All Posts by Jani Ziedins

AM: What Taper selloff?

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks were modestly lower before the Fed minutes injected some life into the market and we broke through June 18th’s intermediate high.  The market is on a terror, closing higher the last four days and eight of the last ten.  Clearly things are not going the way bears were predicting two-weeks ago.

MARKET SENTIMENT
It is amazing how quickly a rising market calms nerves.  Over the last two-weeks Tapering fears gave way to Tapering acceptance and many are ready to move on to the next thing.  While the media is busy dissecting the nuance of today’s minutes, anyone trading last week’s fears is missing the boat.  Free markets are the most efficient information discounting mechanism ever conceived.  Without a doubt Tapering could rear its head again at some point, but the previous bout of uncertainty, fear, and emotional selling is behind us.

This is a good time to look back at the last half-year of market predictions and expectations.  We started the year under the cloud of the Fiscal Cliff and another four-years of Obama’s leadership.  Political opinions aside, the market’s knee-jerk reaction following the election was a swift selloff.  Then there was the Fiscal Cliff, Sequester, weak employment, lethargic GDP, Obamacare, Cyprus, Europe, inflation, China, Japan, Tapering, rising interest rates, and countless other major headlines I already forgot.  All of these fundamental events and expectations were supposed to spell doom for the markets.  When we throw in “too-far, too-fast”, this was the most obvious short of the last decade, so what happened?

The reason we could safely ignore all the above fear mongering is everyone was talking about it.  Anything on the crowd’s mind is already priced in.  While this is easy to say, it is far harder to accept.  When we know things are bad and about to get worse, we naturally become convinced it will send the market lower.  If fundamental data directly moved market prices, this is the way it would work and making money in the market would be easy.  But fundamentals and technicals don’t move markets, only buying and selling does that.  This simple idea trips up more traders than anything else and is why many accuse the markets of being irrational.  When the marked doesn’t do what we think it should, clearly we cannot be wrong, so the market must be wrong.  But the truth is the market behaves perfectly rationally once we understand what makes it move.

When the crowd expects something in the future, it trades it today.  The Fiscal Cliff is a very bad thing, so rather than stick around and get our head cut off, lets sell ahead of time.  When everyone in the crowd does this, all the selling for an expected event happens early and there is no selling left for actual event.  This is how the crowd’s ideas and opinions become priced in and why we can ignore what everyone is talking about.  When the headlines are overwhelmingly bearish we can safely buy the market because everyone already sold, there are few sellers left, and the market is poised to bounce on tight supply.  And that is the story of the first half of 2013.

TRADING OPPORTUNITIES
Expected Outcome:
The market cannot go up every day and after such a strong run, we should not be surprised to encounter a couple of red days.  As long as the selling is contained and we stay above our stops, we can continue holding the rebound.  The most nimble and conservative traders can lock in recent gains, but it all comes down to timeframe and targets.  Selling here is not wrong and neither is holding for further upside.

Alternate Outcome:
The recent strength might be nothing more than habitual dip buying reinforced by months and months of buyable dips.  Every rally ends on a dip that doesn’t bounce and this one will be no different.  Failing to hold the recent break above the 50dma shows we are running out of buyers and will likely retest the lows at 1560.

Trading Plan
The market is above support and advancing nicely, but we cannot expect every day to close higher.  Don’t over analyze individual moves and look for how the market responds to widely followed levels.  Staying above the 50dma is supportive for a continued rebound.  Keep stops under this level and hold for a push into the upper end of the summer’s trading range.  If we close under support, it shows buyers are losing strength and we can short the market with a stop above the 50dma and a price target near recent lows.  Expect trade to remain choppy and take profits early and often because they will likely be gone days later.

Plan your trade; trade your plan

AM: Doubt the doubters

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks continued the rebound into the start of earnings season and by midday are within a couple of points of recovering all the recent Fed selloff.

MARKET SENTIMENT
Easy come, easy go.  Many traders that rode this Spring’s surge higher, likely held too long and were chased out by the recent Tapering selloff with little to no profit to show for their effort.  Adding insult to injury, the market bounced back shortly after they sold.  Such is the life of a reactive trader.

Much of the recent strength is driven by dip-buying and short covering.  These are temporary phenomena and the persistent uncertainty will likely keep a wider pool of buyers from chasing this market to new highs.  The market trades sideways far more often than it goes up or down, so it seems likely the recent rebound will stall as it approaches the upper end of the range.

Bears had their chance to crack this market wide open a couple of weeks ago and could not get the job done.  The Tapering selloff was the perfect opportunity to send the market sharply lower on fear and uncertainty.  But once the weak and emotional jumped out of the market, we ran out of sellers, found a bottom, and rebounded.  With most of the weak holders already out, new lows driven by emotional selling are less likely.

TRADING OPPORTUNITIES
Expected Outcome:
The volatile trade will continue and it is anyone’s guess how high this bounce will go before it runs out of steam, but clearly June’s Fed collapse is dead.  There are plenty of hidden mines to sink this market, but we largely came to terms with Tapering and redounded in the face of this threat.  This is another example how we can safely ignore what everyone is worried about, because anything the crowd is talking about is already priced in.

The market could surge on a shockingly good earnings season, but that seems unlikely.  It is more reasonable is to expect the Summer trading range to continue and  we should look for opportunities to lock in recent gains before the rebound stalls and rolls over.  Either we sell into strength, or use trailing stops to protect recent gains.

Alternate Outcome:
Markets rarely go straight down and usually have multiple suckers-rallies on its way lower.  Maybe the lows are already in, or maybe we still have more room to fall.  For the opportunistic trader it doesn’t matter.  We lock in profits and wait for the next trade.  If the market is unable to recover 1655, we could see a pullback to recent lows, and if we exhausted the supply of dip-buyers, the market will stumble into new lows.

Trading Plan:
We still have the green light to hold the break above the 50dma.  We might pullback to this level, but if we hold it, look for the market to continue to 1670+.  Failing to hold the 50dma so soon after reclaiming it means we ran out of buyers and a test of recent lows near 1560 is likely.

In choppy markets, don’t fear missing upside by selling too early.  In fact what we need to be afraid of losing profits from holding too long.  When we lock-in profits too early, take comfort in knowing most traders are reacting to these whips and buying and selling at the exact wrong time.  I’d gladly accept smaller profits over losing all my recent gains any day.

We can own this market with a stop under 1625 and take profits above 1660/1670.  If we break 1655, look for a short squeeze to continue the move higher and we will move our trailing stops to 1650.  Breaking under 1625 is shortable with a profit target near 1570.

Plan your trade; trade your plan

AM: Clearing the 50dma

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The rebound continues.  Friday’s post-holiday session finally closed above the 50dma and we added to those gains today.  The market is 80-points above the Fed-selloff lows and only needs another 15-points to complete the roundtrip.  Will this point act as overhead resistance, or clear the way for a move higher?  We will know the answer soon enough.

MARKET SENTIMENT
Buy the rebound or sell the strength, that is the question.  People still don’t trust this market and fear the end of QE, but the market’s rebound shows it is far less concerned with these issues.  We don’t want to get hung up on what the market should do.  As traders the only thing that matters is what it will do, and to find those answers we need to understand what other people think and how they are positioned.

The recent Taper induced selloff was driven by fears of QE ending and what it means for the market.  Anyone who believes the market is only rising because of QE will obviously conclude that without QE, the market will collapse.  This was the justification behind much of the selling a couple of weeks ago and once we reach the point of maximum pain, selling begets more selling as previously confident holders start doubting their position and bailout before the losses get worse.  But at some point the selling climaxes and reverses when the market runs out of sellers.  That happened at the June 24th 1560 low.

If we look at how people traded this event, we see most of the traders fearing the Taper used this weakness as an excuse to sell.  The people who bought the dip are opportunistic traders unafraid of a little weakness.  Exchanging weak holders afraid of Tapering and replacing them with confident traders that are not worried about the Taper fundamentally changes the dynamics in the market.  This shows how widely expected events become priced in ahead of time.  As we hear more tapering talk, the market will largely ignore it because most holders no longer care.

