All Posts by Jani Ziedins

PM: Expect the unexpected

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks gave back yesterday’s gains, but stayed above recent lows at 1635.  Volume was modestly higher and greater than Tuesday’s bounce.

MARKET SENTIMENT
Last week’s obvious breakdown ended in a short-squeeze on Tuesday, that ended in a retreat back to the lows today.  In spite of all the drama and excitement, the market simply traded sideways the last two-weeks.

Both bulls and bears are beating their chest and convinced the market is clearly on their side.  While it is easy to find bulls and bears, where are the ones saying we will settle into a trading for the rest of the summer?  Why is that not a possibility people are considering, especially since the market goes sideways far more often than it goes up or down?

Everyone expects the market to breakdown after such a strong run, but people trade their outlook, meaning most of the cautious are already out of the market.  Declines in six of the last nine sessions also cleared most of the weak owners and replaced them with confident buyers willing to hold in the face of this uncertainty.  This market had every chance to break wide-open but here we stand, just 2% from all-time highs.  Between the recent selling and pervasive negative outlook, further selling seems unlikely since most have already sold.  The key to understanding the market is not found in charts, economic reports, or complex formulas, but understanding what other traders think, how they are positioned, and what moves they have available to them.   Recent selling is more bullish than bearish because it is building the next pool of buyers.

TRADING OPPORTUNITIES
Expected Outcome:
From a pure contrarian viewpoint a trading range seems the most likely outcome because no one is talking about it, but that is not unusual.  Most traders are opinionated by nature and expect the market to move one way or the other.   Stepping higher is the next most likely outcome due to the recent wave of selling and pervasive negativity.  And finally collapsing is least likely because it is the obvious trade everyone is waiting for.

Alternate Outcome:
Markets work exclusively on supply and demand.  It makes no difference what anyone thinks or how they are positioned, if we run out of buyers there is nowhere to go but down.  The uptrend is not broken yet, but we need to watch for real signs of weakness and get out before everyone else.  Lower-highs and violating major support shows the widely expected selloff is finally upon us.

Trading Plan:
1635 is the level to watch.  As long as we hold it, the market remains buyable.  Violating this level makes us more cautious, but the more meaningful support is at 1600.  Since the market is entering a consolidation following recent gains, the best profits will come from swing-trading weakness and strength.

Plan your trade; trade your plan

AM: Another pause

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:17 EDT

AM Update

MARKET BEHAVIOR
Today’s trade is a mirror image of yesterdays.  We gapped lower at the open, selling continued until it found a floor by  mid-morning, and rebounded into midday trade.  After a large directional move through most of May, it is normal to consolidate those gains.  At this point there are no indication recent weakness is anything more worrisome than typical consolidation.

MARKET SENTIMENT
Today is another obvious short entry for the doubters and bears.  I am sympathetic to their point of view given how long and far this market came without pausing, but doubting this rally is still the popular thing to do and is why more upside remains.

Recent volatility is shaking out weak holders and late buyers, as well as seducing bears to go short.  The problem is much of this selling is already behind us.  When everyone expects something nasty, they are either already out, or act quickly when they see the first cracks.  Their trigger finger lead to last week’s stunning 2% intraday reversal.  Even bulls are afraid of this market and are waiting for a pullback before buying more.

We must not confuse trend with sentiment.  Just because the trend is higher doesn’t mean the market is overly-bullish.  In fact the reason the market keeps going higher is because it was overly-bearish and there was an ample supply of traders out of the market available to chase it higher.  At some point we will run out of buyers, but the supply remains plentiful as long as people keep doubting the sustainability of this market.  The trend is strongly higher, but we are still not overly-bullish.

TRADING OPPORTUNITIES
Expected Outcome:
Rallies take breaks and after four-weeks of nearly straight up, this one is entitled to some rest and relaxation.  There is no reason to jump on the bear bandwagon just because we are not going higher every single day.  There is a time and a place to be bearish, but a couple percent from all time highs is a tad premature.  We don’t need to own this market here and the cautious can wait for the next high probability trade, but  until proven otherwise assume the rally remains intact and dips are still buyable.  “Sell in May” is quickly running out of time and expect similar strength to cary through summer.

Alternate Outcome:
This rally will breakdown just like all the ones before it.  No one know when or where, so we must keep a careful eye on it and look for material violations of the up trend.  Failing to make higher-highs and breaking support are signs buyers are no longer standing behind this market and the widely expected pullback is finally here.

Trading Plan:
Last week’s bounce is still intact as long as we continue holding 1635 and this is a reasonable stop for aggressive dip buyers.  More meaningful support is back at 1600 and the 50dma.  Break these levels and we have to question the viability of the rally.  Bouncing off this level creates another attractive dip-buying opportunity.  After such a strong move, look for more sideways trade here and be willing to buy weakness and sell strength as the mare consolidates recent gains.

INDIVIDUAL STOCKS
AAPL is still holding the 50dma, but failing to continue the rebound.  The longer we maintain these levels, the more meaningful this support level becomes, but this is a double-edged sword.  It shows big money is buying shares at these levels, but it also means a large pile of stop-losses are accumulating under this widely followed technical level.  A dip under support could trigger another wave of selling.

LNKD daily at 1:17 EDT

In an interview yesterday Cook talked about the potential of wearable technology, but also the hurdles.  Without a doubt there is a market for a smart-watch, but realistically it will be the modern equivalent of the calculator watch.  Smartphones have largely displaced wristwatches as timepieces, but watches remain popular as pieces of jewelry.  The biggest opportunity for a smart-watch is not some geeky piece of hardware, but for existing jewelry watches to incorporate smart displays showing text messages and caller ID.  Cook pooh-poohed Google Glass, and I agree the technology is premature, but if we look out 20-years from now what will be the preferred method of interacting with our devices?  Will it be a pack-of-cards sized device in our pocket?  A one-inch display on our wrist?  Or a virtual reality display that supplements our existing view of the world?  Fighter pilots already use HUDs extensively because of the ease of displaying complex information and some future iteration of Google Glass is clearly the way of the future.  GOOG is still at least 5-years ahead of the curve on this and it is not a reason to own the stock, but they will be the best poised to exploit this technology when it becomes viable.

Speculators are losing their stomach for speculative names like LNKD and NFLX.  It is best to sell momentum stocks into strength because the floor falls out from under them quickly.  I don’t think the top is in for either of these companies, but they will feel the weight of market uncertainty over the near-term.  Once the rally resumes, look for new highs.  Remember, buy low, sell high.

Plan your trade; trade your plan

PM: Buy the dip or short the bounce

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks bounced after three-days of selling.  Volume was average, but respectable following a three-day weekend.

MARKET SENTIMENT
A large chunk of Tuesday’s buying was driven by short covering as aggressive bears were forced to buy stock when the market bounced.    Short covering climaxed mid-morning and we retreated from the daily highs when follow-on buying failed to materialize.  The rally is sustainable if buyers remain nervous and hesitant, but is in trouble if we can’t find buyers because everyone is already in.

