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 21

LA: Can bulls hold on?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead

MARKET BEHAVIOR
The market remains range bound even though we widened the window in recent weeks.  March traded primarily between 1540 and 1560.  A couple breakouts and breakdowns later, that range stretched from 1536 to 1597.  Twenty-points of volatility exploded to sixty since the start of the second quarter.  Increased volatility on the heels of a steady six-month rally hints at a shift in market personality and often signals the trend is on the verge of changing.

MARKET SENTIMENT
This rally was supposed to pullback January 3rd after the massive and “unsustainable” Fiscal Cliff pop.  Yet here we are nearly four-months later and a hundred points higher.  Like a broken clock, the naysayers will eventually be proven right if we wait long enough, are we finally getting close to that point?

Our job is not to know what the market will do next, but what it is more likely to do.  This is a very subtle, but important distinction.  No one knows what will happen tomorrow, but we can combine herd psychology with an understanding of what other traders think and how they are positioned.  There is no way to know what the news will be, but with some insight we can make an educated guess about how the market will respond.   Remember, while the news is random, the crowd’s reaction to it is not.

This market largely ignored any and all negative headlines on our climb to all-time highs.  Should we expect that to change anytime soon?  Some expected US markets to breakdown on China data two-weeks after it ignored the most sluggish employment report in nearly a year.  Really?  This market went from fearing every headlines six-months ago to completely ignoring them.  I don’t know what tomorrow’s headlines will be, but I do know this market doesn’t care about them.

This cannot go on forever and at some point the market will pullback; it always has and it always will.  If it won’t implode on a negative headline, what’s left?  Too optimistic.  Once all the chasers are in, no one is left to buy and the market will fall from a lack of demand.  This is the topping scenario we are watching for.  Unfortunately identifying the number of chasers left is far more ambiguous than trading some concrete and timely economic data point.

Previous market tops since the 2009 lows were abrupt, headline driven selloffs.  The selling was aggressive, but short.  Within a week or two we found a bottom and resumed the up-trend after a brief basing period.  If this market tops differently, will the resulting selloff be different too?  Something to keep in the back of our mind as we watch this market’s next move unfold.

TRADING OPPORTUNITIES
Expected Outcome:
There are plenty of reasons for the rally to continue here, namely the number of people still expecting a pullback.  But I just don’t feel comfortable owning it here.  In a rally of this age, the market no longer gets the benefit of doubt and it needs to prove itself, until then I will remain cautious.

Market selloffs take occur quickly and holding 1550 through Wednesday shows bulls still have the upper hand.  From there expect the next move to be higher.  But if the market runs into resistance at 1570 and rolls over, another test of 1540 is unlikely to hold.  Like a cat, a rally only has so many lives and we’ve used several of them in recent rebounds.  We are getting closer to the dip that doesn’t bounce with every passing day.

Alternate Outcome:
Rallies often go longer and higher than anyone expects.  That is clearly the case here and it could continue proving the cynics wrong.  Many traders locked in profits over the last six-weeks of nearly flat trade and these are the next buyers ready to chase the next leg higher.  The most obvious sign the rally still has legs is seeing it head higher.  Regaining and holding 1570 is impressive and breaking above 1600 will put all this head-and-shoulders nonsense behind us.  But no matter what the market does, there is no reason to own what we don’t understand and trust.  Most traders know how to find good trade, but they end up giving back all those profits by forcing an ill-conceived trade when they get a little too cocky.

INDIVIDUAL STOCKS
AAPL’s make or break moment is just around the corner.  Even if the company modestly beats expectations or announces a dividend increase, the resulting strength is a selling opportunity, not a buying one.  This stock was built on 30%+ growth and unless it puts up those kind of numbers, it won’t regain its former glory.  The stock is now a dividend/value investment and one last selloff will chase off the leftover growth holdouts.  Without a doubt AAPL has a future and is a money printing machine, but the same can be said of MSFT, INTC, and CSCO.  How many growth investors are still hanging out in these 1990 growth stocks?  The same maturation is happening to AAPL.

It wouldn’t surprise me if GLD saw more selling this week.  We’ve seen the dead-cat bounce as anxious dip-buyers snapped up discounted shares.  The unfortunate thing for them is what is cheap, usually gets cheaper.  It is far easier to buy the overdone selloff than throw on a short, meaning this is the wrong place to buy.  Buying when there is blood in the street is a good way to get killed.  The key to successful dip-buying is having the patience to wait until the blood is dry.

