All Posts by Jani Ziedins

Follow

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.

Jun 06

PM: What comes next?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Dramatic turn of events as the market briefly penetrated 1600 following a sharp, midday slide, but rebounded decisively and finished up  0.9% for the day.  Volume was average, but slightly less than the recent down days.

MARKET SENTIMENT
With the expected bounce is behind us, we need to figure out if this is simply a temporary reprieve before further selling, or just another bear-trap on the way higher.   The problem for us is it easily could be either.

The selloff was becoming obvious, a little too obvious, as both holders and shorters anticipated a larger correction and sold preemptively into the weakness.  This proactive selling took much of the supply out of the market and made this bounce inevitable as selling exhausted itself.

We violated widely followed support, but failed to trigger an avalanche of selling.  That is an extremely revealing piece of information when it comes to evaluating how other traders are positioned and what they think.  Breaking the 50dma and 1600 was the point where everyone should have rushed for the exit at the same time, yet they stayed in their seats, leading to the bounce higher.  This shows most holders are not spooked by the dip and their resolve (or stubbornness) caused today’s bounce.

The interesting thing about this bounce is blunted all the momentum bears built up over the last two weeks and now puts bears on the defensive.  As far as sentiment goes, this is potentially a game changer.  It brings confidence back to nervous bulls and makes bears doubt themselves.

Friday we have the monthly employment report that will be good for some early volatility, but after a couple of hours it will be long forgotten and we will resume trading the supply and demand skew that lead to the recent selloff and today’s rebound.

TRADING OPPORTUNITIES
Expected Outcome:
The ball is in the bull’s court following today’s bounce.  Expect the rebound to continue for a couple more days as we squeeze shorts that overstayed their welcome.  From there it will be a a coin-toss if we continue to the upper end of the range or retest the lows.  Either way we are likely heading into a range bound market for the remainder of the summer and the best trade is buying weakness and selling strength.

Alternate Outcome:
Once the short-squeeze runs its course, the market could collapse due to a lack of demand if buyers continue avoiding this market.  It makes no difference what the fundamentals or technicals say, if we cannot find new buyers, the market falls under its own weight.

Trading Plan:
Buy the bounce with a stop under today’s low.  Shorts should lock-in profits before they evaporate.  We are moving into a choppy market and if we don’t capture profits early and often, they will likely disappear.  1600 is still the line in the sand.  Retreating under it over the next couple days shows buyers cannot support this market and we are likely headed lower.  But if we hold 1600, look for a move to the upper end of the range.  Until this market breaks-out/breaks-down, buy weakness and sell strength.

Plan your trade; trade your plan

Jun 06

AM: Bounce or false bottom?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:44 EDT

S&P500 daily at 1:44 EDT

AM Update

MARKET BEHAVIOR
Stocks slipped again in early trade, challenging 1600 and the 50dma.

MARKET SENTIMENT
The market clearly wants to test these widely followed technical levels, but the real question is how much stop-loss selling is left to trigger.  If we saw a large amount of preemptive selling on the way down, there are fewer traders left to dump this violation of support.  Under this scenario we will see an initial surge of selling when we break support, but since so much defensive selling happened early, it quickly exhausts itself and bounces in decisive a capitulation bottom.  This is the exact behavior we saw on April 18th when the market rebounded strongly after testing the 50dma.

The alternative is many traders are anticipating the inevitable bounce and have all their stops clustered under 1600.  A modest dip will set off a furious tidal wave of selling that doesn’t stop until we plunge at least 20 points.  At this point either outcome seems likely and the most conservative trade is to watch from the sideline.  It is an ego boost and gives us bragging rights to challenge the market and win, but allowing our ego trade is a good way to go broke.  Let the market show its hand and jump on the subsequent move.

TRADING OPPORTUNITIES
Expected Outcome:
The market briefly dipped under 1600 as I wrote this and all we can do is wait and see what happens.  Was this the capitulation bottom, or the prelude to a major QE selloff?  I wish I had the answer, but like everyone else I’m simply a spectator.  1600 is an important level because so many people are watching it and basing their near-term outlook on how we respond. Over the next couple days we will know a lot more about the what the market thinks and how people are positioned.  A bounce is buyable for a trade, but resist adding new shorts if we keep selling off.  Bull or bear, expect a short-squeeze/bull-trap bounce in the next couple days.