I posted Yahoo Finance surveys before and for the most part they were overwhelmingly bearish.  Today’s survey is the first cautiously bullish one I’ve seen in a while.  It shows 42% are buying stocks, but the majority, 58%, remain wary of this market.  If we are concerned about overly bullish markets, we are not there yet, but the recent rally continues eroding doubt and fear.

Source: Yahoo Finance 5/28/2013

Success doesn’t come from always being right, but recognizing and fixing mistakes early.  We can recover and even make money if we change sides soon after our original thesis proves invalid.  We lose a little initially, but after recognizing our mistake and updating our outlook, we start profiting from new information.  I grew cautious as we pushed to new highs in March and was bearish in April.  On April 18th when the market failed to break wide-open as expected, I was forced to throw my original thesis out the window because the bounce invalidated everything I believed.  It took a couple of days to work up the courage to buy the market in the 1570s, but that was the right call given the way the market was behaving.   It is okay to be wrong, but it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
Bears will use the retreat from the day’s highs to justify holding their shorts, but one thing is clear, downside momentum stalled and selling dried up.  We cannot sustain the rate of gains seen over the last few weeks indefinitely and a pause here is expected and healthy, not bearish.  Resist the seduction of  “too far, too fast” and learn to trust embrace an easy and highly profitable rally.

Alternate Outcome:
While the market looks good here, it is getting old and we need to prepare for the inevitable correction.  The higher these things go the harder they fall.  Signs we are running out of buyers is stalling short of recent highs and breaking support.  Until then stick with the rally.

Trading Plan:
As long as this market holds recent support at 1635 it remains buyable/holdable.  Shorter-term traders should use this as a trailing-stop.  More material support is back at 1600 and the 50dma.  Fail to hold either of these levels and the rally’s viability is in doubt.

TSLA at end of day

INDIVIDUAL STOCKS
AAPL lost ground, but is still above $440 and the 50dma.  It struggles finding buyers willing to push the stock higher, but these same buyers are willing to step in and prevent a further slide.  Support here is half-full/half-empty for bulls.  On one hand the stock is attracting value buyers willing to put a floor under $440, on the other it is attracting value buyers unwilling to buy above $440.  The increased dividend opens the stock up to a wider pool of income investors, but these buyers are notoriously price sensitive and will not push the price up the way growth investors do.  There is room to swing-trade this name, but the days of easy buy-and-hold gains are behind us.

GLD is stuck in the lower $130s as the supply of dip-buyers is drying up and new lows seem likely.  Everyone who wants Gold already has some and it will be a challenge to attract new buyers at current levels.

TSLA  annihilated shorts yet again.  The market can stay irrational longer than we can remain solvent and that is clearly the case here.  Climax tops reverse quickly and the sideways trade over the last couple weeks showed the top was not in yet.  At this point there is no trade because the only thing crazier than buying it at these levels is shorting it.

Plan your trade; trade your plan

AM: Another short squeeze

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:17 EDT

AM Update

MARKET BEHAVIOR
The market gapped higher at the open and continued up to 1674 before pulling back by midday.

MARKET SENTIMENT
Another obvious top ends in a short-squeeze.  When everyone says “this is it”, we know it isn’t.  The selloff stalling Thursday and Friday showed the next move was higher and a time for shorts to take profits, not initiate new shorts.  Wednesday’s frantic plunge on recycled headlines of QE ending never had a chance.  What everyone knows and is talking about is already priced in.  Once the initial knee-jerk selling ran its course, supply dried up, laying the foundation for today’s bounce.  This market will top at some point, but it won’t be for any of the reasons people are constantly talking about.

TRADING OPPORTUNITIES
Expected Outcome:
Most of the nervous jumped ship last week and shorts piled on the weakness.  All that selling took the excess supply out of the market.  Buyers stepping in front of the volatility demonstrated comfort holding here and are less likely to sell modest weakness or headline fear-mongering.  Their confidence and resolve will return stability to the market.  The selloff stalling on Thursday and Friday was the sign we could buy the dip and was a poor place to add shorts.

Alternate Outcome:
Today’s bounce could be nothing more than short-lived dip-buying prior to the next leg lower.  While it seems less likely, we must defend against it.  It is okay to be wrong, but it is fatal to stay wrong.  We found support at 1635 and breaking this level shows the selling is not done.  Every rally ends and so will this one.  Maybe we will see it coming, or maybe it will catch us by surprise, but stops will protect us either way.

Trading Plan:
Owning the market here with a stop under the recent dip to 1635 is reasonable trade given how the market is acting, but this rally is elderly and we need to watch for stalling.  Failing to make new highs shows buying is drying up and that could finally lead to the widely expected selloff.

INDIVIDUAL STOCKS
AAPL is down on a day when the market is higher, but the silver lining is it is still holding above the 50dma.  The other notable technical development is the 50dma is heading higher for the first time since the selloff began, showing near-term prices have stabilized around the $430 level.  Technical traders have stop-losses under the 50dma and $420.  Selling could pick up if we break either of these levels, but so far the stock remains a cautious buy.

LNKD and NFLX are struggling amid the market uncertainty.  Speculative stocks react to volatility and weakness far more than the market averages.  The rewards are huge, but so are the risks.  Everyone wants to hit home runs and hold the next monster stock for a 5x gains, but realistically we are better off taking profits after strong runs.

Plan your trade; trade your plan

AM: Sanity returns

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:58 EDT

AM Update

MARKET BEHAVIOR
Stocks opened modestly lower, but are stable as the selling is contained, at least for the moment.

MARKET SENTIMENT
The market is quite because no one is doing anything.  We ran out of new sellers, so we stopped falling.  Prospective buyers are nervous and staying on the sidelines.  And holders keep holding.  All that adds up to a flat market, but this is good given the size of the reversal a couple of days ago and the turmoil in Japan.

TRADING OPPORTUNITIES
Expected Outcome:
Spooked markets often succumbs to an emotional reaction of sell first, ask questions later.  The sideways trade over the last two days gives people the opportunity to evaluate conditions and make deliberate and rational decisions.  This is always good for market stability.  We could slip a little more before this is all done, but contained selling today and on Monday means the rally is still strong and the dip is buyable.  This turmoil is bullish because it flushed out many weak kneed traders, taking much of the supply out of the market.  Those that bought in the face of this drama are more confident and willing to hold through further weakness, ironically making further weakness less likely.

Alternate Outcome:
Dip buying can prop up a market for a couple of days, but without real money standing behind it, the slide will resume.  Remain cautious around this market for the next couple days, but if we don’t breakdown soon, the selling exhausted itself.  The next key to watch is how the market bounces.  Stalling short of the previous high shows the supply of buyers is drying up and is finally creating an interesting shorting opportunity.