Plan your trade; trade your plan

Apr 20

WR: Who is buying the dip?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

MARKET BEHAVIOR
This was the largest weekly loss since the election, even beating out the final week of 2012 when Fiscal Cliff fears climaxed.  Volume was also the highest of the year as holders wavered in their resolve and were selling by the truckload.  The market finished just above the widely followed 50dma/10wma.  The largest weekly gain immediately followed by the biggest selloff shows the market’s personality is chaining from the steady and predictable first quarter rally.

MARKET SENTIMENT
Was this week’s high-volume selloff the capitulation point before resuming the up-trend?  Without a doubt that is one of the possible outcomes.  Losing 60-points over a handful of days is more than enough to flush out weak hands.  Buyers replacing the sellers are clearly not afraid of this market and proved willing to step in front of a freight train.  Finding support at 1540 on Friday provided vindication for the buy-the-dip crowd, but is this real support or just a pause on the way lower?

True capitulation happens when emotional and irrational selling gets so carried away value investors can no longer resist and jump in, scooping up shares with both arms.  Is that what happened here?  Did we plunge far beyond sane levels and value investors were unable to hold back any longer?  That is a hard case to make when we only broke through to these levels in March.  Not a lot has changed in the ensuing weeks to make this 1540 level irresistible to value investors when they were uninterested in it six-weeks ago.   Heck, things are actually a tad worse with dramatically slowing employment and the precedent set by the Cyprus bailout.  There is no way value-buyers propped up the market on Friday when we are only 2.5% off of all-time highs and in the face of deteriorating economics.

If it wasn’t value investors, who was buying on Friday?  Speculative dip-buyers.  Every other dip this year was buyable and when people see something happen often enough, they start expecting it.  The unfortunate thing for bulls is dip-buyers lack the conviction, confidence, and deep pockets of value investors.  These late chasers opinions change with the wind and they will sell in droves as soon as the market moves against them.  Only after the selling accelerates and prices drop precipitously will reliable value investors finally step in and prop up the market.

TRADING OPPORTUNITIES
Expected Outcome:
Even if the this market is built on a house of straw, we could continue higher for a few more days.  Friday’s bounce will likely suck in another wave of dip-buyers, but look for the rebound to stumble when the limited supply of new buyers dries up.  Retesting 1540 shows buyers are running out of strength and can no longer support further upside.  A break of this key level will quickly send the market to 1500.  From there it is just a hop, skip, and jump to 1450.

Alternate Outcome:
As we discussed in Friday’s PM post, bearishness is picking up, offsetting the widespread optimism seen a couple of weeks ago when we set record highs.  Many of these pessimists are already out of the market and the aggressive went short, relieving potential selling pressure and making a move higher more likely.  Churn in sideways trade is what makes flat bases work as the paranoid sell to the confident.  Flat bases take longer to develop because they grind down optimists instead of frighten them with a sharp and decisive plunge.

If we hold 1550 through next week, bulls are stronger than most give them credit for and look for new highs.  Selloffs develop quickly and the longer we stay at these levels the more likely a continuation is.

GLD weekly at end of week

GLD weekly at end of week

INDIVIDUAL STOCKS
AAPL finally broke recent lows at $419 and plunged 9% on a fresh wave of selling.  The sliver lining is this dropped first quarter’s expectations below the already low levels and reduces pressure on next week’s earnings.  Failing to find a bottom is finally extinguishing hope and causing many AAPL evangelists to give up.  Only after the most loved stock becomes the most hated does it stand a chance at bouncing.  A disappointing earnings next week will trigger one last selloff and AAPL will finally be buyable.  An earnings beat only prolongs the agony as the resulting bounce inevitably sells off.  This move has nothing to do with fundamentals and the selloff won’t end until all the hopeful are finally driven off.  Anything that delays this cleansing process puts off finding the bottom.

GLD found temporary support at $130 and finished at the highs of the weekly range, albeit down 6% for the week.  Volume was the highest we’ve seen since the market top in 2011.  Optimists will call this a capitulation bottom, and they might be right, but if a dip is too easy to buy, it is rarely the bottom.  Anyone in GLD should use this strength to sell and wait to buy back in at lower prices.

Plant your trade; trade your plan

Apr 19

PM: Too much pessimism?

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 bounced back and recovered all of Thursday’s losses in average volume.

MARKET SENTIMENT
The thing that concerns me is how popular it’s become to bash this rally.  It seems everyone is predicting a pullback, even bulls qualify their bullishness by saying they expect some near-term weakness.  The challenge is figuring out what this means.  Those who are harshly critical are already out and likely short. By itself that took a lot of selling pressure from the market.  The only ones left to sell are the confident and complacent holders since the weak were flushed out in the preceding volatility.