I’m not saying the volatility is behind us, just that the recent flush makes further selling on the same news less likely, and the market’s recent strength supports that argument.  Remember, we don’t trade what the market should do, but what it will do.  Often those are very different things.

TRADING OPPORTUNITIES
Expected Outcome:
The market reclaimed the 50dma after the recent selloff, demonstrating continued strength.  As much as people don’t trust this market, it keeps heading higher and the opportunistic trader is taking advantage of it.  Contrarian trading isn’t going against the trend, it is going against the crowd.  When everyone fears Tapering, economic weakness, and market pullbacks, that creates a buying opportunity.

Alternate Outcome:
Rallies bounce until they don’t, but this market is trading a new trend of lower highs and lower lows until we break 1655.  If this downtrend persists, we are part of a grinding correction lower.  While everyone fears the plunge, it is the slow slide that does the most damage as it erodes one and two percent at a time when no one is paying attention.  The best way to defend against this complacency is using hard stops to get us out  even when we are not concerned.

Trading Plan:
We broke the 50dma on Friday and any disciplined short should already be out of the market .  Swing traders bought the breakout last week and are riding this strength higher with a stop under 1630.  Bulls still holding should move their trailing stops up to 1625.  Expect volatility to continue and look to take profits somewhere near 1670, or alternately use a trailing stop to protect recent gains.  As we already know, holding too long will give back all these profits in the next swing.  It is impossible to predict the exact turning points in choppy markets, so we need to be satisfied with what we get.  This is the wrong place to be complacent or greedy.  Remember, most people reacting to these swings are losing money so any positive return this summer is something to be proud of.

INDIVIDUAL STOCKS
Everything seems to be working except AAPL.  TSLA, AMZN, GOOG, NFLX, and LNKD are all near 52-week highs.  Stocks that are too-high keep going higher and stocks that are too-cheap keep getting cheaper.  Most often the smart trade is going against our gut.  AAPL at $440 was the buy of the decade while TSLA at $100 was the most obvious short in years.  And both trades have been exactly wrong.  Contrarian trading is going against the crowd and we must acknowledge most of the time we think exactly like the crowd.  If we see value, so does everyone else.  When we see outrageous prices, the crowd sees it too.  My best trades have all been the hardest to make while the easy ones lead to some of my biggest mistakes.  Fight the crowd, not the trend.

Plan your trade; trade your plan

AM: Economy continues exceeding expectations

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are modestly higher on stronger than expected employment, but still running into overhead resistance at the 50dma, currently around 1625.

MARKET SENTIMENT
Is good news still bad?  Some are making the argument strong employment threatens QE, but so far the market doesn’t appear concerned.  The selloff from May’s highs and last month’s Fed meeting plunge flushed out anyone afraid of Tapering.  Opportunistic traders buying the dip are obviously less concerned about weakness and impending Fed action.  Fewer worrywarts and more confident holders finally means good news is good again.

One of the more interesting developments is the surge in 10-year Treasury rates.  They are up a staggering 1%  in less than two months even as the Fed continues buying $85 billion in bonds.  Two-months ago the mantra was don’t fight the Fed, but this market is oblivious to the Fed’s buying and rates are surging on expectations of the Fed’s eventual exit.  The important takeaway is the Fed does not control the bond market.  I used this analogy before, but the Fed is like a four-year old girl walking the large family dog.  Everything works great as long as the dog is agreeable and listening to the little girl, but this is perceived control, not actual control.  The dog can easily overpower the girl if he spots a rabbit and there is nothing she can do to stop him.  This is exactly what is happening in the bond market.  While the Fed’s $85 billion in monthly purchases are impressive, they are a drop in the bucket of the ginormous bond market and we are seeing just how small the Fed really is when the bond market decided it didn’t want to play along any more.

While many see this as a bad thing, I’ll take the other side.  It shows low-interest rates were not driven by the Fed, but came from an agreeable market willing to accept historically low yields.  The only reason the Fed appeared successful is the market wanted to go where the Fed was trying to take it.  While we have some emotional selling in the bond market as traders fear QE being taken away, the reality won’t be nearly as bad as many predict simply because the Fed was never in control of the bond market in the first place.  Bonds were expensive because that is where the market wanted them and once this Tapering fear-trade passes, rates will come down again, even without the Fed’s buying.  The bond market is setting up a sell the Tapering rumor, buy the Tapering news trade.  While we should expect more near term volatility in the bond market, the eventual start of Tapering is a buying opportunity, not a selling one.

TRADING OPPORTUNITIES
Expected Outcome:
The market remains stable following the recent selloff.  The wave of emotional, panic driven selling is behind us and we held 1600 for most of the last month.  Selloffs are swift and this sideways trade is supportive of the market, making a continued selloff less likely.  The recent dip chased out most potential sellers and we bounced on the resulting tight supply, but arresting the fall doesn’t automatically mean good times are here again.  Traders spooked by recent volatility are reluctant to buy back in.  While supply is tight, demand remains weak and we continue trading sideways.  The best way to trade the summer chop is to buy weakness and sell strength.  Take profits early and often because they will evaporate days later.

Alternate Outcome:
While the market largely digested Tapering, there are countless other landmines out there to be wary of.  We can safely ignore what everyone is talking about, we need to fear the stuff no one is talking about.  I have no idea what they might be, but a simple stop-loss will keep us out of trouble no matter what happens.

Trading Plan:
We remain between 1600 and the 50dma, but are at the upper end of the recent range.  A swing trader can proactively lock in profits and buy back in if we break overhead resistance.  A bull can continue holding with a stop above 1600 and a bear can short stalling at the 50dma with a stop above the moving average.  No matter what our outlook, expect the chop to continue and take profits early and often.

INDIVIDUAL STOCKS
AAPL is not enjoying the market’s strength and the recent rebound is stalling today.  A return to $400 likely means the stock has more downside left and it really acts like it is destined to test $35o in the near future, especially if the iPhone5s lacks the must have features to induce iPhone4s owners to plunk down the $200 or $300 upgrade fee.  Some phone companies are letting people upgrade if they trade in their old phone, but those used phones are resold and will cannibalize lower end AAPL sales.

GLD remains unpopular as it gives back the recent bounce on strong employment.  Protection against economic meltdowns and out of control inflation is falling out of favor and ironically gold is one of the least safe places for people to hide out in this gradually improving economy.

Plan your trade; trade your plan

PM: Happy Birthday America!!!

By Jani Ziedins | End of Day Analysis

AM Update

MARKET BEHAVIOR
Stocks were quiet leading into the holiday and Friday’s employment numbers.  We remain between 1600 support and 50dma resistance.  Since market selloffs tend to be quick, the longer we hold these levels, the more supportive it is for a continuation of the uptrend.

MARKET SENTIMENT
Restrained trade ahead of a holiday is normal and expected, but there is the potential of a market moving employment report on Friday.  The financial press hypes it up, but ever since the market transitioned from job losses to job gains a couple of years ago, its been less of an event.  But in a conditioned Pavlovian response, people still get anxious in the days leading up to it.

Today’s Yahoo Finance poll shows two-thirds of respondents expect employment to fall short of expectations, with almost a majority expecting a major miss.  The least expected outcome is a major beat, with only one out of eighth bullish on the economy.  What traders expect has little to do with the actual number, but it does directly affect how the market responds.

In a normal world, stronger than expected employment boosts the market, and vice versa.  But in this bizarro world of QE, the market’s reaction is far less intuitive.  If traders are more concerned about the continuation of QE than the strength of the economy, then good is bad and bad is good.  At least that is how the talking heads have spun it, but even more simply, the market rallied regardless of the employment number as we are up nearly 300-points since the November lows.  Rather than say employment is this or that, it is easier and more accurate to say employment has been a non-issue for this market.