Alternate Outcome:
Trading would be so much easier if the market actually did what it is supposed to do.  The problem is it has a nasty habit of convincing us we are wrong just before proving us right, or convincing us we are right just before proving us wrong.

Bears are looking for a collapse, bulls a bounce.  Obviously one is right and the other wrong, but if only the market’s price-action was so clearcut.  A likely outcome is fake out with a false move before reversing and revealing its true intentions.   A bounce before a plunge, or a plunge before a bounce.  Just because the market is doing what we expect doesn’t mean we can let our guard down.  Prepare for, even expect it to snap back in our face.  In uncertain and volatile periods like this, take profits early and often because they will likely be gone in a couple of days.

Trading Plan:
Let the market do its thing.  I still expect a near-term bounce because everyone is on the selloff bandwagon, but the momentum is clearly on the bear’s side.  A bounce is buyable with a stop under recent lows.  It is late in the game to be adding new shorts and existing shorts should look to take profits.  The goal isn’t to make all the money and hold for top dollar is a sure way to give back all your hard-earned profits.

GLD daily at 1:44 EDT

GLD daily at 1:44 EDT

INDIVIDUAL STOCKS
AAPL challenged its 50dma this morning, but is holding it at the moment.  It is hard to be excited about this company given the complete lack of meaningful innovation over the last couple years.   Rumor is AAPL will release new default icons for iOS next week.  Without a doubt they need to get rid of the cheesy glare and  gimmicky graphics on the in-house icons, but hopefully there is something bigger than that.  Of course at the same time we also don’t want another half-baked iMaps episode either.  If the market is not wowed next week, expect traders to continue souring on AAPL’s and actually start to question the company’s long-term prospects.  It’s up to Apple to prove it is not the next Palm Pilot or BlackBerry and the way it is bleeding market share is not a good start.

GLD reclaimed some of its luster in the face of today’s selloff.  Thank a plunging dollar for the lift.  Gold could continue higher on Dollar weakness, but if we are making a currency trade, trade currencies, not gold.  Fundamental reasons to own gold continue eroding along with people’s trust.  Maybe gold will come back some, but it will be a long while before it reclaims its economic fear driven heights.

Plan your trade; trade your plan

Jun 05

PM: Another leg down

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
Stocks continue sliding, down three of the last four trading sessions and are 80-points off the high set a couple of weeks ago.  The market closed just above support at 1600, the 50-dma, and the lower trend-line of the uptrend.  Is this the place for another routine bounce off of support, or is this the start of something bigger?

MARKET SENTIMENT
What goes up must come down.  This is the pullback everyone was waiting for, but now they are scared and predicting market crashes.  This is how it usually goes, we hope and pray for something, but when it happens we are too afraid to act.  People who wanted the market to pullback so they could buy more, are panicking and selling with the crowd instead.  But that is the way it has to be.  If this were easy, everyone would be rich and we clearly know that’s not the case.

From here the market can do one of three things, bounce off of support at 1600, dip under 1600 and trigger one last wave of stop-loss selling before rebounding, or continue the relentless slide lower.  It really comes down to the dynamic between buyers and sellers.  Will we exhaust the supply of holders easily spooked into selling for a discount?  Will prices become so attractive value buyers can no longer resist?  Better or worse we will have our answer in a couple of days.

For all the talk of doom-and-gloom we are only 5% off all time highs.  Obviously every 50% collapse starts with that first 5%, but not every 5% pullback leads to a 50% collapse.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks are still a few point above support and we must assume the market will bounce until it proves otherwise.  The challenge with trading technical levels is they are better drawn with a crayon than a straight edge.  Sometimes we bounce early, sometimes late.  Each trader needs to pick a stop-loss level that balances their tolerance for risk versus desire to avoid getting shaken out.