The key to figuring out where the market is headed is understanding how other traders are positioned.  When everyone is bullish, there are lots of potential sellers.  But if traders are growing weary and expecting a correction, they called it quits.  If the cautious and pessimists bailed while prices remained stable,  it is bullish because we will see a rally once the preemptive selling abates.

The other thing to consider is market can do more than just up or down.  It can go up a lot, up a little, trade sideways, pull back a little, or pullback a lot.  So far the consensus expects a modest pullback and thus becomes the least likely outcome because it is already priced in.  That leaves both ups, flat, and down a lot.  The only scenario to consider is down a lot because flat and both ups can be bought and held.  The only outcome that requires a significantly different tactic is down a lot.

The reason down a lot is still on the table is while many active traders are out, the longer viewed investors only expect a modest dip and are willing to hold through it.    The bigger selloff occurs when these longer-term holders get spooked and start selling.  This pool of institutional money is far larger than the small group of active traders already out of the market.  The one thing I struggle with is smaller moves don’t need a reason bounce around, but larger moves require a catalyst to shake the confidence and resolve of otherwise calm and collected money managers.  While the market is poised for a down a lot scenario, without a bump from an external factor, we could glide across the thin ice without falling in.

TRADING OPPORTUNITIES
Expected Outcome:

Monday will be an important day for the markets.  If bulls cannot add to today’s gains, it shows they are losing control.  This is the obvious buy point and if dip buyers fail to show, that means we’re running out of them and this rally is done.  But chances are this buy-the-dip phenomena is becoming so obvious, non-swing traders are getting in on the action and making “easy money” buying the obvious bounce.  Unfortunately for them, real money is made being one step ahead of the crowd, not two behind.  That is why I am suspicious of the sustainability of this support.  We can coast a bit higher, but if this really  is a head-and-shoulder pattern, look for a modest bounce and slide back through 1540 in coming days.

Alternate Outcome:
Without a near-term breakdown, we have to be ready for the market to continue.  Sentiment shifted against this rally and recent volatility cleared the market of weak and uncommitted holders.  With these guys out of the way, the path higher is clear.  I’ve been suspicious of this market for several weeks, but holding together like it has is impressive and shows there could be more life to this story.  I’m okay being wrong, but I refuse to stay wrong and will do a 180 if the evidence no longer supports my cautious hypothesis

AMZN daily at end of day

AMZN daily at end of day

INDIVIDUAL STOCKS
AAPL couldn’t hold earlier gains and is struggling to stay afloat ahead of earnings.  The good news for AAPL bulls selloff took a good chunk of downside off the table and set an even lower bar for the stock.  But buying here is clearly going against the trend and is nothing more than catching a falling knife.  The better trade is letting this stock find a bottom first.  You will be late, but the risk will dramatically reduced.  The best thing that can happen for the stock is a sharp, high-volume selloff following earnings.  This will extinguish any hope left in the stock and set the stage for new ownership to step in and ride it higher.

AMZN is struggling with the 50dma.  Not good for a stock that has come this far and has a staggering valuation.  A disappointing earnings could finally break this stock.  I wouldn’t bet against earnings, but there is a trade riding this stock lower if it breaks down.

Plan your trade; trade your plan

Apr 19

PM: Dip buyers come to the rescue

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:26 EDT

S&P500 daily at 1:26 EDT

AM Update

MARKET BEHAVIOR
Stocks bounced and recovered the 50dma by midday.

MARKET SENTIMENT
Bulls and longs are breathing a sigh of relief.  The rebound they knew was coming is finally here.  Meanwhile bears and shorts are left scratching their head because they thought for sure the market was breaking down.

Today’s bounce doesn’t mean the rally is back on just yet.  Head-and-shoulder patterns form a right shoulder with one last bounce at support before finally breaking down.  Trade up to 1570 would remain consistent with a head-and-shoulders reversal and it is premature at this point to confidently say the rally is continuing.  Habits are hard to break and many trades made a lot of money buying dips.  Today’s support is an example of this reflex, but are there enough buyers driving this move to reclaim recent highs?

It is easy to find both bulls and bears actively promoting their point of view, showing the sides are equally matched.  And this shows up in the sideways chop we’ve seen.  But this is a change from the previously negatively skewed commentary early in the rally.  Bulls are finally finding their voice and becoming more vocal and confident, a warning sign for any contrarian trader.  Markets rally in the face of fear and without a doubt participants are far less fearful than a couple of months ago.