While the employment report’s influence has been diminished in recent years, the market’s lowball expectation is still insightful in understanding sentiment.  Traders remain bearish on the economy and this negative outlook affects their positioning.  As over-bullish as people claim this market is, everything I see shows people still don’t trust it.  If the market expects the worst, then people remain underweight and the negative outlook is already price in.  As low as the bar is, look for the economy to continue exceeding expectations.  The contrarian trade isn’t going against the trend, it is going against the crowd.

TRADING OPPORTUNITY
Expected Outcome:
While a market crash is off the table, expect the summer chop to continue.  There are two ways to trade sideways markets, 1) buy weakness and sell strength or  2) take some time off and wait for the next directional move.  Making money in the market is easy, the hard part is keeping it.  These volatile periods are where most traders give back months of gains as they react impulsively to the market’s head-fakes.  Trade this market proactively or don’t trade at all.  Take profits early and often because they will evaporate days later.

Alternate Outcome:
At some point the market will break out of this range.  Maybe it will be a continuation higher, or potentially the selloff continues.  For the time being, expect the market to remain range bound, but keep watching for the next directional move and be ready to grab on.

Trading Plan:
Not much is going on between 1600 and the 50dma.  If a bull or bear has strong conviction, they can own with a stop under 1600 or short with a stop above the 50dma.  The agnostic swing trader should lock in recent gains and wait for the next trade to develop, either trading above the 50dma or falling under 1600.

Expect some volatility immediately following the employment report, but often the initial knee-jerk reaction is wrong and wait to see how the trade develops in the afternoon to get a true sense of what the market thinks.

Trade your plan; plan your trade

AM: Stalling at the 50dma

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks were up for the fifth out of the last six sessions before an afternoon selloff took us into the red.  We remain under the 20dma and struggle breaking above this widely followed resistance level.

MARKET SENTIMENT
Clearly this market ran out of sellers last week and no matter how bearish the headlines or outlook, markets rally on tight supply.  We reclaimed 60-points of the Fed Meeting selloff on the backs of dip-buying and short-covering, but buyers remain reluctant to chase this market above the 50dma.  Lack of sellers and reluctant buyers leave us at this 1620  stalemate.

Major market selloffs occur on a drip of unexpected bad news.  It is hard to say the Fed’s tapering is unexpected or unquantified.  The only thing the market is fretting over is a few months here or there when the Fed starts tapering its bond purchases.  This is completely different from the 2008 meltdown where almost no one understood the risks the financial markets faced and we continued sliding as those vulnerabilities came to light.

Recent high-volume selling purged the market of weak holders afraid of Tapering and replaced them with confident buyers willing to sit through near-term weakness and volatility.  These value buyers’ courage actually reduces downside volatility because they keep supply out of the market during weak periods, making it far easier for buyers to lead a rebound.  While this largely mitigates the risks of a market crash, expect near-term volatility to persist as buyers remain reluctant to chase this market higher.

TRADING OPPORTUNITIES
Expected Outcome:
The sideways chop continues.  The best trade remains buying weakness, selling strength, and taking profits early and often.  In periods like this we cannot sit on profits and watch them accumulate because they will evaporate days later.  Often we will get out too early, but at least we are making money in this chop that is chewing up most traders reacting to these swings.  We rallied 60-points from last Monday’s lows and a pause here is not unexpected.  The nimble trader is taking profits and looking for the next trade.  Maybe that is breaking above the 50dma, maybe it is being turned back by it.

Alternate Outcome:
If the expected trade is sideways chop, then the alternate is a directional move.  We are in a mini-range between 1600 and the 50dma.  Whether it is a swing trade, or a breakout trade, we can trade a move outside this range.  The swing trader would take worthwhile profits proactively while the directional trader would use a trailing stop.

Trading Plan
A little something for everyone.  A bear can short stalling near the 50dma, the bull can continue holding support above 1600, the swing trader that bought the 1560 bounce can lock in profits, and the cautious can sit out this summer volatility.  A break above the 50dma is buyable and should make shorts cover.  A dip under 1600 should stop-out longs and let bears add to their shorts.  No matter what, continue taking profits and avoid sitting through the yo-yo.  Worst of all, don’t react impulsively to these whips by buying strength and selling weakness.

INDIVIDUAL STOCKS
BBRY‘s slide continues as the obvious over-reaction keeps over-reacting.  People buying Friday’s plunge were hoping for a bounce, but clearly the larger pool of value investors remains unimpressed and is not snapping up “discounted” shares.  This stock will bounce at some point, but that is nothing more than an opportunity for those that over-stayed their welcome to get out at less of a loss.

Plan your trade; trade your plan

AM: Challenging the 50dma

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
The S&P500 reclaimed 1620 in early trade and held this level through midday.  The market is sitting on the 50dma and a wave of breakout buying and short covering could hit the market if we break this widely followed level.

MARKET SENTIMENT
The market is proving far more resilient than most expected.  It swallowed QE uncertainty and is back within 4% of all time highs.  It encouraging and supportive to see it already coming to terms with the eventual end of QE.  As scary as the last couple weeks felt, the recent selloff is healthy and constructive.  It deflated some of the euphoria and flushed out many of weak traders fearing the end of QE.  People that sold the emotional wave down were replaced by more confident holders willing to buy in the face of QE uncertainty.  These new buyers demonstrated a willingness to own weakness and are comfortable with the idea of tapering on a gradually improving economy.  This churn of ownership ahead of a widely expected event means the actual announcement will be priced in long ahead of time.

It is funny how the cynics try to have it both ways.  Last year they insisted another round QE would never work.  Now they say the markets cannot survive without it.  Most likely the truth lies in-between these extremes.  QE helped some, but it was also backed up by a gradually improving economy and strong corporate income statements, balance sheets, and buybacks.  If we believe the Fed, Tapering will be accompanied by a further improving economy and reduced government deficits (fewer bond sales).  The Chicken Littles want us to believe the market is on the verge of collapsing, but the widespread doubt and cynicism is what makes further selling less likely.  With all the weak hands already out of the market, where is the next wave of selling going to come from?  All the buyers who entered this market over the last few weeks demonstrated a willingness to hold weakness and their resolve will keep supply tight.

TRADING OPPORTUNITIES
Expected Outcome:
Its been seven trading days since the market put in the 1560 bottom.  We reclaimed two-thirds of the Fed meeting selloff and the sharp rebound indicates much of the selloff was overdone.  While recent stability largely takes a market crash off the table, that doesn’t automatically mean we are off to the races again.  Markets trade sideways more often than they move directionally.  This market remains uneasy and expect volatility to continue.

Alternate Outcome:
The recent bounce could be nothing more than a bull-trap sucking in the last of the dip-buyers before exhausting itself and collapsing on a lack of demand.  Currently we are pausing at 50dma resistance and have a trend of lower-highs and lower-lows in place.  Using stops will keep us out of trouble if we end up on the wrong side of the trade.

Trading Plan:
The best buying opportunities are during the scariest periods.  There is a lot wrong with this market, but that is also what creates opportunity.  Bulls can hold here with a stop under 1600.  For bears, between stop-losses at 1600 and the 50dma, most should already be out of the market.    At this point the best short entry is failing to hold 1600.  But no matter what our outlook, expect volatility to continue and keep buying weakness and selling strength.  Take profits early and often because they will likely evaporate days later.  And of course the safest trade remains sitting out this sideways chop and waiting for the next directional move.

INDIVIDUAL STOCKS
The inevitable bounce in BBRY has yet to materialize.  There are a lot of dip-buyers rushing in here, but expect that flow to dry up and the selloff to continue.  These stories are rarely one-day events, so expect the pain to continue for the desperate and hopeful.  We could see a relief rally, but wait to buy Friday’s high near $11.  This is a sick company and few institutional investors are willing to put their neck on the line for a company whose best days are behind it.  Most of those still in this name reassure themselves that it cannot go any lower, but usually what is too low usually keeps going lower.

BBRY’s younger cousin, AAPL, is having a good day, reclaiming $410 as late shorts are getting squeezed.    This does nothing to change the direction of the stock and it still looks like the stock wants to continue lower after this bounce fizzles.