Even if the market is topping, expect either a doubt-top or saw-tooth decline with multiple short-squeezes and sucker’s rallies along the way.  Bull or bear, look for the market to bounce in the near future.  The only thing up for debate is how sustainable the subsequent rebound is.

The most encouraging thing about all this selling is it is pricing in the end of QE.  Once we work through this episode, we no longer need to worry about it.

Alternate Outcome:
Markets are notorious for overshooting on both the low and high side.  This market will pullback like everyone before it and this easily could be the start of that move.  If nothing else, use stop-losses as a last line of defense.

Trading Plan:
There is no reason we need to be in this market.  The mistake many traders make is feeling compelled to always have a trade on, but most of the time that is when they give back all their hard-earned profits.  Making money in the markets is easy, the hard part is keeping it.  The ambitious can look for a buyable bounce off of support on Thursday with a tight stop under recent lows.

Plan your trade; trade your plan

Jun 05

AM: Selling continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:55 EDT

S&P500 daily at 1:55 EDT

AM Update

MARKET BEHAVIOR
The market stumbled lower and undercut recent support at 1620.  The next major level for bulls to defend is 1600.

MARKET SENTIMENT
We slide as buyers stay away and stop-losses trigger under widely followed support levels.   The pain trade is clearly on for late buyers of the recent rally.  There is no obvious headline driving the decline, but we know headlines are only loosely related to market moves.  Traders are afraid to buy and the continued slide is forcing out weaker holders.  When that happens, it doesn’t matter what the headlines say.

Recent weakness shows the value of selling into strength and taking profits.  We are in this to make money and the only way to do that is selling our winners.  It also highlights the risks of chasing a strong market.  The best trade is often the hardest trade.  That means selling an invincible stock and buying when everyone is convinced things are collapsing.

TRADING OPPORTUNITIES
Expected Outcome:
I still don’t believe in the selloff, but that’s what stops are for.  At some point the rally will bounce because they always do, the only  question is if it is a real rebound or bull-trap.  As we discussed through May, a pullback following such strength is normal and healthy.  1600 has long been the line in the sand and retreating to this level is not alarming.    How the market responds here lets us know what comes next.

The market is down nearly 5% from recent highs and that qualifies as a refreshing pullback.  It is reasonable for the market to enter a trading range for the remainder of summer.

Alternate Outcome:
No matter what we think, we must respect and follow our stops.  It is better to be out of the market wishing we were in, than in the market wishing we were out.  Buyers remain reluctant to jump in and buy the dip.  The longer they withhold their support, the further we slide.

Trading Plan:
Assume the rally is intact until we violate 1600.  If the market falls under our stops, we must sell, no questions asked.  It is easier to buy back in if we get out prematurely than it is to recover mounting losses by sticking around too long.  As always, if we don’t feel comfortable, stay out of the market.  It is easy to make money in the markets, the hard part is keeping it.  Don’t force bad trades.

Plan your trade; trade your plan

Jun 04

PM: What bulls?

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
Stocks closed in the red, but held yesterday’s low of 1622 and finished above the intraday lows. Volume was above average, but off of the elevated levels seen on Friday and yesterday.

MARKET SENTIMENT
Holding 1620 through Wednesday’s close shows sellers just don’t have what it takes to push this market any lower.  No matter what anyone says about too-far, too-fast, overbought, overly-bullish, etc, this market remains cautious, hesitant, even bearish.  The most common mistake people make is assuming the trend represents popular sentiment, but in fact they have it exactly backwards.  Sustained trends are only possible when the crowd expects the opposite will happen; overly-bearish markets rally and overly-bullish markets slide.

The only reason the current market rallied this long and far is because of how overly-bearish it was following Obama’s reelection and the impending Fiscal Cliff.  Even seven-months and 350-points later it refuses to breakdown because people still don’t trust it.  StockTwits maintains a sentiment indicator and right now users are 68% bearish and only 32% bullish.  That is anything but overly-bullish.  Over the last two-months the indicator has only been above 50% for a couple of days, yet the market rallied 150-points in that same period.  This market rallies because it is overly-bearish and as long as the cynics continue fighting it, it will keep going.