MARKET BEHAVIOR
Expected Outcome:

Today’s bounce at support is fairly typical in a topping market as buyers keep going back to what worked so well for them.  But eventually dip buyers run out of money and the expected rebound fails to rebound.  Another violation of 1540 shows bulls no longer have the money necessary to prop up this market and the next move is lower.

This bounce could last for a couple more days, but it is a selling opportunity not a buying one.  Dip buying is well beyond obvious and bulls are better off sitting on their hands than chasing one last rebound.

Alternate Outcome:
The head-and-shoulders pattern theory loses credibility if we trade above 1570 and is dead if we make a new high.  Right shoulders are also typically short in duration, so holding support for an extended period invalidates the H&S patter.  If this market won’t breakdown, the we must assume the next move is higher.  My bias is for a pullback, but we must always look for clues to invalidate our current thesis so we don’t get stuck on the wrong side of the market.  It is okay to be wrong, it is suicidal to stay wrong.

GLD daily at 1:26 EDT

GLD daily at 1:26 EDT

INDIVIDUAL STOCKS
AAPL tried to reclaim $400 but bumped its head and is back in the $390s.  It’s been a long time since AAPL traded in the $300s and shows buyers are not interested in this stock no matter how cheap it gets.  The biggest problem for AAPL is they don’t have a “moat” protecting their core products from competition.  Every technology company is tinkering in the smart phone and tablet space.  While most don’t have the cool factor, the thing to remember is anything that is cool eventually becomes uncool.  Just ask anyone who bought bell bottom pants, avocado colored appliances, and red shag carpeting.  The more stylish something is, the more out of style it becomes when the crowd moves on to the next cool thing.  Without a doubt AAPL remains popular with upper-middle class suburban soccer moms, but is that user group large enough to justify a half-trillion dollar market cap?

GLD is up for the fourth day in a row, but this is a better selling opportunity than buying one.  The recent plunge eliminated gold from consideration as a safe place to park wealth and now it is simply a playground for speculators.  If you must trade this, sell strength and buy weakness.  Look for a retest of $130 in coming weeks as dip buyers are flushed out when the price pulls back.  This will be a volatile trade for a while and value investors should wait a bit longer.  Remember, buy after the blood in the street has dried, not while it is still flowing.

Plan your trade; trade your plan

Apr 18

PM: Finding support at 1540

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 broke the 50dma and 1540, but didn’t trigger a wave of accelerating stop-loss selling.  Volume was above average, but less than Monday and Wednesday’s elevated levels.  Today’s slide was the fourth down-day out of the last five.

MARKET SENTIMENT
I’m surprised the market didn’t see more stop-loss selling when it broke recent lows and violated widely followed support.  There are two possible explanations.  Sellers saw this coming and exited before actually reaching their predetermined stop levels or complacent traders ignored their stops, preferring to wait for the expected rebound.  One is bullish, indicating most of the selling already happened, the other is extremely bearish because there is still a lot of selling to come.

TRADING OPPORTUNITIES
Expected Outcome:
The lack of stop-loss selling today makes a bounce more likely.  Support at 1540 encourages holders to keep holding and this limits supply in the market.  But I’m only looking for a bounce to 1570 before dip buying exhausts itself and selling takes over again, pushing us through 1540, and ultimately down to 1400.  This minor rebound would build the complimentary right-shoulder to April 2nd’s left-shoulder.  A day-trader could take advantage of these minor fluctuations, but the rest of us are better off sticking with longer time-frames.

Alternate Outcome:
The lack of selling under 1540 concerns me.  I still think a pullback is in our future, but the market might not be ready for it yet.  One possibility is a brief bounce before rolling over, but if most sold ahead of the expected crash, the market has already refreshed itself and is ready to resume the up-trend.  While not as sustainable as a demoralizing selloff, recent volatility is flushing buyers from the market and creating a pool of the next chasers.

AAPL daily at end of day

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL cannot find a break.  Today’s selloff pushed it under $390 and no one is interested in buying it no matter how cheap it gets.  The increasing despair felt by shareholders is actually constructive for finding a bottom.  The most loved stock needs to become the most hated before the selling will exhaust itself.  Only after everyone has left it for dead will the selling finally stop.  Recent weakness silenced the most rabid bulls and has them eying the exit.  The stock still needs to purge those hanging on from much higher levels and replace their hope with discipline from far more patient and longer-viewed value investors.  But this is the medium-term outlook for the stock.  The long-term outlook for the company will likely end far different from what most are predicting.

