we have.

Alternate Outcome:
While current headlines are already priced in, we need to watch for something the market is not prepared for.  Debt Ceiling is the next bogie on the horizon.  Politicians keep kicking this can down the road and the market is growing immune to all the political noise.  Fear of the Fiscal Cliff last fall created an outstanding buying opportunity.  Chances are this time around fewer sellers are going to show up simply because anyone who sold political uncertainty last year regretted that decision.  But this lack of selling ahead of time leaves the market more vulnerable to a worse than expected political trainwreck.  More likely than Debt Ceiling is unquantified risk from a headline that isn’t even on our radar yet.  Stay cautious and defensive.

Trading Plan:
Proactive traders can sell the pop and wait for a pullback to 1700.  Others can continue holding after moving up their trailing stop to just under recent resistance at 1700 or 1709.  Being short here is nothing more than trying to pick a top and we should wait for a material violation of support before betting against this breakout.

INDIVIDUAL STOCKS
AAPL continues the bounce off $450 and recovered half of the recent selloff on favorable reviews of the new iPhone5s.  While no one disputes the build quality fo AAPL products, the question is if these new “innovations” are enough to reverse the market share losses to Android.  In order to compete for market share, they need a large screen phone and a cheap phone, something we still don’t have.  As a business, I respect AAPL’s decision to stick with what they know best, high quality, premium priced hardware.  They have a great brand, reputation, and company and will be a force in the industry for years to come.  But what they are not is the largest and most successful company in the world.  The recent bounce is a good chance for longs to get out and bears to short.  We could make it all the way back up to $500, but it will likely act as a ceiling and the stock will rollover once the initial buzz from the iPhone5s fades.  Longs can hold as long as we stay above the 50dma, but have and respect your stop-losses.

TSLA daily at 2:22 EDT

TSLA daily at 2:22 EDT

TSLA is the stock that just keeps on giving, breaking above a recent consolidation today.  We can split this story in two pieces, there is the car company and the feeding frenzy around the stock.  For the company, the make a well received, high-priced car.  It is a very niche brand and more like Maserati than Porsche.  Sure Tesla could expand their product line, but they will eventually face stiff competition from the major auto companies.  The drivetrain is one of the simpler pieces to making, marketing, and selling cars in large volumes.  It won’t take much effort for a F, GM, TM, or BMW to convert an assembly line to electric vehicles and pump those cars through existing distribution channels.  Tesla and Musk have done an impressive job creating a new car company, but it is foolish to think they have a sustainable competitive advantage over other auto companies.  The greatest asset Tesla has is the buzz around the brand, and as we’ve seen with Apple’s rapidly falling market share, those advantages only last so long once lower priced competition shows up.

As for TSLA the stock, it is the go-go momentum stock of the moment.  The strength is aided by the fact many shareholders are insiders and not selling.  The small number of shares available for trade make it easy for limited demand to drive the prices to insane levels.  It is a great ride, but just realize this is only a ride and have an exit in mind.  While the stock can keep going higher, fear a misstep by the company, the “Qwikster” equivalent that sent high-flyer NFLX down 75% over a couple of months.  I have no idea what that might be, it could be a PR disaster like cars catching fire or a fundamental data point like slowing sales once the initial backlog of cars is delivered.  What I wouldn’t fear is analyst downgrades.

Plan your trade; trade your plan

Sep 18

Buy the fear

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:17 EDT

S&P500 daily at 3:17 EDT

MARKET BEHAVIOR
Stocks surged 15-points on news the Fed was not Tapering in September and continued charging higher through the afternoon.

MARKET SENTIMENT
This pushed us well past all-time highs at 1709 and put the hurt on anyone betting against the rally.  Now that we are back in clear air above previous highs, everyone with a diversified portfolio is sitting on profits and we no longer have sellers trying to get out at break-even.  With fewer people selling, it is easier for the market to continue making new highs.

Five-percent pullbacks always feel like the end of the world, that is why they work.  It spooks out the weak and seduces the naysayers to short.  When we have all this reactive selling after only a few point decline, it clears the market of weak holders and replaces them with confident owners.  Once the reactive selling dries up, the market rebounds on tight supply.  Don’t fear the five-percent selloff that feels like the end of the world, buy it.  The dip we have to watch for is a selloff that the crowd is making excuses for because everything looks so good.

The explosive nature of today’s breakout shows just how negative the market’s been.  The coiled spring sprung to the upside because everyone was positioned for a move lower.  I agree with the bears that this delay only puts off the inevitable and is fairly trivial in economic impact, but remember, we don’t trade fundamentals, we trade people and their portfolios.  When the crowd fears Taper, they sell proactively ahead of it.  This creates an asymmetrical trade.  Since modest Taper was already priced in, modest Taper would leave the market flat.  Anything above modest Taper leads to a rally and it takes a bigger than expected Taper to send the market lower.  Only one out three outcomes leads to a selloff, meaning the better trade was buying Taper, not selling it.

TRADING OPPORTUNITIES
Expected Outcome:

The market convinces us we are wrong just before proving us right.  It was tough being bullish at 1630, but clearly that was the better trade.  We’ve come nearly 100-points since then and now we need to figure out what comes next.  When in doubt, stick with the trend.  While we might check back to 1700 in coming days, finding support at this psychological level is bullish and suggests a continuation into the end of the year.  For 10-months now people have called for a pullback and that fear of the market is what keeps pushing us higher.

Alternate Outcome:
Every rally comes to an end and so must this one.  The thing to be wary of is an acceleration higher, signaling unsustainable buying.  We can continue holding gains, but be ready to step off and lock-in gains at some point.

Trading Plan:
Move trailing stops up to at least 1700 and possibly 1709.  We are sitting on nice gains and don’t want to give those away.  100-points over a couple of weeks is a big move and not a bad place for the cautious to lock-in profits.  This continues to be a bad place to short, wait for a violation of support before betting against this market.

Plan your trade; trade your plan

Sep 17

Holding 1700

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:26 EDT

S&P500 daily at 1:26 EDT

MARKET BEHAVIOR
Stocks rallied back above 1700, recovering yesterday’s slide into the close.  This is the second day the market traded around this level as it waits for the next wave of buying or selling.  We are at the upper end of the 1600/1700 trading range and challenging all-time highs.  The biggest gains are early in a move and the nearly year-long rally is slowing down.  That doesn’t mean the rally is dying, just resting.

MARKET SENTIMENT
Amazing what a couple of weeks does.  Two weeks ago bullish sentiment on Stocktwits was in the 20s and today it is pushing toward to 60%.  Obviously this is far from a scientifically valid sample and cannot be extrapolated to the investing public, but it does give us a good sense of who is proudly promoting their outlook online.  Two weeks ago bears were bragging about their investing prowess and now it’s bulls turn.  Nothing turns fear into relief as quickly as rising prices.  Seventy-five points later and the world doesn’t look so bad.  The question is if there is anything more to this move than a simple short squeeze.  Can we find real buyers to prop up this market and push us to new highs?

The Taper is coming, but everyone already knows that and it is already priced in.  Sure we can argue what month it will start, but a difference of a couple of months is trivial to a market that is already looking forward six months.  Military strikes seem increasingly unlikely, so that uncertainty is quickly evaporating.  The race for Bernanke’s replacement was recently shaken up, but the eventual successor will no doubt realize the economic risks of abruptly changing policy and the market should not fear drastic action.  Any weakness from this debate will likely be just another buying opportunity.

TRADING OPPORTUNITIES
Expected Outcome:

Stocks are holding up as few are actively selling this rebound to 1700.  Most of the nervous sold in the dip to 1630, leaving us with a far more confident core group of owners.  Their willingness to hold volatility paradoxically eliminates volatility since they keep supply out of the market.  Anyone who reactively sold the market this year came to regret that decision and traders are being conditioned to keep holding no matter what.  Eventually this will end in disaster because it always does, but in the meantime stability is buyable and bullish.

Alternate Outcome:
Predicting the market is easy, getting the timing right is where all the money is made.  Everyone who says this market will correct will eventually be proven right, unfortunately for their account they’ve been a tad early.  Watch for stalling and a retreat back under the 50dma.  Of course any short trade is a counter-trend trade and we need to take profits early and often.  Anyone who is greedily waiting for a big selloff let a lot of short profits slip through their fingers.  Don’t be that guy.

Trading Plan:
Anyone who owned the rebound to 1700 can take those well deserved profits.  Of course for the more adventurous, we can move our stops up and see if there is more upside.  The market is behaving fairly well, but two-days of sideways trade doesn’t qualify as support.  If we continue holding 1700 by Thursday, that means the higher probability trade is higher and anyone that missed the rebound can buy the breakout.