Source: StockTwits 5/4/2013

Source: StockTwits 5/4/2013

The silver lining to all this volatility due to speculation over the future of QE is this selling is removing that overhang.  The more scared the market is now, the less of a big deal it will be when it finally happens.  Everyone who fears QE ending is selling to buyers unafraid of it.  When QE finally ends the fraidy cats will be on the sidelines and the confident will continue holding.  Just another time to sell the rumor and buy the news.

TRADING OPPORTUNITIES
Expected Outcome:

Everything I see shows this market remains overly-bearish and the recent selling chased out weak holders.  With most of them out of the way, selling will dry up and the market will bounce.  Strength on Wednesday is buyable with a stop under 1620.

Alternate Outcome:
I’ve been wrong before and without a doubt I’ll be wrong again.  The goal isn’t to be right all the time, but to minimize the cost of being wrong.  If the market slips under 1620, expect a dip to support at 1600.  While we will assume every dip is buyable, failing to hold 1600 shows we need to reconsider the viability of the rally.

Plan your trade; trade your plan

Jun 04

AM: Another round of selling

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:06 EDT

S&P500 daily at 3:06 EDT

AM Update

MARKET BEHAVIOR
Stocks retreated following early strength.

MARKET SENTIMENT
In spite of this weakness the market is still above recent lows and is maintaining its composure.  With so many calling for a correction and claiming recent price action was the top, support at these levels for the third day is constructive and bullish.  Many of those that could be shaken out are getting shaken out, eventually leading to selling exhaustion and price recovery.

Understand what people think, how they are positioned, and what moves they have available to them.  Most expect a pullback after such a strong rally, sold recent weakness, and the only thing they can do is buy back into the market.  As for the bears, many shorted recent weakness and will be forced to cover when prices bounce.

TRADING OPPORTUNITY
Expected Outcome:
Continued support here is a warning for bears to cover shorts before they get squeezed out.  There is nothing wrong with making an aggressive trade, but recognizing when the trade is not working as planed is a key part of surviving the market.  Market collapses are scary fast, yet this selloff is two-weeks old tomorrow and hasn’t even fallen 4%.  Trading against the trend requires nimbleness and a deft hand. Take profits early and often; don’t get greedy and hold too long, allowing profits to turn into losses.

When we finally bounce, don’t expect the strong rally to resume.  The market moves in three directions; up, down, and sideways.  We did a lot of up recently, everyone expects down, so sideways it is.  Sell the breakout and buy the breakdown.

Alternate Outcome:
One of these days bears will be right and the market will correct when no one expects it.  It will start like any other dip, except this one doesn’t find a bottom and continues lower.  The best defense is keeping an open mind when the market doesn’t behave as expected, and when all else fails, hard stops.

Trading Plan:
Swing traders can buy the market with a stop under yesterday’s 1622 low.  Look for a move up to recent highs.  Breaking through 1622 likely means a retest of support at 1600 and represents another dip buying opportunity.  Slipping under 1600 will trigger a wave of stop-loss selling. At this point it is anyone’s guess if that will lead to a multi-day selloff or quickly find a bottom, but we will worry about that when we get there.  At this point assume every dip is buyable until we come across one that isn’t.

INDIVIDUAL STOCKS
AAPL continues holding above the 50dma and $440.  Seeing the eight-month selloff take a break is encouraging.  The big fundamental catalyst comes next week at AAPL’s developer conference.  In the past AAPL used this platform to announce new products and services.  Given the huge price decline since the iPhone5’s release, pressure is on Cook and Co to wow developers, the media, customers, and the market.  The fear for an AAPL bull failing to unveil anything more than software tweaks.  Without a big announcement, expect the slide to continue as investors assume AAPL is out of ideas.

Plan your trade; trade your plan

Jun 03

PM: A bullish reversal

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
The market staged a positive reversal after falling to 1622 in early trade.  Volume was well above average as the morning dip flushed out another round of stop-losses.

MARKET SENTIMENT
While it is premature to say this bounce is the real deal, it clearly overcame early weakness and prevented it from cascading into wider selling.  Bears had the perfect setup and failed to deliver for the umpteenth time.  Early stop-loss selling quickly fizzled and didn’t spread because most of the potential sellers sold last week.

