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.

Apr 10

AM: We did it, the sequel

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:06 EDT

S&P500 daily at 1:06 EDT

AM Update
Who thought we could use all-time highs and weak hiring in the same sentence.  Right or wrong, trader’s faith in the Fed is unflappable.

MARKET BEHAVIOR
The markets cleared all-time highs by a wide margin as they pushed through 1585 in early trade.  This was the last major record for the SPX and now we can move past the hype and focus on what comes next.  Over four-days the market rallied 45-points from the post-employment low and finally broke above the recent consolidation.

MARKET SENTIMENT
When in doubt, stick with the trend and that is clearly the case here.  While calls for a top will eventually be right, they were obviously premature.  The question is where do we go from these new highs?

The all-time high is purely symbolic because few traders actually sat for five-years waiting to get their money back.  Support and resistance levels work because these are where large groups of traders bought or sold.  Moving above or below these areas changes losses into wins and wins into losses.  Support and resistance less than a year old are the strongest because traders are still in these positions.  Levels older than two years are far less meaningful because most traders have long since moved on.  Anyone who bought the October 2007 highs sold a long, long time ago and no one is selling today to get out break-even.

The strong move off of 1540 is largely fueled by lack of supply from confident holders and demand due to short covering.  We have not seen a fundamental catalyst over the last few days justifying this move.  The most recent major headline was unexpectedly weak hiring and the best bulls can come up with is weak employment keeps the printing pressing running at full speed.  Technically the market checked back to the 50dma, held support, and then broke above the trading range.  No matter what anything else indicates, we win and lose exclusively on price and the price keeps going higher.

TRADING OPPORTUNITIES

Expected Outcome:
Either this is the start of the next leg higher, or the last exhaustion surge before rolling over.  I remain skeptical of this market, but it is proving far more resilient than I expected.  At this stage most of the demand is artificially driven by short-covering and tight supply from confident holders.  To sustain the move we need to see constructive consolidation where a wider pool of investors are willing to step in and support these levels.  If this is an exhaustion surge, the market will roll over quickly in the vacuum of follow-on buying.  Anything short of a collapse over the next couple days shows this rally is sticking around, but just because prices are headed higher doesn’t mean we need to be long.  Sometimes the best trade is simply sitting on our hands and waiting for the next trade.

Alternate Outcome:
Where will the next buyer come from?  Shorts are scrambling for cover and their buying will dry up soon.  The next buyer is the recent profit-taker looking to get back in.  After that is the international trader looking for safety and security of the US markets given the instability in the rest of the world.  And finally the crowded treasury market will eventually rotate back into equities.  There is ample supply of buyers waiting to push this market higher, the only question is over what time frame?  Can new demand come in fast enough to overcome the market’s natural tendency to pullback?  We will soon find out.

The one thing we do have to watch for is the longer this market goes without a material pullback, the larger the pullback will be when it eventually happens.  We could soar for another quarter or two, but that will be on Icarus wings.

INDIVIDUAL STOCKS
On a day like today, virtually everything is higher, even lagging stocks and indexes are popping.  IWM, GOOG, AAPL, LNKD, and AMZN are all strongly higher.  The broad market is often credited with 50% of an individual stock’s move and today it is lifting all boats.  The notable exception is NFLX struggling to get into the green.

Stay safe

Apr 09

PM: Bizarro world

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update
The market surged after Friday’s weak employment and MSFT and INTC are leading us higher in this bizarro world scenario.  Who expected this?

MARKET BEHAVIOR
Stocks finally did it, they strung together two consecutive up-days for the first time in over three-weeks.  We surged nearly 30-points since Friday’s opening low, an impressive rebound from the post-employment weakness.  Volume was still below average, but higher than Monday’s exceptionally low turnover.

MARKET SENTIMENT
The market is proving it is an equal opportunity humiliator.  This sideways trade is grinding up both bulls and bears.  Currently bulls have the upper hand, but that’s only if we breakout to new highs.  The way this thing is going, it wouldn’t surprise me to see another plunge after setting a new high Wednesday.

It really feels like the market is stuck in no-man’s land.  Bulls promote the trend and unlimited monetary easing.  Bears say this has gone far enough and we’re due for a pullback.  Both have equally compelling arguments and why the market’s stuck in this trading range.