Trading Plan:
Support above 1635 is encouraging and this stability is more conducive to a bounce than further selling.  We don’t always need to have trades on, so if someone is nervous, take a break and wait for the next trade.  It is easy to make money in the markets, the hard part is keeping it.  Staying out of the market when we don’t feel comfortable is one of the best ways to stop giving back our hard-earned profits.  A lot can happen over the weekend, but sanity is returning.  Buying with a stop under 1635 is an interesting entry for those with an itchy trigger finger.

LNKD daily at 1:04 EDT

INDIVIDUAL STOCKS
AAPL  continues holding the 50dma.  This is a positive change in character as holders keep holding and buying is coming from more than just speculative dip-buyers.  Personally I don’t think the bottom is in yet, but we trade what we are given and right now the stock is acting well.  But remember this is a trading stock now, so buy weakness and sell strength.

Recent volatility hit stocks like LNKD, AMZN, and NFLX.  It shouldn’t surprise anyone high-beta, speculative trades fall the most during market uncertainty.  Take profits and use stops to keep from giving back all those hard-earned gains.

Plan your trade; trade your plan

AM: Selling stalls

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:18 EDT

AM Update

MARKET BEHAVIOR
Stocks gapped lower at the open, but recovered a big chunk of the losses by midday.

MARKET SENTIMENT
The Japanese market was slaughtered 7% overnight, but most of the panic tapered by the open in New York.  It is encouraging to see our market find a floor following the impulsive rush of selling over the last 24-hours.  This pause gives holders a chance to assess the situation and decide if new information materially affected their economic outlook.

Yesterday’s selling was setoff by the Fed’s discussion of when and how to end monetary easing.  Just the mention of trimming easy money triggered a selloff from paranoid holders and aggressive bears.  But was this really news?  Hardly, and is why the market found a floor after fear-based selling exhausted itself.  Most owners already anticipate the end of QE and are holding based on the recovering economy, not money printing.  This did nothing to change their views on the economic recovery and once the panic induced selling ran its course, supply dried up and we found a bottom.

It is difficult to make money trading what everyone knows and expects because it is already priced in.  Without a doubt this bull will end at some point, but it will not be because of the reasons people are currently talking about.   An encouraging development for bulls is last 24-hours flushed the “QE-crash” crowd out of the market and this preemptive selling will make the eventual ending of QE less of a problem.  A couple more scares like this and the end of QE will be fully priced in and could actually be the start of the next leg higher as all the QE bears are forced to chase the market higher.

TRADING OPPORTUNITIES
Expected Outcome:
It is premature to say the weakness has ended and we could easily return to 1600.  We came a long way over the last month and a consolidation here is expected, healthy, and part of a sustainable continuation.  We could see more volatility in coming days, but as long as we hold 1600, the rally is still alive and well.  We didn’t learn anything new yesterday and anxious traders were simply looking for an excuse to sell.  Now the rally is in the hands of more deliberate and thoughtful holders. If they still believe in the economic recovery, expect them to continue holding and the rally will resume on this tight supply.

Alternate Outcome:
The best way to know this market is breaking down is to see it actually breakdown.  We could see a couple more days of selling, but  every dip has been buyable and we should assume this one is too.  We need to see a series of lower-highs and lower-lows before we can say this rally is ending.

Trading Plan:
The rally remains intact, but there is no reason we need to sit through this volatility.  We are in this to make money and can only do that by selling our winners.  If anyone feels uneasy, take some profits and wait for the next trade.  We violated trailing stops at 1650 and those defensive tools only work if we use them.  Maybe this was only a 24-hour selloff and we were shaken out unnecessarily, but I would rather be out of the market wishing I was in, than in the market wishing I was out.  Longer-term holders can keep stops at 1600, but they have more money at risk if this selloff continues.  Reclaiming 1670 over the next couple days shows this was a false alarm, but be highly suspicious if we stall and cannot make new highs.

AAPL daily at 1:18 EDT

INDIVIDUAL STOCKS
AAPL continues holding the 50dma and shows a larger group of buyers is willing to step in and defend the stock.  Previous rebound attempts failed quickly and this stability shows a shifting character.  There are many headwinds in front of this stock, but it is acting like it wants to go higher in the near-term.  As always, protect yourself with a stop under the 50dma.

GLD found a bid after the dramatic events over the last 24-hours, but look for the price to sag when calm and complacency returns in coming days.

Plan your trade; trade your plan

PM: Is this the obvious top?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
One of the most interesting days in quite some time.  We made new highs following Bernanke’s remarks to Congress, but came crashing down following the release of the latest Fed minutes.  Volume was well above average and the highest since April’s dip to the 50dma.

MARKET SENTIMENT
Did we learn anything new today?  Bernanke and the Fed minutes confirmed easy money would continue, but not last forever.  Did this really surprise everyone enough to justify a 2% intraday reversal???  This was not the first time Fed members discussed ending monetary easing, but nervous traders were looking for an excuse to dump and short shares as modest selling swelled into a stampede.

TRADING OPPORTUNITIES
Expected Outcome:
We came a long way from April’s test of the 50dma and pullbacks are part of every advance.  Will this be a one-day dip before finding support?  Will we bounce off of 1600?  Or is this the end of good times and we are on the verge of a bear market?

Bear markets happen when reality is worse than expected, but this rally is based on reality being better than expected.  There is a fair amount of bearishness already priced in so don’t expect a major crash any time soon.  The global economy is weak, but improving and even though we’ve seen dramatic gains, we are a long way from euphoric highs.  Most of these gains are recovering from over-bearishness and returning to normal levels.

To trigger a moderate correction, we need a new and unexpected risk.  The Fed has always discussed ending monetary easing, so major selling on what is know and widely expected is unlikely.  Selling can always beget selling, but that simply presents us with another buying opportunity.  Someone else’s loss is our gain.

Alternate Outcome:
Every bear begins with one down day and this could be that day.  We will assume the rally remains intact until proven otherwise, but it is prudent to trade defensively after such a strong rally.

Trading Plan:
No matter which way this market breaks, expect a near-term bounce.  Maybe it will happen at 1650 or 1600, but this market will bounce.  The bigger question is if we rebound to new highs, or the bounce fizzles and we continue lower.  Cautious traders can sell proactively.  Optimistic traders can hold as long as their trailing stops don’t get triggered.  We have no idea how far this weakness will go, so the easy solution is to take our profits and wait for the next trade.  It is possible for a nimble day or swing-trader to snag some short profits with a stop above recent highs, but be prepared for a near-term bounce and take worthwhile profits.

Plan your trade; trade your plan

AM: Easy money keeps flowing

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:14 EDT

AM Update

MARKET BEHAVIOR
A volatile morning following Bernanke’s testimony before Congress.  A 20-point surge followed by a 15-point selloff and then a 10-point rebound.