Plan your trade; trade your plan

PM: Calm before, or after the storm?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks bounced between 1600 and 1615 as the market searches for its next move.  We are currently stuck in the middle of support at 1600 and resistance at the 50dma.  Since both are widely followed levels, watch for a wave of breakout/breakdown trading when we move out of this range.

MARKET SENTIMENT
Trading sideways at first glance looks like a draw between bulls and bears, but in reality, stemming the selloff and holding recent gains is supportive of this market.  Selloffs are swift and rallies grind higher.  Trading sideways following recent gains is grinding and more consistent with a continuation than a breakdown.

Why did we bounce?  Most will point to comments by policy makers, but the only time words move markets is when they change people’s minds.  Remember, prices only move when people buy and sell, and people only buy and sell when they change their mind.  The question we must ask ourselves is if recent comments from Fed members changed OUR mind and outlook?  I expect most who were bears last week remain bears, and bulls are still bulls here.  The market didn’t bounce because someone reassured us, it bounced because after the emotional panic selling exhausted itself, no one else was changing their mind and we returned to equilibrium.

This is a difficult concept for many to grasp because it is so different from how we were taught to trade the markets.  We crave logical reasons behind market moves.  We want to read the news and understand right away how it will affect the market.  We want to see the market break key technical levels, setting up an easy momentum trade.  But any experienced trader knows the market doesn’t move reliably on technical or fundamental indicators.  That’s because the only thing that changes prices is buying and selling.  Nothing more, nothing less.  Focus on what people think and how they are positioned.  From there it is easier to understand these seemingly irrational moves. Focus on the crowd and the pieces start falling together.

TRADING OPPORTUNITIES
Expected Outcome:
The selloff fizzled and bounced because we ran out of sellers in what remains an overly-bearish market.  If it was as overly-bullish as most claim, we’d still be falling.  And beyond the price action, there is other evidence showing just how bearish the market remains.  A poll on Yahoo Finance today shows 64% of respondents are either out of the market or selling here, while just a third is putting money to work here. People claiming this market is overly-bullish are a dime-a-dozen while it remains difficult to find a real bull in the flesh.  

Alternate Outcome:
While this market isn’t overly-bullish, we could still collapse on lack of buyer confidence.  From there, emotion and panic consumes previously confident holders and they rush for the exits.  We saw that last week and could go through round two next week.  No one has a crystal ball and even the best often get it wrong.  The only thing that protects us from the emotional turmoil is our discipline and stops.

Trading Plan:
There are several ways to trade this market here.  A bull can buy and hold the break above 1600 with a tight stop under this level.  The bear should short falling to reclaim 1620 with a stop slightly above it.  The swing trader could lock in profits and wait for the break above 1620 or below 1600.  No matter what way we come at this market, expect volatility to continue and buy strength and sell weakness.  Keep taking profits early and often because they will likely evaporate days later.

Of course the easiest trade here is avoiding the summer chop all together.  We don’t need to participate in every market and too often we give back all our profits when we force trades in volatile markets.

INDIVIDUAL STOCKS
The big trade of the day is BBRY‘s collapse.  I haven’t followed the stock closely, but I know it is a cult favorite and routinely challenges AAPL for the most tweeted stock on StockTwits.  The concern I have for any BBRY holders just how stubbornly bullish they remain.  Reading the $BBRY stream on StockTwits, it is really hard to find anyone with a negative outlook.  Everyone claims this is an overreaction that will bounce.  Others say new products are just around the corner and ready to make the stock surge.  But all I see is unbridled hope and optimism.  Where are the pragmatists?  Where are the doubters?  And to back up my observations, StockTwits sentiment indicator shows their users are 91% bullish and only 9% bearish.  I don’t recall ever seeing any other stock’s readings so heavily skewed and helps explain today’s 28% plunge.  One of the more insightful posts, even thought it was from a raging bull, said this stock will either go to $50 or $0.  Well, today’s price action is likely telling us which one.  Stay away from stocks everyone loves because that means there is no one left to buy.

Plan your trade; trade your plan

AM: What selloff

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks pushed toward 1620, recovering two-thirds of the Tapering selloff.  The market is just shy of the 50dma, which could act as overhead resistance for this three-day old rebound.

MARKET SENTIMENT
Buying opportunity, dead cat bounce, or sideways chop?  That’s the million dollar question.

The irrational, panic-driven selling ended when we bounced off 1560 Monday morning.  Since then we rallied 60-points on the back of dip-buying, short-covering, and seller exhaustion.  Talking heads attribute this strength to comments out of random Fed members and Japanese policy makers, but they overlook the simple fact market prices respond to nothing more than supply and demand.  It makes no difference what some policy maker says or doesn’t say, markets bounce when we don’t have enough supply to meet demand.  If markets reacted in logical and predictable ways to fundamental news, this stock market game would so much easier and we all know that’s not the case.

No one can accuse the market of discrimination because it is clearly an equal opportunity humiliator.  Last week bulls got whacked, this week it’s bears turn.  Anyone trying to make a directional bet in this chop is giving money away.  The best strategy in volatile periods is avoiding allegiances and biases.  Be an opportunist, not a bull or bear.

TRADING OPPORTUNITIES
Expected Outcome:
The market is stalling just shy of the 50dma.  Are we hitting our head or simply pausing while bears use this obvious resistance level to short the market?  We will know the answer soon enough.  Without a doubt some traders are selling this level, expecting another leg down, but the key is how the market responds to this challenge.  If it swallows all this selling as nothing more than a speed bump, that shows there is plenty of resilience left in this bounce.  If buying dries up and selling takes over, we are running out of dip-buyers.  No one has a crystal ball, but we can gain insights into trader’s views and positioning by how the market responds to these key levels.

Alternate Outcome:
As we just witnessed, the market likes to disguise its true intentions.  What looks like a bounce, ends up breaking down.  Something else appears like a crash, but it bounces back.  We trade moves through support and resistance, but we must be prepared to deal with the inevitable head fake.  This is a volatile and emotional market and it will send of plenty of false signals before revealing its true intentions.  Discipline is the only tool we have to get out of these head fakes in a timely manner.

Trading Plan:
The challenge putting on a trade here is we are in “everyman’s land”.  There is a solid case for the bull, bear, and swing-trader.  Bears can short the rebound to resistance.  Bulls can buy retaking major support at 1600.  And nimble-swing traders can lock in profits, look to add position if we break resistance, and short stalling at the 50dma.

There is really no wrong trade here as long as we follow our plan and honor our stops.  Bulls can buy/hold with a stop under 1600.  Bears can short with a stop above 1620.  And swing-traders can lock in profits and wait to trade the breakout/breakdown from the test of resistance.  We remain in a volatile market, so keep taking profits early and often.  And perhaps the easiest trade is taking the summer off.  Most traders give all their hard-earned profits back by forcing trades in emotional and volatile markets.

INDIVIDUAL STOCKS
Institutional investors are not coming AAPL‘s rescue here.  Cash horde, dividend yield, absurdly low P/E, brand equity, ecosystem, pipeline, etc, none of it matters as the greatest buy of the decade keeps getting cheaper.  AAPL’s problem isn’t that no one believes in it, paradoxically it struggles because everyone believes in it.  Everyone loves the company and its products, but that also means they already own the stock and there is no one left to buy.  Stock prices are not driven by fundamentals, technicals, opinion, or any of that other stuff the talking heads obsess about.  They trade on supply and demand.  When everyone who wants some already has some, we run out of new demand and there is nowhere to go but down.

The same logic explains why GLD struggles here.  “Everyone needs some gold in their portfolio”  or at least that’s what some people say.  And that is great when gold is going up, but I’ve never been a fan of broad diversification in a trading account.  Does it make any sense to offset our winners with losers?  Own it when it works and dump it when it doesn’t and clearly gold is not working here.