TRADING OPPORTUNITIES

Expected Outcome:
At this point it is just too difficult to predict the next move.  I expected market weakness, but it just hasn’t happened.  When markets breakdown, they typically roll over fairly quickly.  The resilience shows it is simply not ready yet.  Support and a strong close on Wednesday demonstrates this market has more upside left.  I don’t know if that is ten-points or fifty, we just have to wait and see.  Of course I don’t trust this market, so even if the next move is higher, I don’t have to be part of it.

If the trading range remains intact and we trade lower on Wednesday, the chances for a near-term pullback increases.  We bounced off 1540 two times already and a third test will not be as lucky.  This is a widely followed technical level and expect a large wave of stop-loss and short selling to hit the market if we penetrate these recent lows.

Alternate Outcome:
This rally might only be middle-aged and the recent volatility and skepticism are keeping it younger than most expect.  Challenging all-time highs brought out the cynics and recent dips revitalized the bears.  The rally feeds on this negativity and is why we continue holding up.

The last three-days of nearly straight up gains are stereotypical short-squeeze.  There was little news to justify the buying and in fact the news on Friday was unexpectedly bearish.  Yet here we are, near all-time highs.  I cannot tell if this is the last gasps of the rally or we are just getting started.  Either way, this is a tough place to short the market.

MSFT daily at end of day

MSFT daily at end of day

INDIVIDUAL STOCKS
Much of the market’s strength came from old tech.  MSFT and INTC had huge days for such boring names.  It appears rumors of Wintel’s death are greatly exaggerated.

AAPL is still stuck near the lows, but found a little more breathing room.  From a sentiment standpoint, it is interesting to note how the message volume on StockTwits AAPL feed has dropped dramatically.   Maybe people are finally losing interest in this name indicating we are getting closer to the expected rebound.

The big hurdle will be earnings in two-weeks.  This is just anecdotal, but personally I have seen very few iPhone5s in the wild.  I fly a fair bit and will always look to see what personal technology people  using at the airport and on the plane.  There are tons of iPhone4s and Galaxy S3s, but few iPhone5s.  I’m afraid to think what would happen if AAPL actually reported a drop in sales.  There is nothing that will kill a growth story like a lack of growth.  Of course that could be the last plunge before the stock finally rebounds.

NFLX found support at $160 after a bout of selling, but its fate largely lies with the broad market.  If the market continues higher, look for NFLX to follow suit, but if the market breaks down, it will take high-beta stocks like NFLX down with it.  But this dip will be a buying opportunity and the stock’s race higher will continue once the market regains its footing.

Stay safe

Apr 09

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

S&P500 daily at 1:51 EDT

AM Update

MARKET BEHAVIOR
Stocks are higher this morning as they bounced off of 1560 and currently above 1570.  If today closes in the green, it will be the first back-to-back up-day in over three-weeks.  The market fell to 1540 on Friday after a dismal employment report, but climbed steadily ever since.

MARKET SENTIMENT
Bears expected weak employment to trigger a wider breakdown, but this market remains oblivious to any and all negative headlines from pathetic GDP, to Sequester, and now weak hiring.  It is a challenge getting in to the psyche of traders as they buy every dip regardless of the reason or outlook.  Do they know something the rest of us don’t, or are they simply acting out of habit learned from every previous dip this year?

Obviously these moves go further and longer than anyone expects.  We heard calls for a pullback in the beginning of the year, but the market ignored all the naysayers and marched higher ever since.   Rationally we know this cannot last forever, but it is hard not to get swept up in the easy money of a steady and seemingly predictable rally.

The question we have to answer is if there is real demand for the market at these levels or if this bounce is driven by greedy holders refusing to sell and buying from shorts getting squeezed?  This market acts like it wants to go higher, but for it to move sustainably we need to identify the next incremental buyer is.  A short-squeeze lasts for two days, but without follow-on buying the market will stall and reverse lower.

This market is not acting like I expect and continued buying Wednesday on accelerating volume will force me to reconsider my pessimistic views.  That doesn’t mean I will buy the market, I will simply step aside until it starts behaving in a more predictable way.  We cannot always be in tune with the market and there is no reason we need to have a trade on.  Sometimes we just have to admit we don’t understand what is going on and wait for the next trade.