Success in the market is not found in the charts or the fundamentals, but understanding what people think and how they are positioned.  Many traders anticipated a correction and bailed at the first signs of weakness.  This lead to steep declines on the 22nd and last Friday, but all that selling consumed the bulk of available supply, meaning there was little downside left.  When we run out of sellers there is nowhere to go but up.

TRADING OPPORTUNITIES
Expected Outcome:
Most of the nervous selling is behind us, so expect the market to continue rallying on tight supply.  This will lead to a near-term short-squeeze as aggressive bears are forced to cover, but the wider pool of buyers remain nervous, so don’t expect them to climb over each other to continue pushing this market higher.  Buy strength and sell weakness until the market indicates it is ready for the next directional move.

Alternate Outcome
Further weakness and undercutting 1622 invalidates the thesis most weak hands are already out of the market.   The next key level is 1600 and failing to hold that puts the rally in jeopardy.

Trading Plan:
The dip is buyable with a stop under 1622.  Look to take profits near the previous highs as the market stays range bound through summer.  Seeing the market break 1600 on the low side or 1700 on the high side means the market is ready for its next directional move and we will trade that when we get there.

Plan your trade; trade your plan

Jun 03

AM: Buy the dip

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:29 EDT

S&P500 daily at 2:29 EDT

AM Update

MARKET BEHAVIOR
Stocks are modestly lower in early trade as last week’s selling continues.  We are still well above major support at 1600 and the 50dma, but violated minor lows at 1635 last week and undercut Friday’s lows this morning.

MARKET SENTIMENT
The Sell in May folks are now promoting Sell in June.  It doesn’t have the same ring to it, but we shouldn’t let semantics get in the way of stubbornness.  Bears also point to the Hindenburg Omen, a scary warning of imminent calamity.  Add to this the already pervasive claims this market is extended, over-bought, and overly-bullish.  No one trusts this market and people invent new reasons to stay away each week.

We all want to buy and hold the next big move, but it is our innate fear of heights that keeps most out of the biggest winners.  We are natural cynics and distrust anything that moved too far, too fast.  This is a mixture of disbelief and regret we missed the big move everyone is talking about.  We want to join the party, but insist on waiting for the inevitable pullback so we don’t look foolish chasing a hot stock, or in this case market.  But typically the market either never pulls back, or when it does, we chicken out because it looks like it is breaking down.

Fear and indecision is what keeps most out of the best, easiest, and safest moves.  This market rallied over 300-points since the November lows and people still don’t trust it.  This has been one of the easiest times in market history to hold stocks as we marched higher week after week with no real pullbacks along the way, yet most are still afraid of it.  There will eventually be a time when everyone finally embraces this market and is truly over-bought, but when traders and headlines scream this is the top every time we dip 20-points, we know we are not there yet.

This market will top, but only after everyone stops expecting it.  Supply and demand dictates when everyone fears a correction, they sell proactively and aggressively at the first signs of weakness.  With so many people watching this market with an itchy finger, much of the defensive selling is already behind us as many blew their load early.  That premature selling takes supply out of the market and makes it easier for the market to bounce.  Further, these early sellers are the next buyers as they chase the market higher.

Many traders are waiting for the monthly employment report on Friday, but it has been a year since the market reacted strongly to an employment report.  It was a big deal when we transitioned from job losses to gains,but the market expects modest gains and as long as we keep getting them, this report is simply talking-head fodder.

TRADING OPPORTUNITIES
Expected Outcome:
Friday’s weak close did not lead to an avalanche of selling today, and while we are modestly lower, the market is calm and rational.  Unfortunately for us, markets cannot go up every day, so selling of 10, 20, and even 50-points is normal and expected.    Resist the urge to jump out the window every time the market doesn’t go up.

The market is likely transitioning to a flat trading range for the remainder of the summer.  I’m just spitballing things here, but expect the market to stay between 1600 and 1700 over the next couple months.  The best trade is buying weakness and selling strength.  Savvy and experienced investors can sell option premium.