MARKET SENTIMENT
Trade is calming down by midday, but we are clearly higher as the market liked what Bernanke said.  Easy money keeps flowing and equity investors continue buying.  There is this widely held view that easy money means stocks continue higher, but everyone is also waiting for the other shoe to drop when the Fed finally withdraws monetary stimulus.  Most expect this to end the rally.  While the logic makes a lot of sense, the majority is rarely right in the markets.  If the crowd expects us to tank when Bernanke takes away the punchbowl, it will likely do something else.  Our job as traders is to figure out what that will be.

The least expected outcome is continue strength after the Fed stops printing money and interest rates return to normal levels.  Since everyone expects the selloff, it is already priced in and will be a nonissue.  The offset is he will only do this when the economy is strong enough to stand on its own and revenues and earnings will justify higher levels.  The US will likely be the first to fully recover and end easy money policy, strengthening the US Dollar.  This is bad for US-based manufacturers, but good for consumers and companies that produce goods overseas, so plan your trades accordingly.

The other alternative is the markets collapse before Bernanke turns off the spigot.  He has zero control over the equities market and we are only headed higher because equity investors believe in the Fed.  In this instance perception is reality.  This could end one of two ways.  The first we run out of equity buyers willing to buy these levels and the market naturally rolls over due to lack of demand.  Major tops occur when everyone expects the good times to continue.  That was the case in 2000 and 2007; it will also be the case leading up to the next bear market.  The alternative is investors pullback the curtain and realize Bernanke is not as powerful as we are giving him credit for.  Stocks only rally on easy money because equity investors convinced themselves it should be so.  At some point the spell will break and selling will cascade as everyone rushes for the exit as the same time.  Nothing can stop herd buying and nothing can stop herd selling.  Just ask a longtime AAPL holder.

I have no idea what will happen, but I do know what everyone expects is the least likely outcome because it is already priced in.  To profit we need to see what other people don’t.  My guess is we will see a little of both.  A twenty-percent selloff in coming quarters that rebounds after Bernanke finally ends easy money.  Sell the rumor, buy the news.

TRADING OPPORTUNITIES
Expected Outcome:
There are a million reasons the market should top here, but it keeps going and we must respect that.  We don’t profit from the truth or common sense, we profit from price.  As long as the price continues higher, there is only one trade to make.

Alternate Outcome:
What goes up must come down.  The higher we go, the harder we fall.  Yada, yada, yada.  We all know this market will rollover at some point, but all the money is made figuring out when.  This market needs to fall a whopping 140-points before we can make a lower-low and threaten the viability of the up-trend.  We came a long way in a short amount of time, caution is prudent, even required, but calling this a top is clearly premature.  We will go down at some point but the market will reveal its intentions through weakening price-action first.

Trading Plan:
Stick with what is working.  An optimist should keep a trailing stop at 1650 to protect recent gains.  The nervous can sell proactively and wait for the next high-probability trade.  Please don’t short this market because its “gone too far”.  We heard that the last 200-points and while the short will eventually be right, early is the same thing as wrong.  A day-trader could short weakness, but take profits quickly because we must assume every dip will bounce until we see clear signs the market’s character is changing.

GLD daily at 1:14 EDT

INDIVIDUAL STOCKS
AAPL is treading water above the 50dma.  Seeing buyers defend this level is encouraging and we actually have a chance at ending the streak of lower-highs.  I still believe sentiment is too bullish, but recent strength is setting up for a swing-trade.  Use the 50dma as a stop-loss and take profits shortly after the stock clears $465.  The buy and hold story behind AAPL is dead and the best way to make money on AAPL is swing-trading.  The big negative catalyst will be a warmed over iPhone5s.  If AAPL has something cool, they are going to release it to reclaim their reputation as a pioneer and innovator.  If we get more of the same, expect the stock to continue its slide as it loses market share to Android devices.  MSFT was flat for a decade with an impenetrable monopoly and strong pricing power.  What will happen to AAPL as its market share falls to single digits and profit margins come in?

GLD surged on Bernanke’s comments, but has given up most of those gains.  Like AAPL, GLD is a crowded trade and everyone who wants some already has some. meaning there is no one left to buy.  At some point the dip buying will dry up and we will see new lows.

Plan your trade; trade your plan

PM: Yet another new high

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks closed above 1665 for the third time in a row as buyers keep buying and holders keep holding.  Volume was slightly above average as we support record highs.

MARKET SENTIMENT
As “overvalued” and “over-bought” as this market is supposed to be, it sure isn’t acting like it.  Most people know prices rise on strong demand, but they also rise on tight supply.  Many are afraid of this market but we keep pushing to new highs because current holders don’t want to sell and that keeps supply scarce.  Under those conditions we don’t need a lot of demand to continue rallying.

Fiscal Cliff, Sequester, Cyprus, Socialists in Italy, weak hiring, and all the rest were reasons this market was going to collapse.  Everyone knew it was a dangerous and they stood on the sidelines waiting for the inevitable crash.  Yet here we are at all time highs.  What happened?  Why was everyone so wrong?  The market fully priced in these risks and when events turned out less bad than feared, the market rallied strongly in relief.  One of the most difficult things to do is ignore what everyone else is concerned about, but clearly that was the right trade this year.

TRADING OPPORTUNITIES
Expected Outcome:
No one knows where this is going.  I was bullish since the November lows, but this rally easily beat my wildest expectations by over 100-points.  Successful traders recognize their mistakes and adapt to the market we are given.  It is okay to be wrong, it is fatal to stay wrong.  No matter what we think, the trend remains higher and is the only trade to make here.

Alternate Outcome:
I have no idea how long this rally will last.  It’s been a painfully easy rally to ride, but at some point the music will stop and we don’t want to be left holding the bag when that happens.  Given the speed of recent gains and breaking above the upper trend-line, we need to be increasingly alert for a pullback.  There is a difference between a modest pause that refreshes and one that starts a major correction.  We have key support levels to watch and trade, but until we violate them, assume every dip is buyable.

Trading Plan:
Holding 1665 through Wednesday shows buyers believe in this market and new-high profit-taking is winding down.  Medium demand and tight supply equal higher prices.  Baring a stumble on Wednesday, that is where we are headed.  There is no reason we need to be in this market and locking in gains is a prudent move given the strength of recent gains, but shorting remains a fool’s game as this market shows no signs of letting up or breaking down.  Key support is way back at 1600, but the defensive optimist will move his stop up to 1650.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL closed modestly in the red following Cook’s grilling on Capitol Hill.  No fundamental news was revealed during the hearings and this was just an excuse for the cautious and bearish to sell stock.  Completely unrelated to this appearance, all the calls for Cook’s head are ridiculous.  Cook is running a great company with strong revenues and historic earnings.  What more can we ask of a CEO?  He has zero control over the popularity contest also known as the stock market.  Steve Jobs was a great visionary, but most people unrealistically view him as a superhero.  They think AAPL would be $1000 if Jobs were still a the helm and inventing the next must have device, but what most forget is innovation was already drying up under Jobs tenure.