AAPL daily at 1:26 EDT

AAPL daily at 1:26 EDT

INDIVIDUAL STOCKS
AAPL recovered some of yesterday’s losses, but most disciplined bulls were stopped out dozens of dollars higher.  Many people made a lot of money in AAPL over the years, but don’t let what happened in the past skew our view of the future.  AAPL had its time in the spotlight, but unfortunately like most companies in the technology space, it is hard to stay on top.  Some analysts are predicting an iPhone market share as low as 13% next year, hardly the dominating force of just a couple of years ago.  source  The technology space is fiercely competitive and there is no reason to assume AAPL won’t be like all the other disgraced tech titans before it.  We trade the future, not the past.  While AAPL is still highly profitable, Wall Street is already writing the obituary and we should pay attention.  The market is far better at predicting the news than the news is at predicting the market.

Plan your trade; trade your plan

Sep 16

Back to 1700

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:53 EDT

S&P500 daily at 1:53 EDT

MARKET BEHAVIOR
Stocks surged above 1700 on news Larry Summers withdrew from consideration as the next Fed Chairman.  This opening gap leaves us a few points from all-time highs at 1709 and erased most of the late summer selloff.  So far the best trade has been buying weakness and selling strength.  Will that continue, or is the market finally ready to breakout of the 1600/1700 trading range?

MARKET SENTIMENT
While the news might be random, the market’s reaction is not.  It is easy to attribute today’s move to Summer’s decision, but the only reason the market moved this strongly is because the spring was already coiled.  If it wasn’t this headline, it would have been something else.  There was no guarantee we would break 1700, there are no such things in the market, but the market was poised for this move and that made it the high probability trade.  Luck is always a big component in any individual move, but over time a sound process is what leads to consistent, long-term success.

Obviously the market was oversold at 1630 and it snapped back as soon as traders realized things were not as bad as feared.  Once those afraid of the headlines sold, supply dried up and we rebounded to the upper end of the trading range.  Prices move on nothing more than supply and demand.  No matter what the fundamentals, technicals, or crowd says, markets bounce when we run out of sellers and is exactly what happened here.

TRADING OPPORTUNITIES
Expected Outcome:
We came a long way from the recent 1630 lows, but we only make money trading what is in front of us.  The question is should we sell this strength, or hang on for a breakout?  Right now either decision is a sound call.  The sideways summer trade allowed the market to consolidate first half gains, clearing the way for a potential continuation higher.  It is coming to terms with gradual  Tapering and military action in Syria seems less likely.  We have a date with the Debt Ceiling, and while the rhetoric will be ugly, past flirtations with disaster were buying opportunities and the market is less likely to get bent out of shape this time.  Of course that complacency increases the downside risks if complications do arise and is something we need to watch, but so far the year’s bullish theme of “less bad than feared” is continuing into the Fall.

Alternate Outcome:
More and more traders are becoming comfortable holding modest volatility.  While in the near-term that provides stability and is bullish, it adds water behind the dam and increases to the risk for when things finally breakdown.  Five percent pullbacks are a healthy part of moving ahead, but so are ten, fifteen, and twenty percent pullbacks.  We always have a date with more selling and every buyable dip brings us a step closer to the one that doesn’t bounce.

Trading Plan:
Lock in recent gains, or see if there is more in the tank by moving up your trailing stop.  Either trade works here.  Obviously being short any time over the last two weeks was a painful trade and adding new shorts is only trying to pick a top.  We are moving into the fall and that catalyst improves the odds of seeing the next directional move.  Right now bulls have the ball and it is their turn to show us what they have.

AAPL daily at 1:53 EDT

AAPL daily at 1:53 EDT

INDIVIDUAL STOCKS
AAPL continues struggling following the disappointing product announcement.   More of the same from the most innovative company is never bullish.  The stock is down nearly 10% from the $500 level and is yet another example of why we need to take profits after big moves.  Some people love owning AAPL, but I’m in this to make money and the only way to do that is selling our winners.  While many AAPL bulls see this weakness as a buying opportunity, the company clearly lost its mojo and has yet to stem the market share losses.  They are a healthy and profitable company with a loyal following, but the market is less willing to make it the most valuable company in the world and expect more air to be let out of the stock price.  For buy-and-hold investors, that likely means a date with the mid to lower $300s over the next twelve to eighteen months.  Hold this at your own peril.

Plan your trade; trade your plan

Sep 13

Support continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks continue consolidating recent gains, holding above the widely followed 50dma.  They are within a dozen points of reclaiming 1700 and just over one-percent from all-time highs.  We are in the upper end of the 1600/1700 trading range that stretches back to early May.  Do we sell this strength, buy the breakout, or can a nimble trader do both?

MARKET SENTIMENT
Markets regained their composure following brief anxiety surrounding Taper and Syria.  With a couple of weeks to digest headlines, it decided all the fear was unwarranted, but that is not entirely true.  For simplicity, we often talk about the market as a single entity, but it is really a composite of individual opinions.  Anyone previously afraid of Taper and Syria is likely still afraid of these events, but they have since moved out of the market, selling at a discount to opportunistic traders willing to bet things are not as bad as feared.  This churn in ownership ended the recent selloff and is pushing us back toward new highs.  With all those afraid of Taper and Syria already out of the market, it will take all new headlines to send the new crop traders rushing for the exits.

Much of the lift from the 1630 lows came from short covering as many bears were forced to buy as prices moved against them.  Unfortunately for many of these traders, the pain of losses forced them out after they failed to lock in recent profits.  We are in this to make money and the only way to do that is selling our winners.  In choppy, sideways markets, take your profits early and often.  Greedily holding for more profits hasn’t worked for either bulls or bears all summer.

TRADING OPPORTUNITIES
Expected Outcome:

The rate of gains is slowing as we run low shorts covering and prospective buyers remain reluctant to jump in head first.  The big takeaway is few are selling this strength and that allows the market to holding the 50dma even with weak demand.  Stable trade is most often bullish and holding these levels for a couple more days suggests 1700 and new highs are on their way.  As anxious as traders remain, the market needs that nervous energy to continue higher.  Stocks rally in the face of fear and decline on the back of complacency.

Alternate Outcome:
While traders still fear headlines, each buyable dip lulls them into inaction.  Every dip they sold this year was a mistake and many promised themselves never again.  That resolve to continue holding keeps modest selloffs in check as supply stays out of the market.  That works for a while, but even under tight supply, markets fall under their own weight when we run out of new buyers.  Once traders screens fill with red, formerly confident owners turn into fearful sellers.

Trading Plan:
The long trade is still the right trade as we hold recent gains.  Keep stops under recent resistance.  While recent highs are in play, it is anyone’s guess how the market will respond once we get there.  Stay nimble until the market breaks out of the summer’s trading range.

Plan your trade; trade your plan

Sep 11

The AAPL blunder

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:25 EDT

S&P500 daily at 1:25 EDT

MARKET BEHAVIOR
Stocks traded around 1680, digesting recent gains.  Money managers returning from summer vacation are more inclined to buy the discount than sell the risk.  Early losses turned green by late morning and if we hold these modest gains, it will be seven in a row and nine out of the last ten.

MARKET SENTIMENT
Recent anxiety is dissipating and so far buying the fear has been the savvy trade.  Bears who were certain we were headed for the 200dma pressed their shorts, but are now scrambling to unwind their positions, providing much of the demand lifting us toward all-time highs.

Taper is a page-5 story as Syria and Apple dominate the headlines.  But remember, anything on the front page is already priced in, meaning we need to dig deeper, looking for that new, up and coming story.  We are approaching another fiscal cliff, but that’s a broken record and while it will make the market a little uneasy, we’ve been there, done that, so don’t expect a big selloff.  Recent dip buyers obviously don’t fear modest weakness, so expect them to sit through continued volatility.  Their resolve to hold keeps supply off the market and adds stability.

TRADING OPPORTUNITIES
Expected Outcome:

Stick with what is working as this market is drawn toward 1700 and all-time highs.  We covered a lot of ground in two weeks, so a red day here or there is expected, normal, and healthy.  Where we go after new highs is a bigger question.  Are we in the middle of the last buyable dip and will finally see the selloff everyone’s been waiting for this fall?  Hard to say and we will take it day by day, but so far the high probability trade remains higher as we recover from oversold levels.

Alternate Outcome:
Bulls are back in control, but if they cannot maintain control and stumble in coming days, that signals demand is drying up and this is nothing more than a sucker’s rally.  Failing to hold the 1670/50dma shows buyers are unwilling to support these prices and we can actually start looking at shorting that weakness.

Trading Plan:
Own the market as long as we hold the 50dma/1670.  Disciplined shorts are long out of the market, hopefully capturing a nice profit.  Any bear who overstayed their welcome are watching profit evaporate and turn against them.  Countertrend trades always need to be quick and nimble.