TRADING OPPORTUNITIES

Expected Outcome:
Is today’s pop real buying or a short squeeze?  One is sustainable, the other is not.  I am not a fan of the market at these levels and the trading pattern over the last two-days reeks of a short-squeeze.  Intraday trade surges is in bursts of maximum pain as it devours shorts willingness to fight this rally.  Bears are dumbfounded and bulls are gloating.

This rally is the Energizer bunny and just won’t quit.  But no matter how long it lasts, it cannot last forever and will eventually come down.  This rally is almost 5-months old and we are closer to the end than the start.  Obviously the market is not done rallying, but we are standing on a trapdoor and one of these dips is not going to bounce.

Alternate Outcome:
Holding above 1560 through Wednesday’s close shows this market still wants to move higher.  Short squeezes are short-lived and continued buying through Wednesday will show four days of solid buying after Firday’s opening low.  I don’t know where this new money is coming from, but it shows people are still excited about buying this rally.

AAPL daily at 1:51 EDT

AAPL daily at 1:51 EDT

INDIVIDUAL STOCKS
AAPL reversed from early weakness and is back in the upper $420s.  The stock might hover in this area until earnings in a couple weeks.  The views on this stock are polarized between bulls and bears.  Either people love this stock or they hate it.  These extreme opinions likely mean a decisive move following earnings as one side wins and the other loses.  Holding through earnings will be more betting on a spin of the roulette wheel than investing.

Stay safe

Apr 08

PM: The teeter-totter ride continues

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
The cycle of up and down continues.  Today was the fourteenth consecutive day of alternating gains and losses.  The last time we strung together two-consecutive winning days was over three-weeks ago.  This behavior is new to the four-month old up-trend and signals a potential shift in personalities.

MARKET SENTIMENT
Prices head higher for one of two reasons, excited buyers (strong demand) or reluctant sellers (tight supply).  Today’s low-volume shows these gains were due to reluctant sellers, not new buyers excited about conditions and bidding up prices.

After such a long run, we are concerned about the remaining supply of available buyers.  We are also wary of complacency and greed infecting the marketplace.  Few buyers and greedy holders are classic ingredients for a top.  While today’s gains were nice, they are built on a questionable foundation.

The thing to watch is how the market responds tomorrow. Was today simply another one-off short-squeeze and we run out of buyers again tomorrow?  Or will formerly reluctant buyers finally get comfortable at these levels and start buying in greater numbers?

Saved only by a last-minute surge, the market almost extended the 5-day streak of lower-highs and lower-lows to six-days.  Support and resistance lines are better drawn in crayon than a straight edge.  This is human psychology, not physics, so close enough and not far enough often come into play.  In this instance I’m not convinced today’s last-minute buying  broke the string of lower-highs just yet.  This is a show-me story and I need to see buyers excited to buy this market before I get on board.

TRADING OPPORTUNITIES

Expected Outcome:
The most convincing thing the market can do on Tuesday is continue Monday’s rally on increased volume.  This would be the first time in several weeks bulls controlled the market for two-consecutive days.  If bulls cannot get their act together and demonstrate strength and depth, we must doubt the sustainability of these levels.  Every rally comes to an end and this one will be no different.  The only question is timing.

Holding 1560 through Wednesday shows buyers are still willing and strong enough to support  this market.  Anything sort of this and we should anticipate continued weakness.

No matter what, there is little reason to still be in this market.  Anyone who bought months ago needs to lock in profits and look for the next trade.  Bulls make money, bears make money, but pigs get slaughtered.

Alternate Outcome:
Markets rest and refresh one of two ways, a pullback or sideways trade.  One month of sideways trade is certainly a way to clear out impatient holders and set the stage for the next leg higher.  Before this can become a reality, we need to see buyers support these levels.  Holding 1560 through Wednesday demonstrates strength and means the next move will likely be higher.

AAPL daily at end of day

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL actually notched a gain today and put a little distance between itself and the recent lows.  The biggest event for the stock is the upcoming earnings report in two weeks.  Will this finally be the catalyst bulls have hoped for, or will it simply be one more data point showing AAPL is losing ground in the smart phone war?  Obviously $420 is a far less risky place to own AAPL than $700, but the same was said about $500 prior to January’s earnings release.  This stock is a powder keg and we will likely see another big move, either up or down on Q1 earnings.  Be disciplined over this trade and only invest what you can afford to lose.