The brilliant and groundbreaking decision was a building the iPod.  From there everything has been evolutionary.  The iPod’s dominance was threatened by phones with built-in MP3 players, so in reality the iPhone was a defensive product.  The genius came from ditching a keyboard and buttons to maximize screen space for web surfing.  The next great idea was the App Store, but that was driven by hackers who were jail-breaking early iPhones.  Jobs fought stubbornly to lock down the iPhone for as long as he could, but his eventually giving into the hackers is one of the best things that happened to the iPhone because it made it a truly useful and must have device.  That was in 2008 and since then everything out of Apple has been incremental and easily predictable.  The iPad is just a large iPhone, without the phone, and the iPad Mini is just a smaller iPad.  iTV and iWatch will never be more than niche products because they lack the innovative and utility break thoughts that made the iPod and iPhone sensational and fabulously successful products.    Even though the stock prices climbed through 2012, the innovation at Apple peaked under Steve Jobs back in 2008.

Cook is a great CEO and he is not responsible for the stock’s price decline.  Even Jobs would have been helpless to prevent the euphoric run-up and subsequent selloff.  That’s the way crowds work and is not a reason to remove a perfectly competent CEO.

Plan your trade; trade your plan

AM: Holding near highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

MARKET BEHAVIOR
Stocks are holding recent highs for a third day as the improbable rally keeps defying skeptics.

MARKET SENTIMENT
When markets run out of buyers, prices collapse fairly quickly.  Holding these levels for multiple days shows a large number of investors remain willing buy these new highs.  Just as important, holders continue holding, keeping supply out of the market.  The rate of gains makes people nervous, but this cautiousness is why this rally has been sustainable.  As long as buyers and holders remain comfortable up here, expect the uptrend to continue.

TRADING OPPORTUNITIES
Expected Outcome:
Stay cautious, but holding these levels through Wednesday shows demand is strong and the next move is likely higher.  It is late in the move to be rushing in because the chances of a pullback are elevated, but the risks decline the longer we hold near these highs.  A strong afternoon on Wednesday presents a buying opportunity.

Alternate Outcome:
While every dip has been buyable thus far, we have a date with a dip that should be sold, not bought.  No one knows when that will be, but it is coming and we need to remain vigilant when everyone else becomes complacent.  Disciplined uses of stops will keep us out of trouble.  The harder question is when the market becomes shortable and now is clearly not that time.

Trading Plan:
Stick with what is working.  1650 is a decent trailing-stop.  If a traders sold into strength or missed this rally, a small consolidation here presents an interesting entry point. Buying this late in the move brings larger risks with it, but there is no such thing as a safe trade in the equities market and our long-term success depends on prudent risk management.     New money or old profits, both traders need to be increasingly cautious and nimble.  While the trend is higher, we cannot let the market take back our hard earned profits.

LNKD daily at 1:23 EDT

INDIVIDUAL STOCKS
AAPL is finding a bid at the 50dma for a second straight day and shows recent selling exhausted itself, at least temporarily.  The level to watch is $466, where the previous rebound failed.  The market typically moves in waves, so the recent weakness was expected.  The harder question to answer is if the selloff is over and the stock is finally buyable or if this strength is one last chance to get out before the next leg lower.  A stop at the 50dma is prudent risk management and would have saved many traders a lot of money over the last seven months.  It is better to be out of the market wishing you were in, than in the market wishing you were out.  We can trade the expected bounce, but there is no excuse for sitting through another $70 decline.

GLD gave back half of yesterday’s short-squeeze as the volatile, speculative trade continues.  The recent plunge did a lot of psychological damage and it is hard to say if the selloff is done since Gold lost its credibility as conservative hedge against volatility.

LNKD  continues finding support above the 50dma and makes a better buy than short.  There is no reason we need to own this speculative stock, but it is suicidal to short it.

Plan your trade; trade your plan

PM: One point selloff

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks failed to hold early gains and slipped a single point.  Volume was lower than recent days and this looks more like rest after a strong run than anything we should be concerned about.  We cannot go up every day and given the hot streak,  a one-point giveback is not a big deal.

MARKET SENTIMENT
The bounce that should have died in January continues setting all kinds of records.  It is hard to avoid commentary on how rare this rally’s performance is in historical context.  But that shows people are still looking for excuses to distrust this rally.  As long as suspicion remains high, look for the rally to continue.

The “sell in May” folks are running out of time and are 70-points in the hole.  Without a doubt we could give all that back in the next 10-days, but so far 2013’s “buy in May” is one for the record books.  But there is always next month.  Maybe it will be “Sell in June and go to the Moon”.  That sounds catchy.  Of course I better not joke about it lest people start repeating and believing in it.  Never forget we trade people, not calendars, rhymes, or Wall Street folklore.

TRADING OPPORTUNITIES
Expected Outcome:
Stay on the winning side of this market, but transition from offense to defense.  We are in this to make money and that is best done by locking in profits when everyone else is dreaming of bigger gains.  Either sell proactively or tighten up our trailing-stop to ensure we protect our hard-earned profits.  Too often I hear traders talk about profits like they are less valuable than initial investment.  The only reason we put ourselves through this brain damage is to capture profits, don’t let them slip away.

Alternate Outcome:
Every correction begins with one down-day.  While this might not be that day, we need to keep a lookout because that day is coming.  The eventual top will likely sneak up on us when everyone writes it off as another normal rest day following a hot streak.

Trading Plan:
Look for opportunities to lock-in profits, either by selling proactively, or using a trailing-stop.  We have major support back at 1600, but waiting that long would give back a big chunk of our profits.  Instead defend minor support under 1650.  We stand a greater chance at getting shaken out in a routine pullback by using a closer stop, but our main focus is shifting to defense after such a strong move.  We will shift back to profits when this move ends and we come across the next attractive setup.

TSLA daily at end of day

INDIVIDUAL STOCKS
AAPL had a good day and recovered the 50dma.  Holding this level shows big money is potentially supporting this stock after many months of selling it as fast as they could.  But if we fail to hold the 50dma, it indicates this rebound is built on nothing more than the hope and prayers of stubborn bulls.  These diehards have not been able to defend the stock over the last $300 and will continue losing this battle if they don’t get help from deeper pocketed investors.

GLD had a huge rebound as this boring, safe, commodity is keeping conservative investors up at night.  The obvious short ended in a massive short-squeeze today.  The time to short was earlier in the move and the retest of $130 was the time to take profits.  Look for volatility to continue and the best trade remains buying weakness and selling strength.  For the time being the down-trend remains intact and look for dip-buyers to sell in droves when the stock breaks $130.

TSLA is hanging in there after the secondary offering.  Climax tops often end in a spike higher.  Holding these levels for a few days means the top might not be in and this is remains a dangerous, even suicidal short.  This thing will breakdown at some point, but as long a buyers keep buying the $80s, stay away.