Some people criticize AAPL’s unfair comparison to MSFT and they are right, just not for the reasons they think.  While MSFT is boring and lacks the appeal and innovation AAPL is famous for, MSFT never faced any real competition and still has a 70% strangle hold on the PC market.  Compare this to AAPL’s fierce battle with Android and Samsung.  AAPL’s long since given up the crown to Android, it recently fell behind Samsung, and is on the verge of being outsold by the Galaxy S4.  If MSFT’s stock price was flat for the last decade with stable profit margins and 80% market share, how is AAPL going to thrive in a fiercely competitive and commoditized hardware segment?  While this selloff might finally bottom and bounce off $350, that is likely only a temporary floor for the stock as AAPL goes back to being a small niche player in a much larger market.

Plan your trade; trade your plan

Apr 18

AM: Tap dancing in a minefield

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:27 EDT

S&P500 daily at 1:27 EDT

AM Update

MARKET BEHAVIOR
Stocks are tap dancing a few feet from the minefield below 1540.  Technical traders view a violation of this level as a confirmation the correction is finally taking hold.  It will be the first material lower-low since this rally began five-months ago and many traders put their stop-losses under this widely followed support level.  Once the selling hits, expect it to accelerate as it takes out more and more stop-losses.  How far it goes depends on the volume of stop-losses triggered and how quickly value buyers jump on discounted shares.  But value investors are more disciplined than most and often wait for the dust to settle before acting, so don’t expect them to rush to the market’s aide.  Of course we need to fall into this area before the autopilot selling starts.  Rebounding and holding 1570 shows bulls are still in control and bears’ inability to push the market down these last few points will be a major defeat.

MARKET SENTIMENT
It is comical to see the financial press rationalize each of these whipsaw moves.  One day they are promoting great data, 24-hours later everything is bad news.  We go back and forth, day after day.  If the market was up huge today, I have little doubt they would find a reason.  But they are journalists and that is their job.  We are traders and our job is seeing through all the BS and understanding why markets are really moving.  It always comes back to supply and demand.  We are stuck in a fierce battle between bulls and bears.  The first couple of months bulls had the clear upper hand as we marched higher every week.  But since March bears have evened the fight, leading to this choppy sideways trade.  The market works in cycles and after a period of up, it is inevitable we will run into a bout of down.

TRADING OPPORTUNITIES
Expected Outcome:
Dip buyers are supporting the market at 1540.  The question is if they have enough money to keep us from sliding into all the automatic stop-losses just a few points away.  Every dip this year was buyable and many are sticking with this game plan, and to this point it’s been the smart trade.  But all good things must come to an end and eventually we will run across a dip that doesn’t bounce.

I cannot say conclusively this is the start of the selloff and the Teflon market could throw in another bounce, but given the age of the rally the and gains we’ve seen, the risk of an explosive downside move far outweighs the potential gains from another tired bounce.  An interesting trade here is shoring a break of 1540 with a stop around 1545.  Look for a slide to at least 1400.

Alternate Outcome:
Everyone is watching this market, waiting for it to breakdown.  Most of the cautious traders are already out, taking their profits weeks ago.  This preemptive selling took a lot of supply out of the market.  If we bounce and hold 1570 for a few days, the rally is back on and no matter what our biases are, we have to respect the market’s resilience.

AAPL daily at 1:27 EDT

AAPL daily at 1:27 EDT

INDIVIDUAL STOCKS
The stock that cannot go lower keeps going lower.  AAPL sunk to $395 and it is harder to find people promoting the buying opportunity at these new levels.  Formerly enthusiastic bulls are now confused and uncertain.  They are the ones selling at these levels as they finally give up on their favorite stock.  Earnings next week will is a coin-flip, but it wouldn’t surprise me to see one last flush lower.  $350 would be a 50% selloff and makes for a nice round number.  Of course many top stocks decline an average of 72% after their peak, meaning there is still a lot of downside risk left if the stock falls to $196.  While shocking, this level is not unreasonable if AAPL continues losing market share, doesn’t come up with a new innovative product, and margins decline due to price competition.

Bottom fishers are buying GLD at $135 figuring it cannot go any lower, but we probably haven’t seen the last of the selling.  And even if we have, there are a lot of horrified GLD  holders looking to get out of their positions on any strength.  The thing to realize is many buyers at these levels are opportunistic knife catchers.  They will dump their shares at the first signs of weakness, triggering another leg lower.