Stay safe

Apr 08

AM: Finding support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

S&P500 daily at 1:28 EDT

AM Update
Stocks are finding support at 1550 after Friday’s employment, but should we be selling the strength?

MARKET BEHAVIOR
Stocks opened modestly lower, but found support near 1550.  The market is calm as we head into the next major catalyst, earnings season.

MARKET SENTIMENT
Sometimes new information is easily quantifiable, like an employment report, Supreme Court ruling, or a Fed action.  Other times it is a little murky but still manageable, like a new piece of legislation or a single company’s earnings release.  These contain dozens, if not hundreds of pieces for investors to consider   Then there is earnings season with its tens of thousands of new data points.  Is one company’s bullish outlook more important than another’s bearish one?  There is so much variability it will make a fundamental or news based trader’s head explode.  And in fact no one can make sense of it, they simply pick and choose pieces to promote their bias or explain why the market made the move it did.

This is especially important to remember at times like this, news and fundamentals don’t move markets, only traders actually buying and selling stocks do that.  Sometimes traders change their portfolio allocations based on a new piece of information, other times they don’t.  That is why the market’s reaction to news can be so confusing and often contrary to common sense.

The market only moves on news if it changes people’s opinion they act on this new insight.  A bullish piece of news could change a bear’s mind and lead him to buy stocks.  But a bullish piece of news won’t change a bull’s mind and when he is fully invested he simply cannot buy more.  This is why a saturated bull market fails to respond to bullish news.

Over the last few months the market has become increasingly bullish. If most traders expect good things and are already long this market, no matter how great the news, there are few new people left to buy the market and keep the rally going.   On the flip side, if a large number of people are bullish and long stocks, it is disaster waiting to happen if all these bulls turn into sellers if news disappoints.

TRADING OPPORTUNITIES

Expected Outcome:
Once we recognize the setup, it becomes easy to build a trade from it.  Limited upside on great news and huge downside on bad news shows the risk/reward and probabilities are stacked against this market. Without a doubt the Energizer rally could keep going, but there is little advantage to holding here.

Long-term success is about the process, not the individual result.  Each move in the market is largely random and can easily go either way.  But over time the advantages of trading probabilities add up.  This isn’t about how we do on this particular trade, but how we fare over the next 100 trades.

And just to be clear, I am not a doom-and-gloom bear, just a realist that remembers the markets go up and down.  The first quarter was all up, so it makes sense that we are close to the next down.

Alternate Outcome:
The only thing bulls have going for them is momentum, and often that is more than enough.  These moves go far longer than anyone expects.  The deteriorating picture in other parts of the world is driving foreign investment into US dollar dominated investments.  This influx of foreign investment and thawing fear of equities could be the new sources of buyers.  The question is if this surge of buying is enough to overcome the natural ebb and flow of prices.  Markets go up and markets go down, it would take something fairly exceptional to let the rally continue another few months.

INDIVIDUAL STOCKS
AAPL is struggling to find buyers just above the 52-week low.  The biggest value story of a generation keeps getting cheaper.  Fundamentals simply don’t matter and the stock is a victim of too much bullishness.  When everyone loves a stock and already owns it, it is difficult to find new buyers.  After that point there is nowhere to go but lower.  Given the stock’s inability to recruit new buyers after breaking above the 50dma two-weeks ago, it sure feels like the selling isn’t done yet.

GOOG daily at 1:28 EDT

GOOG daily at 1:28 EDT

Recent big winners NFLX, LNKD, AMZN, and GOOG are struggling as money is shifting from speculative plays to more conservative names.  The greatest advantage we have as small investors is the ease we can move in and out of the market.  There is no reason we need to sit through market weakness.  After a strong move higher, we take our profits and wait for the inevitable pullback where we buy back in at cheaper prices.  No doubt a couple of high-flyers will keep going in spite of broad market weakness, but we are looking for high-probability trades, not trying to figure out what 10 or 20% of stocks will hold up.  We’re in this to make money and we can only do that by selling winners.