Plan your trade; trade your plan

AM: The chase continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:46 EDT

AM Update

MARKET BEHAVIOR
What cannot go any higher keeps going higher as we broke through 1670 in early trade.  The market finished in the red just four times in the last 21-trading sessions.

MARKET SENTIMENT
These things go longer and further than anyone thinks possible and is exactly what happened here.  Everyone is afraid to touch this market, yet it keeps going higher.  It defies all conventional logic, but it is a mistake applying common sense to this, or any, market.  If intuition worked, anyone could make a million dollars doing this and we already know that’s not the case.

The problem with commons sense and conventional wisdom is it is already priced in.  When everyone expects one thing, most often the opposite happens.  This isn’t because the market is irrational or vindictive, but because how everyone is already positioned.  If everyone is afraid of this market, they are already out, meaning all the selling is behind us.  When the selling dries up, supply becomes tight and there is nowhere to go but higher, often on light volume.

Do not mistake price for sentiment.  Never assume high prices mean overly-bullish and low prices mean overly-bearish.  This market keeps going higher because it is overly-bearish and AAPL keeps falling because it is overly-bullish.  Price doesn’t matter, only what other people think.  Common sentiment is this market is dangerous and AAPL is a generational buy, but both have been the exact wrong call.  At some point this market will stall out and some day AAPL will stop falling, but they go further and longer than anyone thinks possible first.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with the market here.  It clearly wants to go higher in spite of everyone’s reservations and the most foolish thing is to get in its way.  Given the recent run from 1530 we need to be increasingly defensive.  Locking in gains after such a strong run is a perfectly legitimate decision.  We are in this game to make money and we can only do that by selling our winners.  Another strategy is moving up our trailing-stop and seeing how far this goes.  Clearly the chase is on and this strength could continue for days or weeks.

Alternate Outcome:
The rate of gains has accelerated and we broke the upper trend line, behaviors often seen prior to a top.  This rally will end like everyone that came before it, the only question is when.  Thinking about what the market should do is costing people a lot of money.  It doesn’t matter how far or how fast we came or what the economics or fundamentals are, this market wants to rally and anyone using these conventional measures has been dead wrong.  There is no reason we need to believe in this market, but we must wait for real signs of breaking down before we trade against the trend.

Trading Plan:
Start harvesting profits or move trailing-stops up to 1650.  It’s been a great ride, but we need to be ready for the inevitable counteraction to this strong move higher.  While these gains are nice, they cannot last forever.  The next move will either  consolidate recent gains, pullback to the lower trend line, or start a real correction.  We need to be ready for it, harvest our profits, and prepare for the next move.

GLD daily at 1:22 EDT

INDIVIDUAL STOCKS
AAPL recovered the 50dma, leaving us wondering what is real, the breakdown or the rebound.  Buyers supporting the stock around $420 is encouraging, but we still have not seen a higher-high our of this stock since it peaked back in September.  Until then assume the down-trend is still intact.

GLD bounced off recent lows and much like AAPL we are left wondering which trend to trade, the long-established downtrend, or the weeks old rebound.  When in doubt stick with the larger trend.  Even if GLD is finding a bottom here, it sustained a lot of damage in the recent selloff and lost its halo of safety.  It will take a while before large groups of investors learn to trust this shiny metal again.

Plan your trade; trade your plan

PM: How high can we go?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

AM Update

MARKET BEHAVIOR
The market’s run continues for another day.

MARKET SENTIMENT
We are well beyond what anyone thought possible, yet the market keeps going.  It is tempting to say this is “too far”, but people have said that for months.  What makes this time different?

A large chunk of the buying is bears getting blown out and forced to buy back their shorts.  Big money hates buying breakouts and new highs, so they are likely sitting on their hands, waiting for the inevitable pullback.  Everyone knows the rate of gains cannot continue at this pace, so either we dip or consolidate.  But dip is relative, pulling back to 1600 is still supportive of this rally.

The world is getting better, not worse, so those predicting a market crash are on the wrong side.  Everyone says this market is overly bullish, but overly bullish markets top and come down, not rally sustainably like this one.  Truth is bearishness and worry was institutionalized following the 2008 meltdown and ever since traders have been afraid of their shadow.  Traders are not overly bullish, just less bearish.  While this market is due for a five or ten percent pullback, we are in a secular bull market and there is plenty of upside left in coming years.

TRADING OPPORTUNITIES
Expected Outcome:
Dangerous to fight this market, but it is increasingly dangerous to own it too.  I prefer selling into strength and tend to get out early, but that is just my style and strategy   Another viable approach is following this market  with a trailing stop.  Remember the risks are greater at higher prices, so don’t let recent gains lull us into inaction.  Too often people treat profits differently, but profits are real money and we need to protect those with the same vigor as our initial investment.  We are in this to make money and can only do that when we guard our profits.

Alternate Outcome:
This market keeps going and widespread doubt is fueling each move higher.  No one believes in this rally and is underweight.  Even bulls are taking profits this recent run.  And aggressive bears are actively shorting.  With all that selling already behind us, there is clear sailing in front.  This market will correct, but only after everyone stops fearing it.

Trading Plan
Protect recent gains.  Either sell into this strength or use a trailing stop to guard profits.  A pullback to 1600 is normal, healthy, and should not be feared.  In fact we should be more concerned if the market does not pullback because the inevitable correction will be longer and deeper.  Until we break 1600, assume every dip is buyable, but always use hard stops to protect us in case we are wrong.

INDIVIDUAL STOCKS
Rabid AAPL bulls are having a bad day as the obvious recovery is not so obvious anymore.  We knew the rate of gains were unsustainable and a test of the 50dma was inevitable.  Today we tested and broke through this widely followed moving average as buyers keep their distance.  The lack of dip-buyers is a big concern for the viability of this bounce.  For this stock to make a real recovery we need big money to support the stock and so far they are MIA.  Any disciplined trader needs a hard stop-loss to prevent riding this stock even lower.  The trend remains lower and expect new lows if big buyers don’t show up and save the stock soon.

GLD daily at 1:16 EDT

GLD is having the same problems as AAPL and for many of the same reasons.  The obvious bounce is not so obvious and many dip-buyers are on the verge of slipping into the red.  Expect selling to accelerate as uncommitted dip-buyers flee when the market turns up the heat.

GOOG is the new tech darling and is where former AAPL investors are moving their money.  Smart money has been selling AAPL and buying GOOG.  Do they know something we don’t?  GOOG is also taking the innovation crown from AAPL and look for the gap to widen through the year as AAPL milks their existing products and GOOG explores new opportunities.

NFLX is squeezing bears yet again at is pushes toward $250.  Fundamentals don’t matter in momentum stocks and cynical bears are giving a lot of money to NFLX bulls.  What cannot go any higher keeps going higher.  I’m not a fan of buying NFLX after the recent surge, but I sure wouldn’t short it.