Plan your trade; trade your plan

Apr 17

PM: Will 1540 hold?

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 gave up all of yesterday’s rebound and then some.  We found support at the 50dma, but still finished near the lows of the day.  Volume was well above average as formerly confident holders were selling enthusiastically.  This was the third test of 1540 and breaking it will trigger a huge wave of technical stop-loss and short selling.  The recent pattern is alternating strength and weakness and a strong rebound Thursday will build a larger margin of safety above all the sell orders sitting under 1540.

MARKET SENTIMENT
Yesterday felt like the rally was back on, today the inevitable correcting is taking hold.    What will tomorrow bring?  Every breakout/breakdown over the last month was a head fake.  Was today’s selloff simply another buyable dip?

The key to figuring it out is getting into the heads of other traders.  Was the two huge volume down-days this week enough to shake out weak holders, yet not so bad it damaged the confidence of the majority still holding?  With all the various breakdowns around the market, the haze of complacency is vanishing by the day.  Some traders are taking a proactive stance and selling while others are anxiously holding on.  Some of these holders remain confident while others are simply indecisive.  This latter group is who will provide the supply if the market does breakdown.  Hope is not a strategy and holding on simply because the market bounced back every other time is a good way to lose money.

But this is not a one-way street.  Bears are increasingly cocky as they finally see the pullback they’ve been waiting for.  If we rebound and continue higher, it will be due to the huge volume selling on Monday and Wednesday.  The anxious are climbing over each other to get out and after a certain point we will run out of sellers.  Twenty percent above average volume is strong for an intermediate dip.  If that is all this is, we will bottom soon.  If this is a much larger correction, twenty-percent is just getting started and we could see a hundred percent surge in volume if the market slices through the 200dma.

Both sides have equally valid arguments, our job is deciding which outcome is more probable.

TRADING OPPORTUNITIES
Expected Outcome:
Neither bulls nor bears can take control of this market as we bounce around the trading range.  No one knows for sure what will happen, the best we can do is look for clues.  We face a real test on Thursday.  If the market stumbles, we are dangerously close to an avalanche of selling just under 1540.   Break this level and many money managers will flee ahead of the widely expected pullback.  When it comes to selling, it doesn’t matter what starts it.  Once the stampede starts, it takes a life of its own as people sell for no other reason than everyone else is selling.  The market could easily bounce one more time, but the potential downside is far more frightening than any reward is worth.

Alternate Outcome:
Bears are turning into the boy who cried wolf and if they don’t deliver soon, they will lose all credibility.  A powerful rebound and holding 1570 through Monday  shows bulls still own this market and the next move is higher.  The sideways consolidation and high-volume dips are clearing the market and setting the stage for a move higher.  The linchpin is holders.  If they continue holding and are not afraid of a little weakness, that will keep supply tight and there is nowhere to go but up.  If they fall prey to the fear-mongering, there are a lot late buyers that will rush for the exits when their positions fall into the red as we dip under 1540.

AAPL daily at end of day

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL had another bad day and set new 52-week lows.  It managed to hang on to $400, but just barely.  The stock is finally losing its status as a market darling and becoming something people are ashamed to admit still owning.  This is pure anecdotal, but I get far less animosity directed my way when I criticize AAPL than I did a couple of months ago.  The cheerleaders are losing their faith and that is an important part of finding a bottom.  We might see on last plunge lower, but we are closer to the end of this selloff.

There are an absurd number of conspiracy theories surrounding gold’s selloff, but the truth is it was simply and over-owned asset and fell victim to its own success.  There is not a cartel of reserve banks conspiring against gold.  This has nothing to do with Cyprus.  The long-held investment thesis behind owning gold is as a hedge against money printing, inflation, and the inevitable economic collapse.  While it sounded good, the theory failed to pan out no one else is interested in buying Gold.  This is supply and demand plain and simple.  No one wants to buy gold at $1700/oz and this week they said they don’t want to buy it at $1500 either.  The ferocity of the selloff is due to the high leverage traders were using to buy this ‘safe’ asset and margin calls triggered an accelerating cascade of selling.  The simplest explanation is most often the right explanation

Plant your trade; trade your plan

Apr 17

AM: The yo-yo

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:29 EDT

S&P500 daily at 1:29 EDT

AM Update

MARKET BEHAVIOR
The yo-yo continues as we dropped into the 1540s this morning.  The key level of support is 1540 and expect a wave of selling to hit the market if we break this widely followed price.  If we test 1540, this would be the third time in a month and technical analysis books rarely mention tripple-bottoms because third-tests are less likely to hold.