Stay safe

Apr 07

LA: Are the good times ending?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead
The first week of the second quarter gave us our first real taste of selling in 2013.  Is this a preview of things to come?

MARKET BEHAVIOR
Stocks stumbled into the biggest loss of the year.  For all practical purposes this was the only losing week since the two prior ‘down’ weeks ended essentially flat.

We follow weekly charts because they filter out the daily noise, allowing us to see what is really going on.  The first quarter  saw a relentless march higher with very little selling as pessimists were scrambling to catch up.  The first week of the second quarter is the only real selling since December.  One week doesn’t make a trend, but we need to watch for a shifting mood because market personalities often change from quarter to quarter.

MARKET SENTIMENT
Friday’s gap at the open was a wakeup call, but bulls were placated by the intraday rebound.  The smart move was sitting through every other dip this year and holders were sticking with what they know.  The problem is every dip bounces until it doesn’t.

The thing about dips is the early ones bounce.  This is when everyone doubts the sustainability of the young rally and cynics are resisting the temptation to chase.  Ironically this pessimism is what fuels the rebound and continuation higher.  But the later we go in the rally, the more the sentiment changes.  Rather than calling for a pullback, everyone is rushing to buy the dip.  This is what happened on Friday.  The obvious rebound was obvious, and as any veteran traders knows, the obvious things rarely work.

TRADING OPPORTUNITIES

Expected Outcome:
Without a doubt we could continue higher here.  There are no absolutes in the market, only probabilities.  The longer this market lasts and the higher it goes, the safer it feels, but the riskier it becomes.  The best times to buy are after a big selloff and the worst time to hold is after a huge run.

To prove itself, the market needs to reclaim 1560 and hold it through Wednesday.  While the market might bounce early in the week from continued dip-buying, if this support dries up by mid-week, it shows bulls are running on empty and lower prices are likely.

Alternate Outcome:
If the market holds support and traders continue buying at these levels, look for a surge higher, finally taking out the all-time high at 1576.  This is a show-me story.  Don’t get sucked into buying the obvious dip until after it demonstrates real demand from buyers at these levels.  It is better to be a little late than a lot sorry.

Stay safe

Apr 06

WR: Worst week of the year

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review
Is it too easy to buy this dip?

MARKET BEHAVIOR
Believe it or not, this week’s 1% loss is the biggest weekly drop since the start of the year.  That shows what a good first quarter we had and how easy it was to hold.  Daily charts are full of noise and head fakes, but it is much harder for the market to hide its tracks in weekly charts.  This is why they are such valuable tools for seeing what is really going on in the market.

MARKET SENTIMENT
Friday’s selloff bounced back and gave bulls something to calm their nerves.  Every dip this year rebounded to new highs and obviously this one will too……or will it?  It’s really easy to buy this dip and that’s what makes it feel so wrong.  We are over four-months into this rally and even the most casual observer expects the market to keep going.  And therein lies the problem.

To figure out where the market is going we need to understand what other traders are thinking and how they are positioned.  Everyone long forgot about the worries and fears of three-months ago.  It is amazing how calming and reassuring a strong market is.  Most naysayers have long given up and joined the rally bandwagon.  Even the worst employment report in nearly a year was glossed over after the market bounced off the lows.  What does it all mean?

The rally bred complacency as every holder was rewarded for sitting through prior weakness.  Anyone who sold a dip almost immediately regretted it and they won’t let the market fool them again.  The steady climb higher sucked in most of the skeptics as fear of a selloff was replaced by fear of being left behind.  At this point no one wants to sell because they are holding on for bigger profits.  This lack of supply is a big reason volume has been so light the last few weeks.

Most rallies end in a double top or a head-and-shoulders.  It is always easy to spot these months after the fact, but it is far more profitable to identify them in realtime.  The market formed a potential left-shoulder in February and is working on the head right now.  A dip back to, and bounce off of 1500 would form the right shoulder.  There are no guarantees this is what we are seeing, but there are enough signs to be extremely cautious.