AAPL daily at 1:25 EDT

AAPL daily at 1:25 EDT

INDIVIDUAL STOCKS
What is the value of an innovative company that can’t innovate?  We are about to find out.  AAPL missed the mark so badly with the iPhone5c and iPhone5s, it was like they were shooting with their backs to the target.  “C” certainly doesn’t stand for cheap because there are only a couple of phones more expensive than its unaffordable $550 price tag.  So much for breaking into developing markets.  Don’t get me wrong, the “C” will be a strong seller, how could it not be, it is the new, cool, and fun phone from AAPL, unfortunately its success will come almost entirely from cannibalizing the flagship “S” model.  Sure the “S” has a 64-bit A7 chip, but all the techno-geeks who care about that stuff already defected to Android phones two-years ago.  For most people, the only functional difference between the “C” and “S” is the fingerprint scanner.  A $100 premium is pretty steep, especially since Apple already acknowledged most users don’t care enough about security to lock their phone.  This also assumes the fingerprint reader works as advertised and is more reliable than recent “innovations” like Siri or Apple Maps.  If it takes two or three attempts to recognize my fingerprint, I’ll stick with the passcode.

When the “C” becomes AAPL’s best-selling model, we need to be ready for a material hit to revenue and earnings.  Some analysts point to strong margins on the “C”, but profits are measured in dollars not percentages, so strong margins don’t count for shit if earnings are falling.  AAPL really missed the boat with the “C” to make smart phone with global appeal.  I would have loved to see a iPhone3gs type of device priced around $200.  That would have been a home run and brought a lot of new people to the brand without cannibalizing the flagship model.  In reality the “C” is nothing more than the “5” with a less expensive plastic back.  We didn’t see anything on Tuesday to stem the market share losses and over the next two years expect to see the iPhone and iPad with single digit market share.

One of the more interesting nuggets from the presentation was AAPL’s announcement it is giving away their office suite for free on mobile devices.  Are they seeing early signs of professional users migrating to the MSFT‘s SurfaceRT which includes office?  It sure is a strange move on AAPL’s part, responding to a device with a paltry 3% market share unless their research shows it as a real, up and coming threat.  That admission by AAPL could be a bullish signal for MSFT and the Surface.

Plan your trade; trade your plan

Sep 10

What collapse?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:14 EDT

S&P500 daily at 1:14 EDT

MARKET BEHAVIOR
Stocks are crushing it as they continue the surge higher.  Today we blew past resistance at the 50dma and 1670 as strength makes it a painful day for shorts.  The market is up 50-points in less than two-weeks as many fears are quickly fading in the rearview mirror.  We remain inside the Summer’s trading range and this bounce is more  a reaction to oversold levels than strong demand for stocks.

MARKET SENTIMENT
Traders often try to get ahead of the market by out thinking it.  They use fundamentals and technicals in an attempt to predict its next move, but what they miss is market prices are nothing more than a function of supply and demand.  It makes no difference what the fundamentals or technicals show, if we are running out of sellers, markets find a bottom and bounce.  Far and away the hardest part of contrarian investing is ignoring what everyone else is obsessing over.  Taper?  Forget about it.  Syria?  Already priced in.  If people are talking about it, they already traded it, and it is no longer relevant.  You can take that to the bank.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  The market decisively recovered the 50dma and blew through last month’s stalled rebound to 1670.  While new highs seem a done deal, don’t expect the market to race straight there.  There will be some zigs and zags along the way.  Fear and uncertainty over Syria is quickly fading and everyone is expecting the Taper, so it will take new headlines to reignite the move lower, but expect headline driven volatility to persist.  As long as we respect recent lows, this weakness is just another entry point.

Alternate Outcome:
While the near-term collapse is temporarily off the table, we need to acknowledge bears are not wrong, just early.  This market will come down at some point and we need to be ready for it. I have no idea if it will be next week, next month, or next year, all that matters is we are prepared.  While I am constructive on this market, as soon as it stops acting as expected, it is time to pull the ripcord.  Most still don’t trust this market, but we are getting closer to the day when people stop fearing every red day and that will finally be our time to stick with a short.  The market has a nasty habit of convincing us we are wrong just before proving us right.  Stay flexible and open-minded.

AAPL daily at 1:14 EDT

AAPL daily at 1:14 EDT

Trading Plan:
Hopefully shorts took profits days ago because they are getting dangerously close turning into losses.  The goal of this game is making money and the only way to do that is selling our winners.  We reclaimed the 50dma and avoided starting a trend of lower-highs, so bulls are back in control.  We can own this market with stops under recent resistance, plus a safety margin to keep us from getting shaken out.  How big that margin is depends on the individual trader’s conviction and appetite for risk.

INDIVIDUAL STOCKS
AAPL is minutes away from unveiling its “cheap” phone.  While a great looking iPhone5c will cause the stock pop, anyone looking two steps ahead will see that means massive cannibalization for the far more profitable flagship model.  The less capable the “c”, the better it is for AAPL’s bottom line, so don’t hit the sell button if it isn’t something you want to buy.  That’s the point because it will keep demand up for the top end phones.

Plan your trade; trade your plan

Sep 09

Rebound continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:09 EDT

S&P500 daily at 3:09 EDT

MARKET BEHAVIOR
Stocks are on track for their fifth consecutive up day and seven out of the last eight.  The market is sitting on the 50dma and within points of 1670, where the previous rally attempt stalled out.  The market is prone to headline volatility and we are still well within the summer’s trading range so the coast is anything but clear.

MARKET SENTIMENT
The market goes back and forth over military strikes in Syria.  Some days it is “on”, other days it is “off”.  Today it seems to be “off”, at least that is one reason the media is giving for today’s strength.  But here is the thing, anyone afraid of these events is already out of the market.  They sold at a discount over the last two weeks to more bold traders willing to take the risk.  This churn in ownership brings more stability to the market.  Anyone holding here acknowledged the risk of military action and chose to buy or continue holding.  If bombs start falling, these people are less likely to hit the sell button because they already demonstrate a willingness to hold in the face of these uncertain risks.  This ownership churn is how markets price in events long before they even happen.

Between Taper, Syria, and weaker than expected employment, the market has every reason to sell off, yet here we are, reclaiming lost ground and only 2.5% from all-time highs.  That’s how this game is played, we rally when everyone is scared and slide when everyone feels safe.  The more nervous people are, the more upside there is and vice-versa.  It is hard to find people excited about this market and makes it easy to find a bottom.  After all the nervous and paranoid sellout, there is no one left to sell.  The best trade is usually buying what you don’t want to buy and selling what you don’t want to sell.

MARKET BEHAVIOR
Expected Outcome:
The market is challenging last month’s rebound highs.  Either this is resistance and sets the trend of lower highs, or it is the middle of a double bottom that propels us to new highs.  Given the lack of complacency and fear surrounding recent headlines, my money is on new highs.  No doubt I could be wrong because nothing is certain in the markets; that is why all savvy traders have a good defense.  While headline volatility will persist, the market already digested the biggest chunks of uncertainty surrounding Taper and Syria and is holding up relatively well.  This market will rollover at some point, but this doesn’t look like it.

Alternate Outcome:
Every dip is buyable until they are not.  The hard part is sucker’s rally looks seductively buyable and is why so many people fall for them.  If this game were easy, everyone would be rich.  If we run out of dip buyers, look for the market to rollover on a lack of demand.  5% dips are routine and happen multiple times a year so we cannot read too much into recent weakness, but every 15% selloff starts with that first point lower.  While I am reluctant to short this market, failing to make new highs is a concern and creates an interesting short entry.  We don’t pick tops, but we do short weakness where we expect to see strength.

Trading Plan:
Hopefully shorts didn’t get greedy and locked in profits days ago.  We remain in a bull market and counter-trend trades need to be nimble and quick.  We broke the 50dma and 1670 in late trade.  If we hold these levels, look for new highs in coming weeks.  If we fail to hold, look for a test of the 200dma.  We can own the market with tight stops under these key technical levels and short a violation of the same levels.

AAPL daily at 3:09 EDT

AAPL daily at 3:09 EDT

INDIVIDUAL STOCKS
AAPL has its big product launch tomorrow.  It seems like most of the big announcements leaked out already and are already priced in.  While many are looking forward to the iPhone5c, hopefully AAPL does a good job differentiating it from the higher priced model.  A low resolution screen, slower data antenna, and smaller battery would both make the phone cheaper and keep demand strong for the high-end phone.  If there is no meaningful differentiation, expect most buyers to opt for the new, fun, and cheaper iPhone5c.  That will kill revenue and margins.   I am in favor of the iPhone5c, but it must be a clearly inferior phone to its bigger brother to both open lower end markets yet not cannibalize flagship sales.  If the c has retna, 4G, decent battery, and is sold in the developed world, expect to see massive cannibalization.