MARKET SENTIMENT
No one is winning this maddening market and both sides are humiliated with equal malice.  Anyone with an opinion is at risk of being duped into buying high and selling low, or selling low and buying high for the bears.  There are three traders surviving this, the extremely nimble day-trader catching each wave, the longer viewed trader with conviction in their position, and the guy who admits he has no clue and is sitting it out.  Anyone else forcing trades and reacting to the market is getting destroyed.

Bulls are humble, bears are humble, and we need to figure out what comes next.  These sharp dips are shaking the confidence of previously resolute bulls.  A large part of the recent rally was driven on light volume as holders were unwilling to sell and the resulting tight supply drove prices higher.  Every dip bounced back and holders became complacent toward negative headlines and market weakness.  It worked because every dip was on such light volume it was easy for the remaining dip buyers to prop up the market.  But volume returned last week and selling swamped dip buyers, triggering selloffs not seen since the rally began.

Volatility is often a characteristic of market tops and we have that in spades.  The question is at what point will the market break the confidence of complacent holders.  If supply remains tight, it will be far easier for dip buyers to keep the rally alive.  But if the flood gates open, there is a lot of air between us and the 200dma.

TRADING OPPORTUNITIES
Expected Outcome:
One day it feels like the market is breaking down, the next the rally is back on.  What is a trader to do?  I remain cautious of this market because I see too many warning signs between the age of the rally, indifference toward negative headlines, and the perception every dip is a buying opportunity.  While I might be proven wrong, that doesn’t mean I need to participate in this rally.    If we don’t understand something or feel comfortable with it, the best thing to do is sit it out.

Yesterdays bounce was impressive, but bulls could not add to it today and we undercut Monday’s lows.  It feels like bulls are losing this battle and selling will accelerate if we slip through all the stop-losses under 1540.  Between the market’s weakness, Gold’s plunge, and AAPL’s dip to $400, it is harder to remain an obliviously confident bull.  Expect supply to continue hitting the market as bulls lose their nerve.

Alternate Outcome:
It is easy to hate this market here, a little too easy.  Yahoo Finance had a poll on their homepage and almost 60% of the responders expected the market to go down.  Of course this was after Monday’s plunge and that obviously skewed the results, but the widespread pessimism is bullish.  This volatile, sideways trade is flushing out a lot of traders and creating a new pool of buyers for the next rally leg.  The market bounced back from several attempted breakdowns and another rebound shows bears cannot get it done.  Breakdowns happen quickly and regaining 1570 yet again shows there is more fight left in this bull.

AAPL daily at 1:29 EDT

AAPL daily at 1:29 EDT

INDIVIDUAL STOCKS
AAPL finally broke $419 and stop-loss selling put sent it in free-fall to $400.  This selloff actually benefits AAPL bulls because it further lower expectations and makes an earnings beat next week more likely.  Of course the big risk is if AAPL fails to reach the already extremely low expectations.  Option spreads are the safest way to trade earnings, but the better trade is waiting until after earnings.  An earnings surprise will send the stock back above $450 over several days.  A miss will push it to $350, but this will likely be the last selloff and the stock will finally be buyable after everyone gives it up for dead.

GLD is treading water as margin calls abate, but few are willing to buy the dip.  Given the level of damage Gold did to traders’ psyches and portfolios, expect it to stay in the dog house for a while.

Plan your trade; trade your plan

Apr 16

PM: Wild ride

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’s been a wild couple weeks and today’s strong rebound maintained the volatile whipsaw theme.  We recovered two-thirds of yesterday’s selloff in above average volume.  This was the rally’s forth-bounce off the 50dma and the second in less than two-weeks.

The market spent most of March stuck in a trading range between 1540 and 1570.  We broke out to the upside last week, but it was short-lived as we plunged to the lows of the trading range.  Today’s rebound puts us back above 1570 and it’s anyone’s guess what comes next.

MARKET SENTIMENT
The only thing that worked in the last six-weeks was buying weakness and selling strength.  The relentless head-fakes chewed up both bulls and bears trading the breakout/breakdown.  Was Tuesday’s rebound just another head-fake or signs of real strength and support indicating the rally is not ready to breakdown?  For as many people waiting for the pullback, the market is holding up surprisingly well and you have to give the rally the benefit of the doubt here.