TSLA is putting the hurt on bears again.  There is no logical reason to own this stock here, but it is suicidal to short this stock.  Between the astronomical short-interest and the all the shares tied up by management and loyal investors, this stock will not act rationally.  It will come down at some point, but not before it defeats and bankrupts all those bears.

Plan your trade; trade your plan 

AM: The squeeze is on

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Markets are up for a second day following Monday’s plunge.

MARKET SENTIMENT
Panic driven selling is taking a break, giving holders and prospective buyers the opportunity to think rationally and act deliberately.  Stability and sanity is supportive of markets and hopefully we reached a place where cooler heads prevail.  That doesn’t eliminate the possibility of further declines, but it greatly mitigates the probability of an out of control crash.

The market hates uncertainty and things it doesn’t fully understand.  There are times when we only see the tip of the iceberg, like the period building up to the 2008 Financial Crisis.  The market was oblivious to the underlying risks, leading to a large and painful selloff.  Right now the market is fretting over the timing of Tapering, but it is hard to claim that is an iceberg.  In fact, failing to taper will likely lead to greater risks of bubbles and inflation.  While some will argue we already passed that point, that is a different debate.  Even thought exact timing of Tapering is up in the air, we know it will happen at some point over the next few quarters and it will be a gradual implementation.  There are plenty of icebergs out there, but this is not one of them.

TRADING OPPORTUNITY
Expected Outcome:
The plunge trade is over as we recover 1600.  No one knows how high or long this bounce will last, so the best approach remains buying weakness, selling strength, and locking in profits.  Don’t chase market moves and take profits early and often.  In volatile periods, never feel bad about selling early and only capturing 20-points of a 50-point move.  Those that hold on too long will see all their profits evaporate days later.

It is easy to make money in the markets, the hard part is keeping it.  Traders reacting to these volatile swing are giving back months of profits.  Even if we sell early, I guarantee you locking in a 20-point gain is better than most who are riding the yo-yo of buying high and selling low.

Alternate Outcome:
This bounce could be nothing more than a bull trap on the way lower.  The market saw a nearly non-stop rally from 1350 and the recent selling is just scratching the surface of what could be a normal and healthy pullback.  The biggest challenge to the rally is hitting its head on 50dma resistance.  No one knows for sure what the future holds, the best we can do is identify opportunities and uses stops to protect us in case we are wrong.

Trading Plan:
The recent bounce is putting the squeeze on late shorts and recovering 1600 will keep the pressure on.  Look for resistance at 1620, consider locking in profits, and even go short if we run into a wall.  If the market breaks above the 50dma, look for a continuation to the middle of the 1600/1700 range.  Stay nimble, trade proactively, and take profits.

INDIVIDUAL STOCKS
AAPL‘s struggles continues as it doesn’t enjoy today’s broad market strength.  We are under $400 and any dip buyers need to be extremely careful here.  On the other side shorts can press their luck with a stop above $400.  Many of the expected catalysts came and went without pumping life back into the stock.  Anyone who believes in this story is already fully invested and there are few prospective buyers left to bid up the stock price.  The biggest hope was placed on the dividend increase, but even that could not attract buyers willing to pay premium prices.

GLD fell out of bed again this morning.  This is an ugly trade for anyone who bought the bounce above $140 a couple of months ago.    Much like AAPL, Gold was an over owned asset.  Everyone who wants gold already has all they can hold, meaning there is no one left to buy.  Normally something falling so far creates a buying opportunity, but there is no reason to rush in and buy because there is still room for more panic driven selling.

Plan your trade; trade your plan

AM: Volatility continues

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks recovered most of yesterday morning’s plunge and are just shy of 1590.  Obviously the market is volatile and that trend will likely continue.

MARKET SENTIMENT
The market hates being predictable.  The obvious bounce off 1600 fizzled and collapsed another 40-points, but not long after the obvious breakdown bounced right back.  The market has no allegiances will and humiliate both bulls and bears any chance it gets.    This behavior isn’t vindictive, simply a function of supply and demand.

When everyone anticipates the bounce off support, they keep holding, knowing it would be foolish to sell just before the market rebounds.  When it doesn’t, they rush for the exits at the same time as their stop-losses under support are triggered.  This wave of selling sends the market sharply lower.  But just when everything looks the most hopeless, the market bounces back because everyone already sold ahead of the expected market crash.  Once that wave of impulsive selling passes, there are few sellers left and the market bounces back.

Volatility will continue for a while as those paralyzed by fear and indecision during the previous plunge sell every bounce as the market recovers to levels they wish they sold at on the way down.  This entire process goes back and forth over a period of weeks with the amplitude diminishing with each whipsaw until stability and sanity returns and we continue the prior trend.

We might still see lower lows, but holding in this area for another day greatly mitigates the probability of a market crash.  The end of emotional selling and coming to terms with Tapering is what will let this market settle down, building the base for the next leg higher on improving economic news.

TRADING OPPORTUNITIES
Expected Outcome:
Holding 1560 through Wednesday is an encouraging sign the wave of selling is abating.  While the coast is never clear and there is no such thing as a safe time to invest, it shows much of the emotional selling is behind us.  Tomorrow could bring something new, but stability here shows the market is coming to terms with Tapering.

Buying the dip with a stop under yesterday’s low is not a bad trade if someone has an itchy trigger finger, but for the average person, trading the sideways chop is an exercise in futility.  Stay in cash, but if you have to trade, take profits quickly.

Alternate Outcome:
While the market might be coming to terms with Tapering, volatility in Asia is waiting to take us down.  No matter what we think, we initiate all new trades with defense in mind.  We cannot get it right every time and stop-losses are what keep us out of trouble.

Trading Plan:
Volatility will persist and we must lock in profits when we have them because they will likely be gone days, even hours later.  Yesterday’s 30-point dip didn’t even last 24 hours before most of it was reclaimed.  This applies to both bulls and bears.  Buy weakness and sell strength with stops just on the other side of support/resistance.  We must trade this market proactively, anyone reacting to the whips is going to give money away.

A dip under 1560 over the next two days likely means this market is pushing toward the 200dma, but barring that, assume the market put in a bottom.

INDIVIDUAL STOCKS
AAPL is not enjoying the broad market’s rebound and is just a few cents above $400.  This level is a major psychological milestone and expect many of the recent dip buyers to call it quits if drop much further.  The optimistic swing trader could trade the bounce off of $400 with a tight stop, but this is just a trade.  The stock is acting like the selloff is not done and look for a dip to $350 before all the hopefully are finally driven out of this name.

Plan your trade; trade your plan

PM: Still looking for a bottom

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks fell over one percent, continuing the recent selloff.  The silver lining is the midday bounce from much lower levels, but a loss is still a loss.  Volume was well above average as traders dump shares by the truckload.  There is modest support back near 1540 from March and April, but the next major level is the 200dma just above 1500.

MARKET SENTIMENT
Huge trading volumes over the last three-days as the market is anything but complacent.  The alleged rumor is Ben Bernanke yelled fire and everyone rushed for the exits.  Of course no one personally heard him say fire and is panicked simply because everyone else is.

The Fed is still has their foot on the gas and is pumping $85 billion of liquidity into the markets and will continue buying bonds well into next year, but never let the truth get in the way of a good story.  As we’ve long discussed on this blog, markets don’t trade fundamentals, they trade investor perceptions.  Right now investors are acting like three-year olds, throwing a tantrum because Uncle Ben won’t promise easy money for ever and ever.  Without a doubt the market is overreacting, but doesn’t mean the selling will stop and we could easily see another couple of legs lower before this is all said and done.

TRADING OPPORTUNITIES
Expected Outcome:
The high volume selling is flushing out many previously confident holders, creating the next pool of buyers to push this market higher in the future.  But that is still a ways out.  The real savior of this market will be the deep pocketed value investor who sold out when values got too rich last month and is eager to buy back in at these discounted levels.  The biggest question is if these levels are too attractive to resist yet.  Once their buying puts in a bottom, the panic selling will subside.