Plan your trade; trade your plan

PM: Don’t look down

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks broke through the 1630 ceiling and finished at 1650.  Volume was only average, but quicker than recent days.

MARKET SENTIMENT
There are two kinds of traders in this market, those afraid of heights and those that don’t look down.  It is easy to claim this won’t end well, but people have been saying that for months, yet we keep going higher.  This has been the most trustworthy market that no one trusts.  Only after everyone believes in this thing will we finally exhaust the supply of buyers.

TRADING OPPORTUNITIES
Expected Outcome:
We are about to find out how far we can come in a month’s time.  So far we are 114- points above April’s low set less than a month ago.  A dip to 1600 is in order, but that doesn’t mean it will happen.  I am reluctant to buy here and it seems like a decent time to lock-in profits.

Alternate Outcome:
This rally will end at some point and the strong gains bring us closer to that day.  A five or ten percent pullback is normal, healthy, and expected, but if this market continues higher without pausing, the resulting correction gets bigger.  Strength into the fall means the next correction could lead to a bear market.  The higher they go, the harder they fall.

Trading Plan:
Locking in profits here is not a bad idea.  We are in this to make money and can only do that by selling our winners, often when we least want to.  The most confident can move their stops up to 1620 and see what happens next.  The most meaningful level of support is 1600; until we violate that, assume any weakness will bounce.   A day-trader should look for a possible pullback and take a quick ride lower, but this is only for the most nimble and experienced

TSLA at end of day

INDIVIDUAL STOCKS
Horrible day for AAPL.  I find the midday plunge under $450 concerning.  This was obviously stop-losses getting triggered, but more significant than the few dollar loss is it shows many longs are not committed and simply trading the rebound.  This stock will only recover if it finds institutional sponsorship that doesn’t waver in the face of day-to-day volatility.  If it firms up and regains the $450 level, this was a false alarm, but if selling continues, it shows this bounce will end like all the others.

LNKD recovered the 50dma on huge volume.  As long as the broad market holds up, the stock is buyable.  NFLX ripped to the upside and continues proving bears wrong.  Same goes for AMZN as it recovered the 50dma after a brief flirtation with the 200dma.  Hopefully shorts got out when it failed to breakdown.  It is okay to be wrong, but fatal to stay wrong.  What can we say about TSLA, except wow.  If this isn’t a climax top, I don’t know what one is.

Plan your trade; trade your plan

AM: Another leg higher

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:19 EDT

AM Update

MARKET BEHAVIOR
Stocks surged to new highs as the breakout continues without the widely anticipated pullback.

MARKET SENTIMENT
There is no obvious news justifying today’s 15-point jump, but here we are.  As we know, fundamentals and technicals don’t drive markets, people do, and right now they are chasing this market with reckless abandon.  It isn’t because they love this market, but because they are afraid of being left behind.  The huge pool of cynics and pessimists is fueling us higher as the market’s resilience forces them to change their minds.

The only thing that moves markets is buying and selling.  Most of the cautious and bearish sold weeks, even months ago.  There is little selling pressure left, but more than that, these pessimists are the next round of buyers.  Everyone is dumbfounded by this market because it isn’t behaving the way they expect, but once you understand what everyone thinks, how they are positioned, and what moves are available to them, this rally makes perfect sense.

Source: Yahoo Finance 5/14/2013

According to another poll on Yahoo Finance, pessimism is waning as traders start embracing this rally.  Over the last couple of weeks I posted surveys showing only 15% believed in the economic recovery and over 60% expected a pullback.  Today’s traders are more evenly split between those afraid of this market and those expecting higher prices.  This dramatic shift in sentiment is where all the new buying is coming from, but when everyone embraces this market is when we need to be the most nervous.  I’m not saying we are at extremes yet, but we need to be increasingly cautious and not get caught up in the euphoria.

We continue rallying because the pessimists have been wrong about the US economy, Europe, China, and everything else they were afraid of.  Embrace fearful markets and fear complacent ones.  Many will claim this is a complacent market, but they are mistaking price gains with sentiment.  This market is still extremely cautious and reluctant to embrace recent highs.  We will see pullbacks, corrections, and bears  along the way, but secular bear is dead and we are already well into the next secular bull market.

TRADING OPPORTUNITIES
Expected Outcome:
There is a good amount of chasing going on today between short covering and former pessimists buying the rally.  The easiest and best money is made early in a move when doubt and cynicism are highest.  After running over 100-points in just a couple of weeks, this is a better place to sell than initiating new positions.  Traders buying here are a bit late to the party.  That doesn’t mean we will pullback, but the risks are higher after such a strong move.

Alternate Outcome:
Sentiment is shifting as fear of this market is replaced by fear of being left behind.  This rally will top and pullback because every market does, the only questions are when and how much.  Clearly we don’t want to get in the way of this freight train, but we need to continue watching for sings of slowing buying.

Trading Plan:
The optimistic, but disciplined trader should move their stop up to recent support at 1620.  The cautious trader could sell into strength and lock-in profits.  Obviously the rate of gains cannot continue indefinitely and we are in this to make money.  The only way we can do this is selling our winners.  Sell when we don’t want to sell and buy when we don’t want to buy.

GLD daily at 1:19 EDT

INDIVIDUAL STOCKS
AAPL and GLD are not sharing in the market’s success today.  Both are struggling to find follow-on buying after impressive bounces.  While it is hard to compare a tech company to a commodity because they are so different, the people trading them think the same.  Both suffered from extremely harsh selloffs and represented irresistible values to dip-buyers.  While the rebounds made for quick profits, both struggle to attract a wider audience needed to continue the price gains.  AAPL will likely retest the 50dma at $440.  If big money believes in this company again, this is where they will step in and buy.  Failing to find support means everyone who wants AAPL already owns it and there is nowhere to go but lower.  GLD is destined to retest $130 for all the same reasons.

Plan your trade; trade your plan

AM: No cracks yet

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:26 EDT

AM Update

MARKET BEHAVIOR
Stocks opened weak, but recovered losses by midday.  Rallying markets often see early weakness followed by late strength and that is the case in recent weeks.

MARKET SENTIMENT
This market continues proving the doubters wrong.  Even bulls expect near-term weakness, but we keep marching higher.  Anyone waiting to buy the dip, or worse short this market, is frustrated by its resilience.

Markets are efficient when we have diversity and independence of opinion, but lately everyone is falling into the “too-far, too-long” camp.  Common sense says the market should do what everyone thinks since it is a direct function of the crowd’s view and outlook.  While that is true, it overlooks the simple fact the crowd already influenced current prices.  Bears and cynics sold, but their selling was unable to slow this bull down.  There is nowhere to go but higher once this cautious and pessimistic selling exhaust itself, and that is exactly what we’ve seen.  Understand what people think and how they are positioned and all of a sudden this ‘irrational’ market starts making a lot more sense.