Alternate Outcome:
While it doesn’t happen often, sometimes the crowd gets it right.  This market could implode Hindenburg style and we cannot stick stubbornly to our original thesis once the market moves convincingly against us.  We came a long way and at some point we will run out of buyers.  Once that happens it doesn’t matter what the headlines are or what the Fed does, without demand markets tank.  Assume the uptrend is intact until it proves otherwise, but once it does, be flexible and quick enough to profit from the new trend.

Trading Plan:
Look for a bounce to buy the dip and use the recent lows as a stop.  Assume the market is stuck in a range and take profits as we approach recent highs.  The aggressive can then reverse and short the subsequent weakness.  A break below 1600 or break above 1700 means we need to watch for the next directional move.

S&P500 daily at 2:30 EDT

S&P500 daily at 2:30 EDT

INDIVIDUAL STOCKS
AAPL continues finding buyers above the 50dma and shows legitimate support for the first time since the selloff began.  I suspect most new buyers are coming for the recently raised dividend and these investors are notoriously price sensitive.  Growth investors are shying away from this name and it is unlikely we will see them push this stock any time soon.  A trader can make money here, but it takes a different strategy than the easy buy-and-hold days of years past.

GLD‘s volatility continues as we jump 2% today following Friday’s 2% decline.  Speculators and day-traders are gaming the metal trying to scalp a profit here and there.  The loser is the cautious investors seeking safety and security.  It will take a while for the commodity to regain its safe-haven status and expect recent volatility to continue.

Plan your trade; trade your plan

Jun 02

WR: Brace for the plunge?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review and Look Ahead

MARKET BEHAVIOR
Stocks closed lower for the second week in a row, but still finished May with impressive monthly gains.  Weekly trade was off due to the holiday shortened week and is not directly comparable.  Of note is the first back-to-back weekly decline since November’s lows 300-points ago.

MARKET SENTIMENT
No one disputes the rate of gains since the April lows is unsustainable, the argument centers on if we consolidate or rollover.

Markets decline one of two ways: they plunge when everyone is caught off guard by unexpected news and under appreciated risks, or grinding lower when everyone is fat, dumb, and happy; the proverbial boiling an oblivious lobster one degree at a time.  Our job is deciding which, if any, these scenarios apply.

Lets test the first one, plunge on unexpected news and under appreciated risks.  Recent examples are the 2008 Financial Crisis and the first bout of Euro Contagion fears three-years ago.  The market is blindsided and collapses as the new risk factors are priced in.  Over the last two-weeks did we uncover something new and unexpected?  Are there risks the market under appreciated?

Following financial press headlines covering this two-week selloff, it appears the headline worry is QE ending a couple of quarters early.  First, the Fed has given zero indication this will happen, and second, everyone already knows QE is going to end.  Where is the new risk factor worthy of a steep selloff?  We don’t have one and is why the market didn’t fall into a 5-day, 10% slide following the Fed minutes two-weeks ago.  Panicked selling is unbridled and impulsive; if it hasn’t happened yet, it is unlikely to start without a new catalyst

The second option is grinding lower.  These are the tops at the conclusion of long bull moves where we finally run out of buyers.  These typically end on good news, not bad, as demand exhausts itself in one last push higher.  AAPL’s 40% haircut following the strong iPhone5 launch is a perfect recent example of this.  The market top in 2007 is another.  In situations like this everyone is excited about the future and buying every dip, worries are few and far between.  Those calling for a big decline are labeled extremists.

Currently it seems everyone is bracing for the inevitable pullback/selloff/meltdown.  The market is on edge following recent selling, not complacent.  Even bulls are unsure and lightening up their exposure on the fear the market might be topping.

Now we ask, do we have new and unexpected news followed by a sharp correction?  No.  How about a complacent market topping on good news?  Some will debate me on this, but the fact that there are so many people promoting the bear case makes this also a no.  What does it mean when neither of these topping scenarios apply?  The bull is resting, not dying.