Plan your trade; trade your plan

Sep 06

Challenging the 50dma

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:39 EDT

S&P500 daily at 2:39 EDT

MARKET BEHAVIOR
We opened higher on marginal employment, but gave up 20-points minutes later as Obama reiterated his resolve to bomb Syria at the G-20 summit.  Nearly as quickly as we fell, we bounced back, erasing all early losses by late morning.  While headline volatility persists, moves either direction quickly stall, leaving us in this persistent, choppy sideways trade.  We remain under the 50dma and recent resistance at 1670, but are inching higher.

MARKET SENTIMENT
Employment numbers missed the mark, but  were close enough to avoid a major move either way.  Syria remains a wildcard and will continue driving volatility, but to understand where this market is headed, it helps know the different traders in the market.  The easiest way to segregate traders is by their holding period.  We have the buy-and-hold-forever crowd.  Most big money managers hold for approximately one year because of the difficulty building and unwinding positions.  Then comes smaller and more nimble swing- and day-traders.

Most of us recognize only traders buying and selling in the present affect prices, while everyone else is simply along for the ride.  No matter how big a trader, once they are fully invested, there is little they can do to actively steer market prices.  This is why day- and swing-traders play a much larger role in the day-to-day price moves.  Over the course of a year, someone who trades 10x per day has 2,000 the impact as the one who trades 1x per year.    But this isn’t the whole story.  Nimble traders have to be small by nature because that is the only way they can effortlessly enter and exit positions.  So while they have huge influence, they also have limited strength.  These are the skittish traders that drive volatility as they react to every headline, but because of their limited size, they cannot push the market more than a few percent either way before their influence fades.  Only buying and selling by larger groups can sustain a breakout move.

Taking this concept to the present, we have lots of intraday reactions to headlines, but most of these moves stall as the larger pool of longer-term investors sits on their hands.  Most significant is the masses are not spooked by scary headlines driving this choppy volatility.  The lack of wider selling keeps tight reigns on supply and puts a floor under this market.  The only way for this move lower to continue is if it convinces larger investors to bail and so far it hasn’t done that.

TRADING OPPORTUNITIES
Expected Outcome:
The extended selloff remains MIA.  We are lower by a few percent, but if we were standing on a trapdoor, early weakness would have triggered an avalanche of selling, something we haven’t seen.  At this point it looks more like stalled selling than anything else.  Traders are watching the 50dma and 1670 closely and look for a wave of breakout buying and short-covering if we cross these levels.  If we don’t see a decisive breakout, that means the market struggles to find buyers and bulls need to tread lightly.

Alternate Outcome:
Sucker’s rallies only work because they look real.  If tops and bottoms were obvious, this game would be easy and everyone would be rich.  Clearly that’s not the case, so we must watch every move with suspicion.  The market remains under the 50dma and until we cross this barrier, bears remain in control.  If we see buying dry up as we break through this technical level, short the break back under.

Trading Plan:
The market remains volatile and choppy.  Anyone trading this market needs to be confident in their positions and give them more room to move around or risk being shaken out at the exact wrong time.  This adds to the risk and makes for a poor risk/reward.  Every time we hold stocks, we expose ourselves to risk.  Owning or shorting a sideways market piles on the risk, but don’t get paid for it.  That’s why it is better to sit in cash waiting for the next directional move.  Of course where is the fun in that?  We are traders and the best way to follow the market is to be in the market.  So anyone long here, cover under recent lows and anyone short cover a strong break above 1670.  Just recognize the elevated risk in trading a choppy sideways market and adjust position sizes accordingly.

Plan your trade; trade your plan

Sep 05

AM: Holding yesterday’s gains

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:21 EDT

S&P500 daily at 1:21 EDT

MARKET BEHAVIOR
Stocks traded modestly higher, holding yesterday’s gains.  The market remains a few points under the still upsloping 50dma and is the next major hurdle for a days old rebound.  1670 is another notable technical milestone representing the middle high of a potentially bullish double bottom.  Volume is inching higher this week as traders return from summer vacation and start positioning their portfolios for the last few months of the year.

MARKET SENTIMENT
Weekly jobless claims are at their lowest levels in years, but tomorrow’s monthly jobs report is far more influential for both the Fed and market.  Years ago the monthly employment numbers moved markets, but it’s been over a year since they generated anything more than intraday volatility and as long as they are not shockingly good or bad, expect much of the same tomorrow.  Earlier in the year bad was good when traders worried about the sustainability of QE, but that ship already sailed and everyone is expecting Tapering in coming months at the latest.  Since Tapering is already priced in, good is good again and a strong employment number is bullish for the economy and markets.

Some of the Syrian hype and fear is dying off as traders are coming to terms with military action.  Bad news isn’t all that bad when it is quantified, it is the uncertainty that kills markets.  As the political debate rages on in DC, it appears like this will be a very limited action and the market is gradually becoming less concerned over it.

Between the impending Taper and the shock over Syria, the market had every excuse to selloff, but bears just couldn’t get it done.  In fact it looks more like selling stalled on the heels of these fearsome headlines.  Scared markets plunge dramatically and three weeks into this selloff, it would be hard to call 3% off all-time highs a plunge.  There is nothing wrong with distrusting this market, even going so far as shorting recent weakness, but we have to pay attention to how the market behaves to determine if our trade is working.  We use stops as a last resort to get us out of bad trades, but most of the time we should exit trades that are not working long before our stops force us out.

TRADING OPPORTUNITIES
Expected Outcome:
The selloff seems stalled and is looking more like a buyable dip than shorting opportunity.  We are still under the 50dma and the middle peak of a potential double bottom.  Use either of these as a valid entry.  A bolder trader could buy under these technical levels and use recent lows as a stop, but for most of us it is better to be a little late than a lot early.  If we regain and hold the 50dma, new all-time highs are all but a done deal.

Alternate Outcome:
Bears can shoot against this market using the 50dma or 1670 as stops. We’ve come a long way and historically September has seen some brutal selloffs as big money managers dump shares into the end of the year.  While the political debate around Syria is creating more

clarity, escalation by either side could catch the market by surprise.  When calculating risk/reward, it is more than just probabilities but also magnitude of the potential windfall.  Even if a rebound to all-time highs is more probable, betting against this market could be the better trade if the size of the payout is significantly larger.  This is the highly profitable black-swan trade.  While the world appears stable, the profit potential of everything unraveling can be attractive.  Since these lottery style trades don’t work very often, the best way to trade them is through options that limit the losses of the more probable outcome.

Trading Plan:
Watch this market, waiting for the eventual breakout/breakdown.  The ambitious can buy/short with tight stops.

Plan your trade; trade your plan

Sep 04

AM: Yo-yo continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:18 EDT

S&P500 daily at 1:18 EDT

MARKET BEHAVIOR
The yo-yo continues as stocks returned to 1650 following yesterday’s weak close that gave back most of those early gains.

MARKET SENTIMENT
Syria induced volatility is chopping up anyone reacting to these wild swings.  Naturally everyone wants to buy low and sell high, but anxious traders are doing the exact opposite as we ricochet between failed breakouts and failed breakdowns.  Today’s trade is shaping up as a one-way short-squeeze as we push beyond recent highs and trigger a wide swath of short-sellers’ stop-losses.  Can this rebound continue or will it stall retest recent lows?

While we all know what is happening, we only make money by trading what will happen.  Taper is a distant memory as Syria dominates headlines.  Obama shocked everyone by seeking Congressional approval, leading to yesterday’s opening gap higher, but that surge faded as many on both sides of the isle came out in support of military intervention.  It is harder to pin down an exact news catalyst for today’s surge, but the market doesn’t need one.  We are going up because more people want to buy than sell, and so here we are.

Part of the reason we have so few sellers is most afraid of recent turmoil are already out.  They sold yesterday, last week, or last month.  No matter how bad the headlines, if no one is left to sell, the market will hold up fairly well.  Recent volatility and intimidating headlines chased off the weak who sold at a discount to far more confident investors willing to stomach the uncertainty.

Every other dip this year was buyable and we will soon know if this continues or breaks the trend.  With as much bearishness as there is in financial headlines and how little the market’s come down, it really feels like there is limited downside remaining in this move.  Often the market acts like a coiled spring and explode one direction or the other. Between Taper and “war”, there has been plenty to unleash a coiled spring, but 4% off all-time highs is more fizzle than bang.  The lack of an explosive move lower shows the market is not poised to collapse because it already ignored multiple invitations to do just that.  Weak hands already bailed out and the new owners are not interested in selling.  Low volume, high volume, it doesn’t matter; when owners don’t want to sell, we go up.