Given the huge flush in volume, I’d say we are getting close to the capitulation point where most of the weak hands sold impulsively to far more confident value investors willing hold through some uncertainty.  Of course the bottom will remain volatile and we should continue buying weakness and selling strength.

Alternate Outcome:
The market can continue selling and there is nothing more unnerving than seeing our accounts meltdown before our eyes.  Everyone has their breaking point and even the most resolute holder will cave if we keep falling.  The only thing that protects us is our stop-losses and hopefully no one has ridden this down all the way from the peak.

Trading Plan:
The aggressive can continue buying the dip with a tight stop under recent lows, but for the rest of us, the safer play is waiting for the market to bottom.  Wherever this ends, we will likely consolidate sideways and there will be plenty of time to buy back in over coming weeks and months.  In the meantime, both bull and bear should take profits early and often as the volatility will continue for the remainder of the summer.

Plan your trade; trade your plan

AM: Continued weakness

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks sold off hard, continuing last week’s slide to 1560, but found a bottom and reclaimed 1580 by late afternoon.

MARKET SENTIMENT
There was no obvious news catalyst for today’s selloff and it is simply a continuation of the pain trade as previously confident holders are running for cover.  Markets overreact on both the high and low side.  This selloff is the snap back from recent gains and will likely overshoot to the downside before bottoming.  What level qualifies as overshooting is up to interpretation and where all the money is made.  Maybe we are already oversold and ready to bottom, or only in the middle of this selloff.  That is the sport and challenge of trading.

TRADING OPPORTUNITIES
Expected Outcome:
The recent selloff is a great example of how valuable trailing stops and stop-losses are.  The market retreated to levels first seen in early April and anyone who failed to lock-in gains took a round-trip.  We’re in this to make money and the only way to do that is selling our winners when we least want to.  On the other side, shorts who stubbornly fought this market were vindicated by recent weakness but at what cost?  In the market early is the same thing as wrong.  We all come to the markets with opinions and ideas, but we must trade the market we are given and often that means admitting mistakes and taking small and calculated losses. Successful traders are not bulls or bears, but opportunists.

I was looking for a bounce near 1600 and clearly that didn’t happen, but that is the nature of this beast.  We take our licks, cover for a modest loss, and keep looking for the next trade.  No one is right on every trade and why planning our exit is the most important part of any new position.  The aggressive trader can try the dip again with a stop under recent lows, but most are better off waiting for the market to prove itself.

I still think this selloff is an overreaction to the inevitability of Tapering, but this weakness is therapeutic and taking the QE risk off the table in a sell the rumor, buy the news setup.  The market is always looking ahead and will already be looking past Tapering by the time it actually happens.

Alternate Outcome:
The market is clearly weak here and we must remain defensive.  If the market doesn’t find support quickly, the 200dma is the next level to challenge.  Selling begets selling and no matter what common sense or fundamentals show, crowds rush for the exit at the same time and the resulting selloffs are often breathtaking.

Trading Opportunity:
Obviously this is a volatile market and the best trade remains locking in profits before they evaporate.  A cocky bull or bear will get steamrolled, so use your ego as a guide.  Take profits when you feel most confident.

A dip-buyer can try again with a stop under 1560.  It is a little late to jumping on the short bandwagon and existing shorts should move down their trailing stop to make sure they don’t give back these well deserved profits in a bounce.

INDIVIDUAL STOCKS
AAPL‘s weakness persists as it broke $400 this morning.  The value buy of the decade struggles to regain upward momentum and is likely a victim of its own success.  When everyone loves a company, they already own it, leaving few new buyers to continue pushing the stock up.  It is a great company, but the stock was too popular for its own good.  If we cannot hold $400, the next level to watch is $350 and would be a 50% selloff from recent highs.  Any AAPL bull should have bailed when the stock failed to hold the 50dma.  Support at $400 is an interesting place for a dip-buyer to swing-trade a bounce with a stop under $400.

TSLA is still holding strong and any short should run for cover.  Climax tops collapse quickly and this stock doesn’t look ready to collapse.  With so many traders short this stock and a large percentage of the float in the hands of management and loyal investors, another short squeeze seems far more likely than a collapse.

GLD is holding up in the face of market weakness as last week’s plunge sucked out most of the downside in a single move.  Look for further consolidation, but the trend is still lower and it is better to bet on a continuation than a reversal.

Plan your trade; trade your plan

AM: Support or bull trap?

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks jumped around following yesterday’s plunge, showing early gains, slipping into the red by midday, and recovering losses by early afternoon.  Given yesterday’s 2.5% slide, this morning’s 0.5% dip was relatively benign.

MARKET SENTIMENT
Buy the dip or short the weakness?  That’s the question on everyone’s mind.

Markets pullback and this one is no exception.  They also rebound after every selloff and so will this one.  And to think some people claim it is impossible to predict the market!  All joking aside, the hard part is figuring out the timing of these “obvious” moves and is where all the money is made and lost.  Plenty of bears are beating their chest, proclaiming to the world how right they are.  Of course they forget to mention they’ve waited months for this pullback and missed the majority of the recent rally, and those are the lucky pessimists, many actually lost money shorting this bull.  But they’ve waited this long, so lets give them their moment in the spotlight.

People trade the market for many different reasons.  Some do it for the gambler’s rush, other need to be right, and a few are simply here to make money.  While it is impossible to leave our ego at the door, I’m in this to make money.  That means I am flexible in my analysis and quick to switch views when presented with new information.  It’s okay to be wrong, but it is fatal to stay wrong.  I did this following April’s bounce off the 50dma when I was bearish and expecting a breakdown.  That was the perfect setup to selloff and when it didn’t happen as expected, my analysis was obviously flawed and I quickly changed sides to the bull camp.  But that was then and this is now.  Given the recent weakness, what do we do here?

MARKET BEHAVIOR
Expected Outcome:
If any think this prelude means I am changing sides, they will be disappointed.  I remain flexible and open-minded about this market, but in late May I shifted gears from rally mode to sideways chop.  So far everything I see fits within that model and until further notice, I will continue buying weakness and selling strength.

Trading chop is the most difficult way to make money in the market.  There is no set-it-and-forget-it.  The key to surveying periods like this is taking profits early and often because a few days later they will evaporate. And of course the most conservative approach to this market is to sit in cash and wait for the next directional trade.

Alternate Outcome:
Without a doubt bears could be right here.  Every rally ends at some point and this one is no exception.  While we can buy weakness, always trade with defense in mind and keep a stop under recent lows.  Aggressive bears can press their shorts, but move your trailing stop down and don’t let those hard-earned profits evaporate.

Trading Plan:
Game plan is buying the dip.  This morning’s rebound gives an interesting entry point with a stop under this morning’s lows.  10-points of risk for a potential 50-point gain if we recover the “Tapering” selloff.  For bears, a lot of selling is behind us and today’s stability shows many who wanted to sell are already out.  No doubt we could continue selling off, but if we assume the market will remain volatile, taking profits early is the best way to stay ahead of the market.

INDIVIDUAL STOCKS
AAPL’s out-performance yesterday is offset by today’s underperformance.  The stock lost support at the 50dma and keeps pushing toward $400.  The recent low was $385 and breaking this will like result in another leg down to $350.  Stocks that cannot go any lower usually do, but this shouldn’t be an issue for the disciplined bull who sold the break of the 50dma.

GLD is trading sideways following yesterday’s plunge.  A couple of days ago I said we could short a break of $130, but that was if the commodity rolled over.  The gap lower took a big chunk of the short profit with it and we should expect sideways chop in the $120s.  Clearly the trend remains lower and anyone buying the dip is trying to catch a falling knife.

Plan your trade; trade your plan

PM: Hope, fear, and opportunity

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks crashed spectacularly in the largest selloff of the year.  Volume was off the charts as we undercut all the stop-losses clustered under the 50dma, 1600, and 1598.

MARKET SENTIMENT
As sick as the market feels, we are still within 6% of all-time highs.  For bears that means plenty of downside remains.  For bulls this is just another routine dip on the way higher.  And who knows, both could be right if we selloff a bit more before rebounding to new highs this fall.