TRADING OPPORTUNITIES
Expected Outcome:
When everyone calls for a continuation or a breakdown, maybe answer is we trade sideways and consolidate recent gains.  We came a long way since the April lows and further upside at this pace is unlikely.  On the other side, everyone is waiting for the obvious selloff, so that won’t happen either.  All the nervous sold the recent weakness and we are running out of new sellers to keep the declines going.  That means we likely fall into a trading range for the next couple months.  Buy the dips and sell the rallies.

Alternate Outcome:
The market can fall apart at a moment’s notice and selling often triggers more selling.  I don’t expect a major correction here, but I’ve been wrong before and without a doubt I’ll be wrong again.  We use stop-losses to get us out of a bad trade and when the market doesn’t act as expected we must reevaluate our original thesis.  This market will violate material support if it fails to hold 1600, until then this is a normal pullback following a strong run.

Trading Plan:
The assumption is dips are buyable until they aren’t.  While new strength is buyable, but don’t get greedy and take profits as we approach recent highs since it is likely we are moving into a range bound market.  The risks for a market meltdown are always with us and use stop losses to control our risk.  If the market bounces on Monday, Friday’s low of 1630 is a decent stop for a dip-buyer.

Plan your trade; trade your plan

May 31

PM: Where are the buyers?

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
It was a dramatic close on Friday.  We went from flat to down 1.4% in the last three-hours with losses accelerating into the close.  It was a 2% plunge from the morning highs and reminiscent of last Wednesday’s selloff.  Volume was above average between end of the month window-dressing and stops getting triggered as the selloff picked up speed.

MARKET SENTIMENT
Buying opportunity or continuation of last week’s selloff?  You’ll get different answers depending on who you talk to.

On the surface this looks like the selloff everyone’s been talking about and waiting for, but since when does the market do what everyone expects?  Clearly price has been on the bear’s side as we slipped nearly 60-points from recent highs.  This market rallied 150-points over five-weeks and everyone knows that is too-far, too-fast, so this correction is long overdue.  Hard to argue with the logic and subsequent price-action, but I’ll try.

This was a boring, holiday-week where the market hardly moved.  Trading floors were lightly staffed going into Friday’s close as those that actually worked this week cut out early.  Why stick around when nothing is happening, you are not going to buy anything, and automatic stop-losses will cover you incase the market breaks down?  Junior traders and computers have the authority to sell when the prices cross stops, but are not allowed to initiate new or add to existing positions.  This leads to moves like today’s close where stop-losses get triggered and no one is left to buy the dip.  There was no real news to justify the afternoon selling and it was simply a structural due to a cascade of stops getting triggered.

But we don’t have to speculate for very long.  If this was simply a matter of lightly staffed trading floors and auto-pilot selling, the market will effortlessly rebound next week.  If selling continues, there is more to this and the crowd might actually be right this time.

TRADING PLAN
Expected Outcome:
No matter what people say, we are still in a bull market and the odds are better trading with the trend than against it.  A day and swing-trader can take advantage of this volatility, but take profits quickly when going against the trend.  The uptrend remains intact even if we fall to 1600 and the 50dma and a bounce anytime between here and there is buyable.  If we fail to find support and continue under 1600 then we have to reevaluate our bullish thesis.

Alternate Outcome:
Every rally comes to a painful end and this one will be no different.  It is premature to call a top, but failing to make new highs and violating key support at 1600 shows buyers are scarce and further selling is likely.

Trading Plan:
Assume the market will bounce until proven otherwise.  Shorts should be taking profits, not initiating new positions.  Any rebound is buyable with a tight stop under the bounce’s low.  1600 is the key support and failing to hold this will force us to reevaluate our outlook.

GLD daily at end of day

GLD daily at end of day

INDIVIDUAL STOCKS
AAPL finished modestly in the red and is still solidly above the 50dma and $440 support.  I’m not sure how much upside there is but the stock acts like it wants to go higher in the near-term.

GLD had a poor close as the volatile trade continues.  It is not behaving like the lows are in and expect further declines in the near future.  Once upon a time gold would surge on market uncertainty, but it quickly shifted from safety to speculation and gets lumped in with every other asset dumped when people hit the panic button.

Plan your trade; trade your plan