TRADING OPPORTUNITIES
Expected Outcome:
While I remain constructive on this market because of the muted downward moves, volatility will persist and anyone lacking conviction in their positions is best suited sitting this one out.  No doubt today’s explosive rebound will go the other way within days, even hours.  The safest and easiest play is waiting for this volatility to work its way through the system and buy as the market starts acting more decisively.  That doesn’t mean when the coast is clear and it finally feels safe to own because that is clearly too late.  Buy when uncertainty is coming out of the market, but it is still plenty scary.  In war situations, that often means when the bombs start falling because we are no longer wondering “if” or “when”.  Then it is simply a matter if the consequences are as bad as feared, which most often they are not.

Alternate Outcome:
The problem of trading with conviction is it often leads us right off a cliff.  As the saying goes, know when to hold’em, know when to fold’em.  The simplest way around this problem is waiting for better setups.  The goals isn’t to make all the money, just the easy stuff.  Trading sideways chop is the most frustratingly difficult ways to make money.  Take some time off and come back for the next directional move.

Trading Plan:
Without an iron gut, sit this one out, or at least dial back the size of your stake.  Anyone who wants to trade this, trade proactively, not reactively.  That means taking profits early and often because they will evaporate days later.  My bias is for an upside resolution, but we could see more weakness before then.

Plan your trade; trade your plan

Sep 03

AM: Syria Relief

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks popped following the Labor Day break, flirting with 1650.  Obama is seeking Congressional approval before taking action in Syria and is the most cited reason for today’s relief rally.   This pushed us above last week’s stalled rebound, but we are still well under the 50dma.  The silver lining is the market violated support multiple times, yet selling never accelerated and we remain relatively stable despite of all the anxiety.

MARKET SENTIMENT
Summer is finally coming to a close.  Kids are back in school and rich money managers are returning from their countryside estates.  While active traders make up a bulk of the daily activity, they are a very small group and can only take the market so far before running out of money.  The lack of meaningful participation by big investors is largely responsible for the sideways trade we’ve seen since May.  Only guys with deeper pockets (mutual funds, pension funds, etc) can drive the markets sustainably and as they jump back in over the next few weeks, hopefully that will be the catalyst to get us out of this sideways summer chop.

The bigger question is if these guys will liquidate ahead of expected weakness, or continue buying the slow, but steadily improving economy.  Europe survived contagion.  China is still chugging along.  Japan has not imploded.  All in all, things are far better than worst case and that relief is a large part of this year’s strength.  While many still fear the end of easy money, all the people selling the bond market need to put that money to work somewhere and that certainly could be bullish for equities.  Valuations, fundamentals, and technicals don’t matter when people keep throwing money at equity fund managers and they have no choice but to buy stocks.

TRADING OPPORTUNITIES
Expected Outcome:
If all you did was listen to the chatter, you’d think the market took a pretty good wallop this summer.  StockTwits SPY sentiment is 76% bearish, the most skewed I’ve seen it.  Headlines focus on Taper, Syria, and the weak economy.  But the funny thing is the market is higher since the end of April and just a few percent from all-time highs.  Calls of the sky falling are clearly premature.

People trade their outlook.  When is the last time any of us heard someone say “this market is going crash so I bought more stock this morning”?  Of course not, they say “I sold everything last week and am 100% in cash because this market is going lower.”  So what happens when everyone is bearish?  That means everyone already sold.  Clearly the term “everyone” hyperbole, but when short-term traders bailout, they sell at a discount to more confident long-term holders who are not afraid of near-term volatility.  These new buyers’ calm nerves suck up supply and the selloff stalls as we run out of sellers.

Alternate Outcome:
Every bear market starts with that first point lower and so will the next one.  The heated debate people is if we are already in the early days of a bear or this is just another routine dip on the way higher. While short-term traders are nervous and most are already out, complacency is creeping into the longer-viewed investors as every dip since the 2009 bottom has been a great buying opportunity.  Markets go up and markets go down, that’s what they do.  It’s been a good year, but we need to watch for signs the aging bull is running out of gas.  While the economy and Taper are already priced in, Syria is the new wildcard and the longer the political grandstanding drags on, the more uncertainty it injects into the market.

Trading Plan:
While we should expect more near-term volatility surrounding Syria, look for the market to break out of this trading range in coming weeks.  Maybe we have another horrible September as big money dumps shares at heavy discounts.  Or maybe they buy the discounts short-term traders are hand out.  I expect an upside resolution, but I will wait for the confirmation either way.  In the meantime we let the impulsive traders get chewed up by this volatility.

Plan your trade; trade your plan

Aug 29

AM: Forget the Taper

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:15 EDT

S&P500 daily at 3:15 EDT

AM Update

MARKET BEHAVIOR
Stocks dipped at the open on stronger than expected GDP numbers, but recovered into the green within minutes.  We cleared the minor speed-bump at 1640 and the next meaningful hurdle is the 50dma at 1660.  The summer chop continues, but Labor Day next week marks the start of the Fall trading season and we should expect more involvement from big money.  Their deeper pockets move markets and will finally take us out of this 1600/1700 trading range.  The million dollar question is if they will they buy the late summer dip or sell the weakness?

MARKET SENTIMENT
The knee-jerk reaction from many traders was selling the stronger than expected GDP numbers because they are still trying to trade the Taper.  Months ago we lived in the bizarro world where strong economic numbers were bearish because it threatened easy money.  Unfortunately for anyone trading in the rear view mirror, the Taper trade is already old news.  We beat that poor horse to death this summer and the market is already on to something else.  Right now that is fretting over Syria and welcoming the slow, but steady economic progress.

People have a hard time believing the Taper trade is already dead because it hasn’t even happened yet.  How can we safely ignore something that is still in front of us?  Easy, the market is forward-looking and people trade their expectations of the future.  I have yet to find a single person who thinks the Fed will continue buying $85 billion per month in debt all the way through 2014.  That means most everyone expects the Fed to Taper some time over the next 15-months.  In fact many are convinced it will happen sooner with most of the debate focused on September or January.  People trade what they expect and the market expects Taper, so that means it is already priced in.

No doubt there is some uncertainty surrounding Taper and the market hates uncertainty, but paradoxically that is a reason to buy the Taper weakness, not sell it.  When the Fed starts tapering in a moderate and responsible fashion, it will remove a big piece of uncertainty.  Since the eventual Taper will be less bad than feared, the market rallies on the news.  Sell the rumor, buy the news.  Rallying on the start of Tapering only seems irrational to those who don’t understand how the market works.

Syria is a whole different can of worms and we should expect more near-term volatility as the political posturing ramps up, but  this will be ancient history soon enough and we should buy when the missiles start flying.

TRADING OPPORTUNITIES
Expected Outcome:
The market is finally firming up after digesting the Syrian headlines.  Some hecklers want to give me a hard time because I remain constructive on this market while we sold off for a few days.  I’m not sure what these people expect, but no one has a crystal ball and I never claimed the ability to perfectly time every daily move in the market.  Many of these critics fail to realize successful trading is more about being wrong than right.  It is easy to make money in the markets, just ask any monkey with darts.  The harder part is keeping those profits.  That is where discipline, risk management, and stop-losses save the day.  Anyone can be lucky, but only the people who know how to be wrong will survive this game.

But back to the markets, the runaway selloff really didn’t get started.  While we slipped 5% from all time highs, the Tapering and Syrian fears cleared a lot of weak holders and brought in a new crop of owners willing to sit through this turmoil.  The market is fragile here and traders remain on edge, but sharp selloffs are swift and this one never really got going, meaning we are not standing on a trapdoor.

Alternate Outcome:
We are on shaky ground.  That means one of two things, either this is a great buying opportunity, or the floor is about to fall out from under us.  Major declines always start as small selloffs and we must always take weakness seriously.  While we don’t need to run from it, we should respect it and that means watching for signs of dip-buying drying up.  Every dip this year has been buyable, but eventually we will run into one that is not.  We made a lot of nice profits this year, it would be a shame to let those evaporate as we stubbornly hold through the top of this rally.

Trading Plan:
Bears and shorts need to tread lightly.  They’ve been right the last couple weeks, but the goal of this game isn’t to be right, it is making money and the only way to do that is selling our winners.  Selloffs are typically swift and this one is proving quite stubborn, meaning recent weakness is unable to shake many confident holders loose.  Of course the one time selloffs grind lower is bear markets.  While that is possible, it seems premature, especially given historically strong earnings and better than expected economic growth.  Our next bear market is coming, but we need people to forget about the last one first.

As for bulls, the market will likely remain choppy through next week as we wait for Syria to be resolved and bigger trader to come back from the holiday.  While I remain optimistic, forcing a trade here is a good way to get chopped up in these swings.