TRADING OPPORTUNITIES
Expected Outcome:
It’s been a great run since the start of the year and easy money for anyone with the courage to ignore the headlines.  But that was then and this is now.  Markets are the safest when they feel the most dangerous and most dangerous when they feel the safest.  Every bounce brings us one step closer to the one that doesn’t bounce.  While Friday’s dip might result in another bounce, that doesn’t make it a good trade.  The risk/reward shifts dramatically the longer and higher this rally goes.  What was easy money two-months ago is playing with fire here.

Anyone still in this market that cannot bring themselves to sell proactively needs to set hard stop-loss limits.  We bounced off of 1538 on Friday and a second test of this level is unlikely to bounce again.

Alternate Outcome:
Friday’s selloff and March’s choppy trade cleared out many weak holders and could be setting the stage for a continuation.  We need to recover 1560 and hold this level through mid-week to prove buyers are still willing to support this market near all-time highs.

Stay safe

Apr 05

PM: Half-full or half-empty?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

A little something for everyone as the market gapped lower, but recovered a large chunk of the losses.  Do we buy the dip or sell the bounce?  LNKD’s bucked the weakness and shows there is still strong demand.

MARKET BEHAVIOR

Depending on your point of view, it was a half-full or half-empty day.  Stocks plunged at the open on anemic job growth, but recovered more than half of those losses and finished above key support at 1550.   Bears will point to the selloff and bulls will point to the rebound.  As exciting as the day seemed, volume was simply average and neither buyer nor sellers piled in or out of the market.

MARKET BEHAVIOR

How do you boil a lobster without him realizing it?  One degree at a time.  If the market peaked on Tuesday, bulls are getting roasted one degree at a time.  Rattle their nerves with a poor open, but get their hopes up with an encouraging rebound.  Of course the same could be said of bears and these dips sucking them back in on the short side only to blow them out on the next short squeeze.

What happened today?  Stocks sold off sharply as concern over a weak recover reared its ugly head.  They opened on the lows and rallied 13-points as dip buyers jumped at the opportunity to buy stocks at the lowest level in nearly a month. Every other dip was a buying opportunity so obviously this was a great time to snap up discounted shares.  The problem is that whole “obvious” thing.  If casual retail investors know you “don’t fight the Fed”, doesn’t that mean QEfinity is already priced in?  If everyone already buys into the ideal of a “Bernanke put”, who is left to buy?

Last year everyone was skeptical of QE3 and EQfinity, but up near all-time highs everyone is a believer.  Where did all the cynics go?  Where did the worry about the Fiscal Cliff, Sequester, and Debt Ceiling go?  It’s not like our politicians fixed anything, they just kicked the can down the road and the market has a notoriously short memory.

Now don’t get me wrong, I’m not one of these perma-bears and have been extremely bullish since the November lows.  In fact I think this is the early stages of the next massive secular bull market.  When everyone says buy-and-hold is dead is the best time to buy-and-hold.  But I also know the market moves in waves and it’s been a while since we had our last corrective wave. I’m a contrarian by nature and when everyone is buying the dip, I’m shorting the bounce.

TRADING OPPORTUNITIES

Expected Outcome:
This morning’s selloff and rebound shouldn’t surprise anyone.  Bulls had to thread the needle between too weak job growth and too strong job growth to continue the rally.  The selloff was nearly inevitable since so few buyers were left after a 4-month rally.  But at the same time habits are hard to break and everyone who made money buying the dip had to come back to make easy money.  And given today’s rebound that was the smart play, but profits are only real when we sell.  Anyone buying the dip might come to regret it next week when follow on buying fails to materialize because so few buyers are left to keep pushing prices higher.

Given how far along we are in this rally, buying the dip is the riskiest its been.  That doesn’t mean it cannot bounce, simply every rebound brings us closer to the one that doesn’t.  I don’t have a crystal ball, but I know probabilities say we are closer to the eventual correction and there is more risk than upside at this point.

We will know early next week if the market can hold 1550 or if buying dries up and we continue lower.  Anything less than maintaining 1550 through Wednesday is a concern for bulls.

Alternate Outcome:
This market grew fat feeding on premature pessimists calling a top.  There is no reason it has to top here and can easily continue higher, especially if many are predicting a top.  Sideways trade since early March flushed out profit-takers and weak holders.  These will be the buyers that push the market higher if we bounce back.  While I don’t believe this is the high-probability trade, I am very aware it is a possibility   If the rebound continues and we regain and hold support, that shows buyers are still behind this market and I am way too small to argue with them.