Markets often reverse on a capitulation bottom.  This is the largest decline and highest volume of the entire selloff; the classic pain trade.   Many previously confident traders are persuaded into selling because the market hit their stop-loss, or alternately they just can’t take the pain of seeing their account fall any further.  But the thing to remember is markets only go down on new selling.  If the recent plunge triggered a majority of the stop-losses and shook out a large chunk of holders sitting on the fence, the supply of available sellers might be drying up.

I very well could be the biggest idiot in the room for seeing opportunity in this slide, but that comes with the territory of being a contrarian.  I will be the first to admit I can be wrong, but that’s what stops are for.

TRADING OPPORTUNITIES
Expected Outcome:
Any disciplined bull should be out of the market, either because they sold recent strength, or they were stopped out on the way down.  The advantage of being in cash at times like this is it gives us the clarity to see the next trade.  Anyone still holding is jumping between hope and fear and that is clearly a poor way to trade the market.

I still think we are closer to the end of this selloff, but we can wait to buy the rebound above 1600 and there is no reason to force a trade in this volatile, sideways market.  Sitting on cash is a legitimate position.  Remember, it is easy to make money in the markets, the hard part is keeping it.  Don’t do anything stupid.

Alternate Outcome:
We sliced through support on our way to 1588.  This is finally a legitimate place to put on a short trade with a stop above recent support.

Trading Plan:
A bear can put on a short with a stop above 1600.  Anyone already sitting on short profits should consider locking in some of those gains or at least move their stop down to 1600.  We are in this to make money and the only way we can do that is by selling our winners.

Bulls should wait to buy the bounce above 1600.  Our plan this summer is selling strength and buying weakness.  This certainly qualifies as weakness, we just need to wait for the right opportunity.

INDIVIDUAL STOCKS
AAPL continued its slide under the 50dma, but its loss was less than the broad market as it actually out performed on a relative basis.  While encouraging, that is not a valid reason to buy or hold this weakness.  Any disciplined bull should be out of this stock and waiting for the rebound back above the 50dma.  On the other side, a bear can short with a stop above the 50dma.

Gold’s 7% selloff would normally be one for the history books, but unfortunately for gold-bugs it is simply par for the course this spring.  The last few years gold was bought to protect against a weak economy, a strong economy, inflation, and deflation.  Now it is a sell for all the same reasons.  Obviously gold was nothing more than a momentum trade and that momentum has turned.  I’m not sure if there is enough downside to justify shorting GLD here, but those hoping for a rebound to previous levels will be waiting a long time.

Plan your trade; trade your plan

AM: The start, or the end?

By Jani Ziedins | Intraday Analysis

AM Update:

MARKET BEHAVIOR
Stocks continued sliding this morning, but found support just above 1600 in midday trade.

MARKET SENTIMENT
Is Chicken Little finally right?  Every other prediction of doom and gloom this year was met with a powerful rebound, will this time be any different?  This is the “overly-bullish” market everyone loves to hate; but if the crowd hates it, can it really be overly-bullish?

Weeks ago we identified the 1600-1700 trading range and so far this “plunge” is still within the expected range.  Everyone is tempted to sell the least surprising Fed statement that QE continues at full speed but tapering is in the future.  If that caught anyone by surprise, clearly they are not paying attention.  No doubt some of the disappointment stems from hope Bernanke would be more supportive of QE and dispel rumors of tapering later this year, but should a few months here or there radically change our investment thesis?  Some people seem to think so, but aren’t these the pessimists already out of the market and actively short it?  Should we really trust what they have to say?

We can safely ignore people promoting their existing biases because they already placed their trades and are simply along for the ride.  The only traders controlling the market are the ones changing their minds.  Maybe they are rationally evaluating new information and acting on it, or maybe they are impulsively reacting to market moves, but either way, only people actively buying and selling are driving prices.

Every dip this year ended in a bounce when we ran out of sellers.  When everyone expects a market top, they sell ahead of it, taking excess supply with them.  By the time the expected event rolls around, there is no one left to sell, keeping supply tight and we have nowhere to go but higher.  Will it be different this time?  The market obsessed over “tapering” for more than a month and the recent 5% slide flushed out many weak holders.  Given that setup, I have a hard time identifying where the next incremental seller comes from.  The only thing left is an irrational rush for the exits, but so far the majority of holders demonstrated a willingness to own stocks in the face of recent weakness.  There are no guarantees in the market, but calm and confident holders make the rebound far more likely than a collapse.

TRADING OPPORTUNITIES
Expected Outcome:
Everyone wants a strong market to pullback so they can buy more, but every time the market pulls back, they get scared and chicken out.  Anyone following our game-plan of taking profits early and often in this volatile trading range can use today’s dip as a great entry with a tight stop under support.  This will be a choppy summer and if we fail to capture profits when we have them, they will likely evaporate days later.

Alternate Outcome:
This market will breakdown at some point because every market does.  While markets rarely collapse when everyone expects it, we need to play defense so close to major support.  Everyone is watching 1600 and many have stop-losses under this key level.  Breaking it could trigger an avalanche of stop-loss orders sending us sharply lower.

Trading Plan:
The dip is buyable until the market tells us otherwise.  A lot of selling happened over the last couple of days and weeks, meaning there are fewer nervous holders left to flood the market.  We might dip under 1600 in one last flush before bouncing back into the trading range, but the dip is buyable with a tight stop under 1595.  Only short the market if we accelerate through 1595 and no one is buying the dip.

INDIVIDUAL STOCKS
GLD  was hammered today.  The safety trade is leading the plunge and demonstrates why we don’t try to catch falling knives.  There are a lot of owners still hanging on and hoping for the bounce, meaning there are plenty of sellers left.

AAPL is down, but less than the broad market.  Failing to hold recent support is troubling and any disciplined long is already of out this stock.  If it bounces, we can easily jump back in, but there is no excuse to rid this stock lower.

Plan your trade; trade your plan

PM: Sell the hype?

By Jani Ziedins | Intraday Analysis

PM Update

MARKET BEHAVIOR
Stocks sold off on average volume and finished under 1630 following the Fed’s policy statement and Bernanke’s comments.

MARKET SENTIMENT
The Fed shocked everyone when it announced it would eventually unwind QE.  Okay, all sarcasm aside, the market was disappointed Ben didn’t do more to appease it by promising easy money as far as the eye could see.  The funny thing is many of the people who last year claimed another round of QE wouldn’t work because of diminishing returns and inflation are the same ones saying this market will implode as soon as the QE punch bowl is taken away.  Last year QE didn’t matter, now it is the only thing that matters.  Once a pessimist, always a pessimist.

As we discussed earlier, this gradual ramp of expectations into the inevitable tapering is good for market stability   All the talk of QE ending is already pricing it in and the actual event will be a non-issue, but that is then and this is now.  What should we expect in coming days and weeks?  Is the bubble finally deflating, or is this just another bump in the road?

Average volume showed not many were rushing for the exits.  Markets only move when people change their minds and trade their new outlook. If we expect a directional move here, we need to identify who is changing their mind.  Was the Fed’s policy statement and Bernanke’s comments so out of line from expectations that a large wave of traders are changing from bullish to bearish, or bearish to bullish?  That is a hard argument to make since the Fed’s statement was nearly a word-for-word carbon copy of past statements.  The only notable change is positive comments about the economy.   Talk about a bizarro world we live in when traders are afraid of good economic news.

If bulls and bears are not changing their minds on these headlines, today’s selloff was simply event traders pushing around the market.  Without follow-on selling from a larger pool of holders, look for the selloff to stall and bounce back into the trading range.

TRADING OPPORTUNITIES
Expected Outcome:
Volatility was expected and pulling back after recent gains shouldn’t surprise anyone.  We anticipated a summer trading range and so far this market is following the plan.  Look for it to bounce somewhere between here and support at 1600.  The more anxious the crowd gets over the selloff, the quicker it will end.