Plan your trade; Trade your plan

Aug 28

AM: A little relief

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:19 EDT

S&P500 daily at 2:19 EDT

AM Update

MARKET BEHAVIOR
Stocks recovered some of yesterday’s selloff, ending the steady stream of selling, but feelings of uneasiness remain.  We are still stuck near 1640, which provided  support last week.  Often what was support becomes resistance and today’s rebound could stall at this level.  Of course support/resistance is proportional to the number of times the market bounces off a level.  By that measure 1640 not all that meaningful and is a speedbump at best, but in a weak market it might only take a speedbump to derail this bounce.

MARKET SENTIMENT
Yesterday’s selloff caught everyone by surprise and the dip-buying crowd held off, waiting to see how much better prices would get.  The widespread anxiety didn’t come from what we’ve debated for months, but something new and unexpected.  While events unfolding in Syria will likely have a limited economic impact over here, it is a new risk factor not previously priced in and is what made people so uncomfortable.  We’ve been debating Taper for so long that everyone already made up their mind, but Syria is new and people didn’t have time to cement their opinions.  Add in the pressure from a declining market and many simply chose to sell the uncertainty.

All of this leaves us in a delicate position.  Most people rationally realize Syria will be a non-factor just like Libya and Egypt, but markets hate uncertainty and all this political grandstanding is exaggerating the situation.  Expect the market to remain volatile in the build up to a conflict, but rally after the start of military operations when everything becomes quantifiable.

TRADING OPPORTUNITIES
Expected Outcome:

The one way selloff ended, but we are not out of the woods yet.  Four percent from all-time highs is hardly oversold and there is plenty of air beneath us, so jumping all over this rebound is still a risky trade and counts as picking a bottom.  While I am not worried about Syria, the crowd’s shifting sentiment concern me.  Previously confident holders are no longer greedily expecting new highs and are considering selling for the first time in a while.  Sometimes we don’t need a reason to sell other than everyone else is selling and that is what I am wary of.  While I still think recent weakness is creating a buying opportunity, I would rather be a little late than a lot early.  I remain optimistic in the medium-term, but recent weakness leaves me cautious.

Alternate Outcome:
Every dip is buyable until it isn’t.  We all know this rally is coming to an end and most of the times it is a fairly innocuous event that marks tops and bottoms.  If tops and bottoms were obvious it would be easy to make money in the markets and we all know that is not the case.  Yesterday’s “plunge” came on barely average volume, showing many holders continue holding.  The risk is if we add in a little more weakness, that dam of confidence will shatter in a cascade of selling.

Trading Plan:
Stay cautious as momentum remains with the bears.  The Syria situation is overblown but markets rarely act rationally in the face of new and uncertain events.  If the market rebounds to 1700, there will be plenty of time to get on board, so wait for stability and sanity to come back before buying the dip.  Our goal is to make the easy money, not buy the bottom.  Don’t forget, we remain in the choppy summer market and both bulls and bears should continue locking in profits early and often.

AAPL daily at 2:20 EDT

AAPL daily at 2:20 EDT

INDIVIDUAL STOCKS
AAPL slipped under $500 on yesterday’s weakness and how the stock responds to this level in coming days will be revealing.  Will big money come in and buy discounted shares at $490, putting a floor under the stock?  Or did everyone and anyone buy all the AAPL they could hold in the recent rebound and we are rolling over from a lack of follow-on buying?  I’m still fearful of a buy the rumor, sell the news going into the Sept product launch.  The iPhone5c is the worst kept secret since an Apple employee left an iPhone4 prototype in a bar a couple of years.  Anyone buying in anticipation of a “cheap” iPhone surge will likely be disappointed unless Apple hits us with something revolutionary that hasn’t already been leaked out.

Plan your trade; trade your plan

Aug 27

AM: Buy high, sell low

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:43 EDT

S&P500 daily at 2:43 EDT

AM Update

MARKET BEHAVIOR
Stocks are lower by a percent on fears of US involvement in Syria.  This dip undercut the lows of last week as many traders take a sell first, ask questions later approach to the news.  While the move is lower, we are still well within the summer’s trading range and this sideways chop is consistent with recent behavior, so at least for the time being, the market is not signaling the start of something new.

MARKET SENTIMENT
Paradoxically wars are good for markets, it is the uncertainty leading up to the initial confrontation that weighs heavy on them.  The start of armed conflict is a relief to markets and leads to powerful rallies as seen in WWII and the first Gulf War.  The Syria “conflict” will likely be nothing more than a few cruise missile, or at worst air support for rebels like we saw in Libya.  While we might experience a 25 or 50 cent spike in the price of gas, we lived through $4/gal gas before and will do it again.

Through uncertainty comes opportunity.  Everyone is fairly confident this Syria thing won’t be a big deal, but we don’t know for sure and that keeps buyers away.  Traders selling this weakness are offering attractive discounts to those willing to take the risk.  For one side it will be a good deal at the expense of the other, but only time will tell if this is the end of Syria based selling, or just the start.  The gap lower at the open and the progressive slide lower is heightening the pain for those trying to hang on and is the cleansing process of setting the market up for the eventual rebound.  No one can consistently pick bottoms and tops and I won’t try, but all these previous Middle East selloffs created buying opportunities and this one will likely end the same way.

TRADING OPPORTUNITY
Expected Outcome:
Markets often act irrationally and emotionally.  As frustrating as that feels in the moment, those cracks in efficient markets allow us to profit from other people’s impulsive behavior.  I have no idea how low this dip can go and picking bottoms is a fool’s game, but this weakness is creating opportunity.  As for Syria, we’ve seen this story many times before and the worst fears are never realized, but we need to wait for the market to sort this out before jumping in front of it.

Alternate Outcome:
We long knew Tapering was a non-issue and it was going to be something else that brought this rally down.  Syria is new and few are actively promoted the impending Debt Ceiling.  Together these two headlines could conspire to kill this rally since they are not currently priced in.

Trading Plan:
Stay cautious, but be ready to buy with both arms when the missiles start flying.  Syria is a non-issue, we just need to wait and see how much of a discount sellers are willing to give us first.  Shorts can keep riding this down, but take profits early and often in this sideways, summer chop.

Plan your trade, trade your plan

Aug 26

AM: Stability means what?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:15 EDT

S&P500 daily at 3:15 EDT

AM Update

MARKET BEHAVIOR
Stocks eked out minor gains and added some cushion above the 50dma.  Neither bulls, nor bears have been able to move the needle in the final weeks of summer as we continue hovering indecisively around this widely followed moving average.

MARKET SENTIMENT
The widely expected Tapering collapse is still MIA.  In the bear’s defense, markets never move in straight lines so this could simply be a sucker’s bounce, but swift selloffs typically take our breath away before pausing and 4% is hardly breathtaking.

Everyone knows Tapering is coming and it really doesn’t matter much if it starts in September or January.  The Fed is ultra sensitive to the markets and it is highly likely tapering will start nominally to give markets plenty of time to adjust to a new reality.  Everyone, including the Fed, knows what would happen if they abruptly shut down the program and it is unnecessary given stable inflation and anemic growth.

If Tapering is already priced in, we need to keep an eye out for what comes next.  Remember, markets only move when people change their minds.  That means we are looking for new revelations that shows things are better or worse than most expect.  Disappointing earnings out of bellwethers like WMT, M, and CSCO could be the cracks in this already weak economy.  Or all this money fleeing bonds could bid up stock prices.  If these things were easy to figure out, everyone would be rich.

For all those worried about “War” in the Middle East, that is quickly becoming one of those Chicken Little things.  Afghanistan, Iraq, Iran, Egypt, Libya, Syria, etc.  Last year’s “Arab Spring” didn’t crush the market last year and is unlikely to do it this year.  Everyone’s long gotten used to $4 gas and it really isn’t a big deal anymore.  Outside of a revolution in Saudi Arabia, it’s business as usual.

TRADING OPPORTUNITIES
Expected Outcome:
No one knows what comes next and the best we can do is trade probabilities.  Violating the 50dma was the perfect invitation for sellers to rush for the exit and the market to collapse.  But that didn’t happen and we found a floor instead.  At the very least it tells us holders remain confident in the face of modest weakness.  Traders often focus on demand, but we mustn’t forget about supply.  No matter how dire things look, it is easy to prop up prices when supply remains tight (ie no one is selling).

When in doubt, stick with the trend, especially when the market is afraid of headlines; Tapering, Syria, weak retail results, etc.  A skittish market is an underweight market.  An underweight market is a buyer’s market.

Alternate Outcome:
Buying the dip is the most tired trade of the year.  While it worked every other time, there will come a day when all these cocky dip buyers give back a year of profits in one swift selloff.  While the odds always favor a continuation (markets continue countless times but only reverse once), we must always play defense.  Trading above the 50dma should have triggered a short squeeze, but we only saw modest gains over the last couple days.  We must always tread lightly when the market doesn’t do what we expect.