LNKD daily at end day

LNKD daily at end day

INDIVIDUAL STOCKS

AAPL flirted with new 52-week lows and is just a few dollars above this key level.  Expect a wave of stop-loss and short selling to hit the stock if it dips under $419.  At this point it is obvious the break above the 50dma was nothing but a head fake built on the hopes of desperate holders.  It is hard to find anyone bearish on the fundamental story behind AAPL, meaning most still view it as a value.  The problem is no one is left to buy the stock since everyone already owns it.

LNKD’s strength is impressive and shows there is still ample demand for this stock.  But a weak market will take it down with the rest, so this is a poor place to hideout if anyone expects near-term broad weakness.  When the market resumes the rally, look for this stock to continue leading.

Stay safe

Apr 05

AM: Buy the dip?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EST

S&P500 daily at 1:23 EST

AM Update

Stocks plunge and retest lows of the recent consolidation.  They are attempting a mid-day rebound, but will this finally be the dip that doesn’t bounce?  AAPL is a few dollars from setting a new low and expect selling pressure to intensify if the stock falls under $419.

MARKET BEHAVIOR

Stocks crashed on weaker than expected employment.  It dropped to 1540 before finding a floor and is attempting a late-morning rebound.  Every other dip was a buying opportunity, is this another one?

The recent low at 1538 set on March 19th is acting as support, but watch for a dip under this level to trigger of a wave of automatic stop-loss selling.  The next obvious level of support is 1530, which coincides with the 50dma and Feb 19th’s top.  (old resistance becomes support)  After that it is free fall to 1500 and February’s low of 1485.  A bounce could happen at any of these levels, but expect additional selling pressure if it violates these technical levels.

MARKET SENTIMENT

The recent rally was largely based on finding the sweet spot between growing fast enough to improve earnings, but not too fast to threaten easy money from the Fed.  This morning’s weak employment numbers exposes a vulnerability in the economic leg of the stool the market is standing on.

The justification for buying the dip is this economic weakness means the Fed will not withdraw stimulus anytime soon.  But that is what the Fed has said all along and most traders already priced in.  Everyone’s been buying the market for weeks under the rallying call “don’t fight the Fed”.  How much more money do these bullish Fed traders have left to pump into the rally?

Early trade show people are buying the dip because they are far more excited about the prospect of easy money than fear the risks of a weakening economy.  That was the right trade over the last several years, but is there a limit to the Fed’s effectiveness?  The early bounce is expected, but is smart money buying the dip, or will they sell the bounce?  Declines frequently stair-step lower as traders try to pick a bottom and today’s support could be fools rushing in if buying the dip has become too obvious of a trade.

Markets move exclusively on supply and demand.  Fundamentals, technicals, and headlines are only secondary in nature because they do not move prices directly.  They only affect markets if they change traders’ outlook of the future and cause them to readjust their portfolio.  If a news story simply reinforces existing views, the market won’t respond because everyone maintains their current positioning.  If the bulls expected QEfinity to stick around indefinitely, a weak employment report will not help boost their case because that view is already priced in.  The one thing not priced in was a weakening employment, a lethargic economy, and a threat to corporate earnings.  That is why a bounce on expectations of more easy money is unlikely to last.  Ignore what is already priced in and trade what is not expected.

TRADING OPPORTUNITIES

Expected Outcome:
The value of selling into strength is evident this morning.  Anyone who sold over the last few weeks is eagerly looking for the next trade while the guy who held for the top is stressing between selling or holding.  In theory holding for the top and using a trailing stop sounds better, but it is much harder to execute in practice because it is difficult to contain our emotions on days like today.

Markets often go too far on both the upside and downside.  Obviously November’s low was overdone.  The question is if  March’s highs went too high.  Markets operate on supply and demand.  Thawing fear and pessimism from early in the year provided the lift to record highs, but now the market is fairly optimistic, how many buyers are left to keep the good times rolling?  If every other dip was a buying opportunity, how many dip-buyers are still sitting on cash ready to save the rally?