Headlines just don’t matter and nothing will stop this rally other than running out of buyers.  I’ve been wary of this market for weeks, but bulls have been just as frustrated by the sideways chop and this turned into a battle of attrition.  Whichever side has larger numbers will eventually prevail.  Can buyers continue showing up in sufficient numbers or are the on the verge of being overrun by sellers?  No matter what anyone thought, they’ve been wrong so far, at some point we will finally have a winner.

TRADING OPPORTUNITIES
Expected Outcome:

Selloffs typically take hold quickly and maintaining these levels for a couple more days increases the probabilities of new highs.  If this market is really running short of buyers we will see the cracks grow wider in coming days.  If buyers continue stepping in at these levels it shows there are far more of them left than anyone expected and the inevitable pullback is still a ways out.

I am blown away by the resilience of the bull and how decisively they continue buying dips.  Obviously this cannot last forever, but bulls continue holding the upper hand until we see clear signs this rally is breaking down.  Right now the line in the sand is 1540.  Break though this and the selloff is finally taking hold.

Alternate Outcome:
Recent volatility is chasing off weak holders as effectively as a bigger selloff would.  Six-weeks of choppy sideways trade is refreshing the market like a 5% pullback would.   Yesterday’s plunge sent traders running for cover but lack of follow-on selling today shows holders are still willing to hold and buyers are still willing to buy.  Holding 1570 through Thursday shows new highs are likely.  If the market adds to its gains on Wednesday, bulls are still in control of this market.

Plan your trade; trade your plan

Apr 16

AM: Relief

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:22 EDT

S&P500 daily at 1:22 EDT

AM Update

MARKET BEHAVIOR
Stocks found support at 1560 and recovered half of yesterday’s losses by midday.  This pause breaks the runaway selling and gives nervous and indecisive traders time to evaluate the situation.  Holding 1560 is encouraging, but the critical level is former resistance at 1570.  We need to break back through this barrier to revive the breakout.

MARKET SENTIMENT
Nervous longs are breathing a sigh of relief as the selling ended and we reclaimed a big chunk of yesterday’s losses.  This is yet another example of the market rewarding indecision.  While it’s been the “smart” trade for a while, failing to act will inevitably get very expensive as indecisive and stubborn bulls give back all their profits when one of these dips fails to bounce.

Rebounding after such strong selling is typical, the bigger question is if real buying will follow the initial relief rally.  The biggest clue is holding and adding to the rebound in coming days.  Unsustainable bounces often fail within a couple of days and we should refrain from buying the dip until it demonstrates real, institutional buying and proves it is more than active traders trying to pick a bottom.

The market remains within 2% of all-time highs, showing the coiled spring is still to the downside.  That can easily continue under such circumstances, just be aware the potential for an explosive move is lower, not higher.

TRADING OPPORTUNITIES
Expected Outcome:
Things often stop working when too many people know about it and buying the dip feels that way, but it is hard to argue with the market.  We are breaking 1570 as I write this and the market keeps wanting to go higher.  My suspicions of this rally remain and there is no reason I want to own it here.  We will see a five to ten percent pullback at some point this year, whether we are on the verge of that pullback or still months away is still up for debate.

Holding above 1570 through Thursday shows this market found buyers and is ready to move higher.  Failing to hold 1570 means buyers are becoming scarce and lower prices are expected.

Alternate Outcome:
Buyers love buying this market and it is a dangerous game to argue with them.  This market will correct at some point, but that will only happen after buyers run out of money.  So far they continue jumping on every dip and until this changes, expect the rally to continue.

AAPL daily at 1:23 EDT

AAPL daily at 1:23 EDT

INDIVIDUAL STOCKS
GLD had a modest bounce from yesterday’s lows, but is struggling to add to those gains.  Selling in Gold reached extreme levels and it will bounce at some point, but the forced liquidations by over-leveraged institutions will likely continue for a while longer.  This selloff is ruining careers and companies, but it is hard to feel sorry for arrogant men who made millions while losing mountains of money for their clients.

AAPL bounced with the market and continues the sideways trade ahead of earnings next week.  I don’t really expect the stock to do much unless bulls jump on a juicy rumor or the price dips under $419 and triggers a wave of stop-loss selling.  This will be a really interesting earnings release to watch since growth expectations are nonexistent.  Are they finally low enough that AAPL can beat investor expectations?  This stock will get its relief rally, I just don’t know if the bottom will be $420 or $350.  Next week will tell us a lot and trading the subsequent surge or plunge might be the safer than gambling on the earnings.

Plan your trade; trade your plan