Trading Plan:
While the sideways trade continues, stability favors an upside resolution.  Bears need to be careful with recent profits and not let the market take those away.  Adventurous Bulls can own here, but keep stops tight.  This sideways trade will likely continue frustrating both sides as the market’s indecisiveness lasts into early fall.  The best trade is waiting for the next trade.  In coming weeks the market will let us know what it wants to do and we simply jump on board.

AAPL daily at 3:16 EDT

AAPL daily at 3:16 EDT

INDIVIDUAL STOCKS
AAPL continues hanging on to $500 days before it’s widely anticipated product launch.  We already know about iOS7 and people are fairly certain about the iPhone5s and the iPhone5c.  Those should be well received even if they are not all that innovative, but the one thing many investors overlook is just how dependent AAPL is on corporate charity from ATT and V.  Many iPhone users upgrade every two-years like clockwork, taking advantage of the $400 phone company subsidy.  Years ago AAPL was in control and could dictate terms to ATT and V as high-value customers lined up to buy iPhones, but the tides have turned as Android is the most popular flavor of smartphone domestically.  This is doubly good news for ATT and V.  First, Android phones are much cheaper and require less subsidy.  Second, they are less dependent on the iPhone and we could very well see a decrease in that all important subsidy.  Even a modest bump from $200 to $300 will put a significant dent in the number of iPhone customers opting for an upgrade.  Innovation or not, the day the phone companies reel in their subsidies will be a very bad day for AAPL shareholders.  I have zero knowledge of anything like this happening, but it is one of the biggest risks facing AAPL shares.

Plan your trade; Trade your plan

Aug 23

AM: Are we finding a bottom?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:20 EDT

S&P500 daily at 3:20 EDT

AM Update

MARKET BEHAVIOR
Stocks continue hanging around the 50dma as the widely expected Taper selloff is MIA.  We are less than 3% from all-time highs and the market is holding together quite well.   Typical selloffs are swift, while rallies grind higher.  Seven-trading days near the 50dma is more grind-like than swift-like, suggesting the market is finding a temporary bottom following earlier weakness.   We are in the tail end of the summer trading season and  will likely see more directional moves this fall.

MARKET SENTIMENT
While many are obsessing over the Taper, that chatter is self-defeating and minimizes the impact of the Taper.  The more the market talks about something, the fewer people there are that remain undecided.  Right now traders are falling into one of two camps, those that fear the taper and those that don’t care about it.  Those that fear it ran for cover early in the summer and are already in cash.  Those that are not worried about it don’t respond to Taper headlines.  With so few people undecided about the taper, it no longer matters.

Ignoring what the crowd fears is a common theme for this blog, but  it is one of the most difficult concepts of contrarian investing to have faith in.  Humans by nature are pack animals and long ago natural selection wired us to be in tune and empathetic with the people around us.  When everyone else was running scared, the best reaction was to run for our lives too.  Anyone who stuck around to see what all the fuss was about quickly became lion food.  But what worked in the wild 50,000 years ago will bleed us dry in modern financial markets.  Stand apart from the crowd and exploit their heard mentality.  Buy what they are selling and sell what they are buying.

TRADING OPPORTUNITIES
Expected Outcome:
While we have not decisively broken through the 50dma, today’s support is constructive.  Bears had fear and anxiety on their side, but were not able to do much with it.  We have multiple 5% pullbacks every year and so far that is how this weakness is behaving.  Every 5% pullback feels like the next big selloff when we are in the middle of it, but that is why they work.  They shake free weak holders, clearing the way for the continuation higher.  The hardest trade is usually the right trade and holding this weakness in the face of imminent Taper is not an easy thing to do.

Alternate Outcome:
The market typically overreacts on both the up and downside.  We go higher than we should and sell off further than is reasonable.  This is the herd mentality taking control of otherwise rational people.  All it takes is one catalyst to send already nervous traders running for cover and we always need to be careful.  While the recent weakness chased off a lot of nervous holders, it is really easy to turn confident owners into nervous sellers when prices start declining.

Trading Plan:
While the summer chop might continue, it seems like the recent selloff is finding a bottom and bears can use this pause to unwind shorts instead of waiting until the pain of a strong move higher chases them out.  If a bear insists on staying short, keep it on a tight leash and use a trailing stop to protect recent profits.  A bull can buy the break above the 200dma and use recent lows as stops.  If the selloff fails to materialize, look for the market to reclaim 1700 in coming weeks.

MSFT daily at 3:20 EDT

MSFT daily at 3:20 EDT

INDIVIDUAL STOCKS
MSFT exploded higher on news of Balmer’s departure.  While it is a bit overdone, this might be the emotional catalyst the stock needs to become popular again.  As any regular reader of this blog knows, I think MSFT is on the right track by building full-power tablets instead of limiting users with neutered, mobile-centric operating systems like iOS and Android.  The biggest risk for MSFT is appointing a new CEO that tries to turn the company into an AAPL clone by focusing on low capability devices.  Hopefully the next leader will play to it’s strengths as the only real choice for anyone doing real work.  In the very near future people will no longer own both a tablet and computer.  Their tablet will be their computer and only one company has the universal platform to offer nearly 100% compatibility with the programs they need for work and school.  99 cent apps are great for games and todo lists, but real work requires real software.  Forget iOS and Android, those are so 2012.  The future is full-powered mobile devices that plug into desktop docking stations.  Why choose between taking your tablet or laptop when you can take both in a single device?  That is the future and hopefully MSFT’s new CEO sees that vision.  No matter what the street thinks, MSFT is positioned perfectly for Mobile Revolution 2.0.

Plan your trade; trade your plan

Aug 22

AM: The whipsaw continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:18 EDT

S&P500 daily at 3:18 EDT

AM Update

MARKET BEHAVIOR
Stocks rebounded from yesterday’s weak close, but still remain under the 50dma as the battle between bulls and bears rages on.  The market is less than 4% from all-time highs and so far predictions of doom and gloom seem premature.  Of course every 50% selloff begins with that first point lower.

Interesting developments in the NASDAQ as they were forced to halt trading midday.  This appears to be a computer glitch and trade should resume normally, but big moves in TSLA and AAPL prior to the shutdown could lead to unexpected trade when, or if trade resumes this afternoon.

MARKET SENTIMENT
Wednesday’s swings frustrated and humiliated anyone with an itchy trigger finger.  Breaking recent lows sent longs running for cover and seduced bears into shorting the obvious collapse, but minutes later the market reversed sharply, turning the tables on bears and forced them to run for cover.  But the market wasn’t done, when bulls were finally breathing a sigh of relief, the rebound collapsed under their feet.  This is a choppy, sideways summer market and reacting to these moves leads to buying high and selling low.

Wild swings purge the market of impulsive traders who react to price moves instead of acting deliberately and thoughtfully.  Those that bought or held the volatility demonstrated calmness and confidence in their outlook.  Replacing impulsive traders with thoughtful owners is always good for stability and typically favors price increases.  The objective of every shakeout is getting rid of weak holders before resuming the uptrend.  Violating the 50dma and recent volatility moves us toward that goal.  The thing we are left wondering is if this shakeout was big enough, or if we need to cut deeper first.

TRADING OPPORTUNITIES
Expected Outcome:
The market recovered most of yesterday’s losses but failed to find buyers willing to push it back above the 50dma.  The market price is the exact balance point where you have equal numbers of bears and bulls on each side. Traders were willing to buy yesterday’s weakness, but demand tapered off as we approached the 50dma.  I want to buy 1655, but only if other traders are willing to follow me in and that is not the case today.  I still believe in the rally and am looking to buy the dip, but I would rather be a little late there than a lot early.

Alternate Outcome:
Sideways trade is constructive for a rebound, but only if traders are willing to buy the rebound.  If buyers continue stepping away every time we approach resistance, the market will eventually fall under its own weight.  Shorts can continue holding, but keep tight stops and take profits proactively because they will likely evaporate days later.

Trading Plan:
Either we bounce here and resume the uptrend, or the shakeout takes another leg lower.  It is hard to know for sure so we wait for the market to show it’s hand.  Breaking above the 50dma will send shorts running for cover and their buying will start the rebound.  Of course further weakness will turn currently confident holders into nervous sellers.

No matter what it feels like, the up-trend is still in tact, so we can hold positions in the direction of the trend longer and should capture counter-trend profits more proactively.  We are still in the tail-end of the summer trading season and expect the indecisiveness to continue until big investors start moving money around in preparation for year-end.

INDIVIDUAL STOCKS
Not much to talk about since the NASDAQ halted trading.  This will be a non-issue assuming they resolve it tonight.  If it carries through tomorrow and the weekend, it could lead to larger gaps when trade finally resumes, but we made it through the Sandy shutdown and this will be much of the same.

Plan your trade; trade your plan

Aug 21

PM: Have we come too far?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Dramatic swing of emotions as the market digested the Fed minutes.  We opened lower and fell immediately following the minutes release, but the market rebounded and reclaimed all the day’s losses, but just when everything seemed normal, we collapsed to close near the day’s lows.