Every rally comes to an end and this one is no different.  While I cannot say for sure if this rally is done, I know the odds are stacked against it and buying the dip here is riskier than at any other point in the rally.  No one has a crystal ball and success in the markets comes from trading probabilities.  Given the size and length of the recent run, there is more downside than upside here.  Like everything in the market, declines are hard to trade.  A ‘straight’ down move often involves multiple bounces and false bottoms along the way.  Patience is key, trade from strength, and don’t react impulsively to the market’s head fakes

Alternate Outcome:
When in doubt, stick with the trend.    These things go so much further and longer than anyone expects.  All-time highs and recent weakness awakened bears from hibernation.  Markets fall when everyone thinks the dips are buyable, but there could be enough cynicism left to fuel one more push higher.

AAPL daily at 1:23 EDT

AAPL daily at 1:23 EDT

INDIVIDUAL STOCKS

AAPL is just a few dollars from setting a new low.  Expect a wave of technical selling to hit the stock if it drops under $419.  No matter how great bulls think this company is, no one else is interested in buying to the stock and it keeps sliding.  Bulls might eventually be right, but the stock will likely see lower prices before this is done.  $400 is easily within reach and a pullback to $350 would be a 50% retracement from the highs, something often seen in leading stocks that fall from grace.

NFLX, AMZN, and LNKD are down with the rest of the market.  High beta stocks are a poor place to hide out in through a market correction.  If a trader expects further weakness, sell these stocks and look to buy them back cheaper once the broad market weakness passes.

Stay safe

Apr 04

PM: Looking forward to employment

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

The market recovered soem of Wednesday’s losses, but will it all be wiped out by Friday’s employment report?

MARKET BEHAVIOR

Stocks reclaimed half of Wednesday’s selloff and closed right at 1560 support/resistance.  Volume was slightly below average, but coming back from the especially light volume of the last few weeks.  It appears traders are returning from vacation and reengaging this market.

MARKET BEHAVIOR

The headline event on Friday is the monthly employment report.  A year or two ago this was a critical data point and a make or break moment for the market.  Once we started printing job gains in hundred of thousands, the market became less obsessed with it and its been a while since it moved the market in a lasting way.  At this point the employment report is nothing but a tool for people to trade their preexisting bias.  The straight forward scenario is strong number = up and bad numbers = down.  But people can flip this on its head to justify acting in the opposite direction.  If someone wants to buy stocks, they will claim a lousy employment report keeps the Fed’s money flowing.  If another person wants to sell the market, they will criticize a strong employment report because it means the Fed will end easing sooner.

News is random, but traders’ reaction to it is not.  The recent run up priced in a decent amount of good news and most buyers are already in the market.  This leaves fewer buyers to push prices higher.  To keep this thing alive, bulls need to thread the needle between not too bad and not too good to prevent holders from rushing for the exits.  It’s entirely possible, but this is the riskiest the markets been since mid-November.

TRADING OPPORTUNITIES

Expected Outcome:
This market has been largely oblivious to headlines and this report will likely be more of the same.  The market is going to do what it wants regardless of some fundamental data point.  It feels like the market is stalling and paranoid holders could use the employment report as a reason to get out.  Even if the market pops, watch out for follow on weakness.  Its taken a lot of buying over the last 4.5 months to get up here and every market needs to take an occasional break.

Alternate Outcome:
Many traders are expecting a pullback for all the same reasons I see.  If this expectation is popular enough, it causes many buyers to hold back, creating fuel the next rally leg.  When buyers wait for the pullback, but the market holds up, this demonstrates solid support at these levels.  Prices head higher once these worrywarts are forced to chase a market that is leaving them behind.  That’s been the recipe for the Q1 rally and it could easily extend into Q2 if cynicism remains widespread.

NFLX daily at end of day

NFLX daily at end of day

INDIVIDUAL STOCKS

AAPL cannot get out of its own way and fell another percent.  It is less than $10 from recent lows and threatening to set off a wave of stop-loss selling and shorting if it breaks this key technical level.  Expect many regretful holders to join the selling as the stock drops toward $400.

NFLX is looking for a bottom after breaking support at $160.  The biggest concern the stock getting caught up in bigger market weakness.  If the market breaks down, NFLX and all the other high-flyers are a bad place to hideout.  These high-beta stocks will fall two or three times as much as the market.

Stay safe