Alternate Outcome:
While a bounce seems likely since this news changes few minds, we must be prepared for the inevitable selloff.  At some point we will run out of buyers and without demand, nothing else matters.

Trading Plan:
We might see further downside, but look to buy the weakness with a tight stop under support.  We could temporarily dip under the 50dma and the rebound back above it is the buy signal.  Anyone short this market should cover and lock in gains.  Profits are fleeting for both bulls and bears in this sideways chop, so take them early and often before they evaporate.

INDIVIDUAL STOCKS
AAPL broke recent support and anyone trading the bounce off the 50dma should be long gone by now.  The inability to stage a comeback after holding the 50dma for nearly two-months shows few are interested in buying the dip.  Further weakness will likely trigger more stop-loss selling and a test of support at $400 is the next stop.

GLD tanked on hints of the end of easy money.  Runaway inflation is a core tenet of the gold-bug’s investment thesis.  Without monetary instability  there are few reasons to own a useless metal brick.  Violating recent lows could trigger another wave of selling, but if the market fails to collapse after making new lows, it shows we are running out of sellers and the dip is buyable.  In this case, let the price action be our guide.

Plan your trade; trade your plan

AM: How to trade the Fed

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks are doing a lot of nothing leading up to the Fed’s 2pm Eastern policy statement.  We are in the middle of the recent range between 1600 and 1690 and there is plenty of room for the market to react without leaving the trading range.

MARKET SENTIMENT
Will the market really be surprised by anything the Fed has to say?  The Fed will most likely continue QE for the time being, but is looking for opportunities to scale back the program when the time is right.  Everyone knows and expects that statement, but it will obsess over every noun, verb, adjective, and preposition in the statement trying to sniff out any kind of clue indicating the tapering will occur sooner than previously expected.

But lets not make the mistake of assuming news drives the market.  This headline is simply an excuse for people to trade their dispositions and outlook.  If they fear QE ending, they are already out.  If they are indifferent to QE ending, they are committed to holding in spite of what the Fed has to say.  Some news based traders will try to get ahead of the next big move and will push the market one way or the other, but invariably the market will snap back because everyone is already positioned for their current outlook.  Once the news driven guys blow their load, there will be little follow on buying/selling to continue that move and it will stall.  At least that is the way it played out every other time over the last six-months.

The one exception is if the Fed is more decisive this time, either committing to massive QE through 2014, or alternately signaling tapering before the year is up.  These unexpected revelations are more likely to generate a directional and sustained move because it will change traders’ outlook on the future, leading them to adjust their portfolio to match their new view of the future.

TRADING OPPORTUNITIES
Expected Outcome:
Expect volatility to continue.  I would be tempted to fade the market’s initial reaction to the Fed.  If it is spooked, look for a bounce off of the 50dma or 1600.  If we surge, look for stalling around 1690.

Alternate Outcome:
If the Fed rocks the boat and startles the market with an unexpectedly bold policy statement, look for a lot of buying or selling by those on the wrong side of the trade.  It seems unlikely the Fed will be so brash given how measured they have been in the past, but we must expect the unexpected.

Trading Plan:
If the market’s initial reaction is making a big deal over nuance, fade the move when it approaches support or resistance.  If everyone is floored by the Fed’s comments, trade the ensuing stampede where people are changing their portfolio to match their new outlook on the future.  Markets only make sustained moves when people change their mind, so only make a directional trade if the news is converting bears or bulls to the other side.

Plan your trade; trade your plan

PM: Why we keep going up

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks broke above recent resistance at 1649 on light volume.

MARKET SENTIMENT
Stocks move for one of four reasons, rush of buying, rush of selling, lack of buying, or lack of selling.  Today’s low volume rally was built on a lack of selling.  Holders are very comfortable holding and anyone who wanted to buy had to pay a premium to pry shares from the market.  There is a lot of noise surrounding the Fed meeting and Bernanke’s tenure, but the uncertainty doesn’t faze holders. No matter what anyone says about this rally and market, confident holders equals tight supply equals higher prices.

TRADING OPPORTUNITIES
Expected Outcome:
The market had the perfect invitation to selloff the last few weeks, but the rebound shows it isn’t ready for the widely expected correction.  No matter what our outlook is, we must respect the price-action.  While the rally might not continue at the previous rate, betting on a market crash is the wrong trade.  Expect the volatility to persist, but use it to buy weakness and sell strength.

Alternate Outcome:
One of these days bears will get it right, most likely after their accounts are dead and buried, but they will be right.  Predicting the markets is easy, getting the timing right is where all the money is made.  Keep watching for signs buying is drying up, but don’t short the market before then.

Trading Plan:
We are pushing into the upper half of the trading range and should move up our stops and look for strength to sell.  I have no idea if this rebound will stall at 1660, 1675, or 1700; the best we can do is figure out how much profit is enough and let someone else pick the top.  I still think there is a little more upside remaining, but move our trailing stop up to 1650 and be ready to sell when we are most reluctant to sell.

INDIVIDUAL STOCKS
GLD had another bad day, but remains above support at $130.  Any knife catchers need to use a stop-loss to avoid being pulled down by another leg lower.  The market wants to test $130 and from there it could go either way.  Buy the bounce or short the breakdown, both with a tight stop near $130

TSLA is holding up and will likely put the hurt on bears yet again.  Climax tops collapse fairly quickly and holding near $100 for several weeks is anything but quick.  There is no reason to own this stock here, but it is suicidal to short it.  There is nothing wrong with shooting at a highflier, but recognize when the trade is not working and pull the plug.  Betting against a strong stock takes patience and discipline.  Note stubbornness is not on that list.

Plan your trade; trade your plan

AM: More pain for bears

By Jani Ziedins | Intraday Analysis

AM Update

MARKET BEHAVIOR
Stocks surged in morning trade, but leveled off near 1650 by midday.

MARKET SENTIMENT
Bears are flabbergasted by recent strength. All their analysis and insights say this market is overly-bullish, extended, and ready to breakdown, but they need to ask themselves why it is not acting like it should.  The biggest mistake these investors make is assuming the market will behave like everyone expects.

Markets are the greatest discounting mechanism ever conceived.  Anything widely known and expected is already priced in.  All of the traders predicting a market implosion sold out long ago.  When too many people predict doom and gloom, they take all that supply out of the market in a “sell the rumor” phenomena.  By the time the expected event rolls around, there is no selling left and the widely expected collapse never happens simply because everyone sold ahead of time.

Then comes the “buy the news” phase where the actual event is less bad than feared.  Once the event happens, all risk and uncertainty evaporate, add to this the tight supply because all the selling occurred earlier, and that is the perfect recipe for a bounce.  The market is far less irrational when we understand what really makes it move.

TRADING OPPORTUNITIES
Expected Outcome:
The recent bounce diffused any and all downside momentum.  Selloffs happen quickly and this market had every opportunity to crack wide open, but it held firm instead.  That shows there are few left to sell weakness and most holders are in this for the long-term in spite of near-term volatility.

Alternate Outcome:
Buying the dip is a tired trade and what becomes too obvious stops working.  While we might not be there yet, the day is coming when dip won’t bounce.  Failing to hold support will be our signal the market’s personality is changing.

Trading Plan:
We are now in the middle of the recent trading range.  If we climb to 1660, move our trailing stops up to 1650 to ensure we keep recent gains.  When the market moves up to 1670-1680, start thinking about locking in profits ahead of the dip back into the heart of the trading range.  At this point move stops up to our buy point and don’t allow this winning trade to turn into a loss.

INDIVIDUAL STOCKS
AAPL is stuck just under the 50dma and not enjoying the broad market’s strength.  Most still believe in the earnings power and brand equity in this name, meaning the stock is fully valued and those waiting for a return to the easy buy-and-hold days will be frustrated by the anemic trade.  Clearly this stock does not want to go higher, the only question is if it is done selling off.  I still think a dip to $350 is required to finally flush out the hopeful still hanging on.

Plan your trade; trade your plan