The market retreated from the 50dma on surprisingly light volume given the hype around the Fed minutes and dramatic trade that ensued.  In spite of all the excitement, few traders seemed to care and sat on their hands.  The market closed at a new relative low and the next meaningful technical level is 1600.

MARKET SENTIMENT
The Fed statement came out and was as wishy-washy as ever.  I have yet to find a single person whose mind was changed as bulls and bears remain married to their positions.  The market is forward-looking and the Taper trade is ancient history, but it makes for good TV and is why the media keeps talking about it.  Honestly, what is the impact to the stock market 6-months from now if the Taper starts in September or January?  This is all manufactured hype and the market is already focused on what comes next.

This rally will end at some point, but a 15% annual gain is fairly typical and anything but too-far, too-fast.  A 27% annual return barely breaks into the top quartile, meaning we could easily see another 10% of upside from here and still fall within normal market behavior.  Source  That doesn’t mean we won’t see near-term volatility, but the crowd loves to hate this rally and is the fuel that keeps it going.  Markets climb a wall of worry because by the time the world finally feels safe, everyone is fully invested and there is no one left to buy.

TRADING OPPORTUNITIES
Expected Outcome:
I bought yesterday and was stopped out today.  That is just the way it goes.  I took a calculated risk, speculating we ran out of sellers under the 50dma and it didn’t work out.  That doesn’t make it a bad trade and if I had to do it all over again I would.  The key to success in the markets is not the individual outcome, but the process.  Stick with a sound trading strategy and over time we come out ahead.  There are always trolls who criticize other’s mistakes and brag about their successes, but those traders are often washed out within a year because they focus on the outcome, not the process.

I was disappointed by today’s close and it suggest more downside is possible.  While I still believe this is a temporary pullback, sellers remain in control and we need to wait for that next entry point.  Reclaiming 1655 in coming days would get me back in, but for the time being I’m just a spectator.

Alternate Outcome:
Every rally ends and this one is no different.  The high a few weeks ago could be a double top that is too much for this aging bull to overcome.  Shorts can continue riding the downward momentum, but keep that trade on a short leash and cover if we reclaim the 50dma.  The bull market is still intact and any counter-trend trade needs to be nimble and capture profits early and often.

Trading Plan:
For the nimble swing-trader, cash or short is the only trade to have here.  The bull should buy 1655 and the bear covers at this level.

TSLA daily at end of day

TSLA daily at end of day

INDIVIDUAL STOCKS
AAPL is resting above $500 after sprinting to this level on a combination of less bad than expected earnings, imminent product launch, and Icahn buying a “large” stake.  According to Apple rumor blogs, the iPhone5s and a cheaper iPhone5c are pretty much done deals.  Some expect a fingerprint reader on the more expensive model and there are differing reports on how much the new “c” model will cost, but most fall between $300 and $400.  If that is all we get, expect the stock to fall as traders sell the news.  I’m quite confident this is not the last time we will see $500, so there is little risk to locking in profits and waiting for the stock to consolidate recent gains.  If we continue higher, there is plenty of time to get back in.

TSLA struggles with $150 as the recent earnings release failed to ignite another upside rampage.  The stock is already up 325% for the year and most of the good news and expectations have already been priced in.  I’ll leave it to others to decide how much a car company that in its entire existence only sold two-days of GM sales volume is worth, but from a trading perspective this hot stock needs some cooling off.  Look for a retest of the 50dma in coming weeks.  Two-steps forward, one-step back.

Plan your trade; trade your plan

Aug 20

AM: Unexpected strength

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:24 EDT

S&P500 daily at 3:24 EDT

AM Update

MARKET BEHAVIOR
Stocks bounced following yesterday’s slide.  We traded up to the 50dma as both sides watch intently to see what happens next.  The market remains comfortably inside the summer’s trading range, but every pullback this year stalled shortly after challenging the 50dma.

MARKET SENTIMENT
The market found a floor after briefly violating the 50dma.  The million dollar question is if we bounced because we ran out of sellers, or if all the Johnny-come-lately dip-buyers are temporary propping up the market before the next leg down.   To figure that out we need to see what people think and how they are positioned.

This morning’s bullish sentiment on StockTwits’s fell to a paltry 34%.  While not a scientific sample, it shows many people don’t believe in this market and are expecting lower prices in the near future.  Some could make the argument StockTwits users are more engaged and informed than the average market participant and their opinions are more insightful than contrarian.  While there is plenty of logic in this assertion, it is easily testable.  All we need to do is look back at the last dip in June to see what StockTwits users thought.  Coincidence or not, this low coincided with the last time StockTwit’s SPY bullish sentiment was below 40%.

Source: StockTwits 8/20/2013

Source: StockTwits 8/20/2013

Obviously the next argument is, this time is different.  While we are down from different headlines, the market participants are all the same.  How they responded to that last selloff will have parallels to how they respond to this one.   The whole reason contrarian trading works is people trade their opinions.  Bears are in cash or short.  Bulls are long and on margin.  When the crowd shares a similar opinion, that means the crowd already acted on those insights.  In this case it means 66% of a group of StockTwits users are underweight or outright short this market.  They already sold and there is little these traders can do to further pressure the market.  Once all the like-minded people with bearish outlooks sell, supply dries up and the market responds “irrationally” by bouncing at the exact moment when everyone expects it to collapse.

No doubt the market could continue lower as other confident holders start to doubt their positions and sell ahead of the impending collapse, but that is the nature of the game.  No one knows what will happen next, but the successful trader looks for opportunities when the risk/reward are in his favor.

TRADING OPPORTUNITIES
Expected Outcome:
Today’s bounce is an excellent buying opportunity with clearly defined risk.  The bear thesis predicted falling under the 50dma would set off a second wave of stop-loss and emotional selling.  That was supposed to be the trigger that accelerated the selloff.  Yet we bounced this morning as the stop-loss and emotional sellers failed to materialize.  When the market doesn’t respond as expected, we need to reevaluate our outlook.  Bears expecting a swift leg down need to be careful when the market refused the perfect setup for one.  I don’t buy bottoms,but I do buy strong moves the opposite direction from what everyone expects.

Some will criticize my call a couple of weeks ago where I expected support at 1700.  Obviously I was wrong, but in the markets every trader must make a critical decision, do they need to be right or do they want to make money?  This is important because these are two very different things.  My goal is making money and I’m actually glad I was wrong.  Like most disciplined traders I was stopped-out at 1695, locking in earlier gains.  From there, the market continued falling, but this is where the magic happens, the selloff allowed me to buy back in this morning at 1655.  Where we go from here is yet to be seen, but I have the opportunity to make 40 points of additional upside simply because I was wrong two weeks ago.  Given outcomes like that, I have no problem being wrong and I hope many readers feel the same way.

Alternate Outcome:
Every dip this year was buyable.  No doubt the crowd is starting to notice and when too many people recognize and trade something, it stops working.  In this case it isn’t the dip buyers that will take us down, but the confident holders that keep holding the dip.  There is nothing that shakes confidence like a screen full of red ink.  Like any dam that bursts, it starts with a crack and accelerates from there.  No matter how confident owners are and what the fundamental outlook is, once panic grips the markets, people sell first and ask questions later.  The best protection is disciplined use of stops.  When we stick to our rules, we can take calculated risks.

On the other side, anyone short the market needs to be careful.  I would take profits, not add new shorts.  The market is flirting with reclaiming the 50dma and that will trigger a short squeeze.  Remember, the goal isn’t to make all the money, just the easy stuff.  If we nose over, there will be time to jump on the short bandwagon again.

AAPL daily at 3:24 EDT

AAPL daily at 3:24 EDT

Trading Plan:
This morning’s bounce makes for a low risk, high reward entry.  Buy the bounce with a stop under 1650 or 1645.  We are risking 10-points with a potential upside of at least 50.  Even if the odds are against us, this highly asymmetrical trade is attractive.  When we combine other factors such as the sentiment skew and lack of a plunge following yesterday’s selloff, the odds are actually on our side too.  At some point this rally will end and we must be ready for it, but when in doubt, stick with the trend.

INDIVIDUAL STOCKS
AAPL gave back yesterday’s gains and is retesting $500.  This was key support last year and is an important round number to watch here.  While my preference taking profits after a strong run, traders can use a trailing-stop under $500 to protect recent gains.  There are a lot of Johnny-come-latelys following Icahn’s tweet and in anticipation of the iPhone refresh.  Is the ‘cheap’ iPhone already priced in, or will it catch a lot of people by surprise?  My guess is most already expects it and thus already priced in.  Unless AAPL shocks us with something new and unexpected in Sept, this feels like a buy the rumor, sell the news trade.

Plan your trade; trade your plan