TRADING OPPORTUNITIES
Expected Outcome:
Why stop what working?  We are halfway through May and the worst trade has been “sell in May”.  We are over 50-points above the May 1st close and while May could still end lower, a trend is always more likely to continue than reverse.    This move is further proof that we can safely ignore what everyone is talking about because it is already priced in.

Alternate Outcome:
While it’s been a nice ride, it will come to an end at some point.  Obviously it is suicidal to argue with this market, but we need to keep an eye out for stalling and a change in momentum.  1600 is now the level to watch.  While breaking 1600 is not bearish by itself,  it is a good level to lock in profits and become more cautious.  We can always buy back in if the market bounces.

Trading Plan:
As long as we remain above 1600, we have the green light to hold stocks.  The market ran a bit in recent weeks and it is riskier to initiate new positions since we are vulnerable to a modest dip.  But as long as we give our new position a little more slack, we can buy here.  If someone wants to wait for the pullback, that is not a bad call either.  I doubt this is the last time we will see 1630 even if we continue higher over coming days and weeks.  Healthy  markets always check back to support periodically and it is simply an exercise in patience.  1600 is a good place for a trailing stop and a dip under this level will make us more defensive.  The market could bounce at this level and that becomes our invitation to buy back in.

INDIVIDUAL STOCKS
AAPL is still holding above $450 as buyers are willing to support the stock at these levels.  This is the sixth-day at these levels and shows uncharacteristic strength since the 2012 highs.  This bounce wants to stick around for a while, but that doesn’t mean the selloff is finished.  A 40% correction in the world’s most owned stock is not the same thing as a 40% dip in a high-growth, small-cap stock.  At best AAPL will trade sideways for the next year and we should buy weakness and sell strength.  Buy and hold investors will recover some of their losses but will ultimately be disappointed by the lack of sustained gains.

GLD is stuck under $140, but given Friday’s selloff, holding these levels is encouraging.  Another few days here is building support and reducing the risk of another crash lower, but I would resist the urge to buy until we see the support.  The trade will likely remain volatile as speculators game the commodity.

Plan your trade; trade your plan

PM: Nice recovery

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks recovered much of yesterday’s selloff thanks to a surge into the close.  Volume was light, but most of this rally has been ‘suspiciously’ light and so far it worked out, so we shouldn’t read too much into it.

MARKET SENTIMENT
Buyers won’t allow much weakness to develop before they swoop in and buy a dip.  Anymore ten-points is a buyable as anxious, big-money feels the heat from missing this rally.  Here is an interesting article from Yahoo Finance discussing how upset the hedge fund community is with Bernanke and his easy money policy.  You’d think a rising market would  have these guys gushing with praise, but “smart” money missed this rally and their pessimism is making them look downright foolish. They blame Bernanke for their struggles because obviously the guy in the mirror had nothing to do with it.

Everyone insists this market is overly-bullish, yet there is little data backing this up.  There are the grossly bearish surveys I shared earlier in the week, and now we have these grumpy hedge fund managers who are humiliated by their underperformance.  Everyone assumes this market is rising because it is so bullish, but they have it completely backwards   This market is rallying because everyone is bearish!  We need new buyers to push prices higher and there is no disputing this market keeps going higher.  No matter what anyone says this market found an endless supply of new money and we are anything but overly-bullish.

The easy answer people throw out is Ben is inflating stocks, but I bet most of these accusers cannot explain how he is doing it.  They simply repeat what

S&P500 daily at end of day

the talking heads say on TV say or the guy in their coffee club told them.  Ben is buying bonds and bonds have never been higher.  People don’t sell things that keep going up and any outflows from bonds have been relatively modest.  Falling prices will drive bond holders to stocks but so far bonds have done nothing but go up.  There is some chase for yield, but that is a fairly modest phenomenon.  The simple truth is stocks continue rising because all the pessimistic bears have been dead wrong on all accounts and they continue being wrong.  Double dip, Euro Contagion,  Debt Ceiling, Sequester, you name it, the bears got every single thing wrong and the market continues higher because the real world is far better than people make it out to be.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  We could see a near term dip to 1600, but buyers’ ferocious appetite for dips might prevent us from retesting this level.  As long as we hold 1600, the rally is alive and kicking.

Alternate Outcome:
At some point he cynics will be right and we all know this market cannot go up forever.  Look for a series of lower-highs and lower-lows to signal demand is drying up.

Trading Plan:
We can hold this market as long as it remains above 1600.  A dip under this level makes us more cautious and we should raise cash, but any bounce should be bought.  So far this market is only getting stronger in May and this could be the start of the first robust summer in over five years.  Failing to hold the 50dma is when we start getting nervous.

INDIVIDUAL STOCKS
AAPL didn’t see the same late day rebound as the rest of the market and finished near the day’s lows.  There are few traders more arrogant than AAPL bulls and is why I still think we have not seen the final purge in this stock.  We are remain above the 50dma and it is holdable here, but everyone should keep this on a tight leash because breaking the 50dma will likely set off a wave of stop-loss selling and shorting, pushing it to new lows.  Of course finding support from big money at the 50dma means we have a near-term bottom and it is setting up for a nice swing-trade.  The next negative catalyst is the release of a warmed over iPhone5s.  If this phone fails to impress, look for sellers to punish the lack of innovation.

GLD reclaimed most of the gap lower, but watch for support at $140 to turn into resistance.  If Gold cannot reclaim this level, look for lower prices in the near future.

Plan your trade; trade your plan

AM: Rest day part 2

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update

MARKET BEHAVIOR
Stocks are flat following yesterday’s modest dip.

MARKET SENTIMENT
There are plenty of risks out there, leaving many afraid of this market, but are these fears justified?  Lets look back over the last four-years to see how those fears turned out.  First there was complete and total financial collapse followed by a global depression.  Next was a double-dip recession.  We had Greece’s implosion and Euro contagion.  China’s hard landing.  Runaway inflation.  Several debt ceiling scares.  Obamacare followed by Obama’s reelection.   These were easily the scariest four-years in a generation, yet it was one of the best four-year stretches in market history.  How does that happen?

Some will say I am selective with my data, only going back to a generational low in the market, but what if we roll it back a couple more years?  In 2007 everything was great and few were worried.  We recovered nicely from the dot-com bubble and everyone was making money in real estate.  In late 2007 we were on the verge of one of the worst bear markets in history as the housing bubble was about to pop and take the global financial system down with it.  There were few times where risks were greater, but did anyone see it coming?  Was anyone afraid?   In the Fall of 2007, how many knew what Mortgage Backed Securities and Credit Default Swaps were, let alone sounding the alarm about them?  These risks were not simply missing from the financial news and coffee shops, but most of the pros on Wall Street didn’t have a clue either.  (The handful that actually saw it coming made ungodly amounts of money.)

We had some of the most extreme moves in market history and they were the exact the opposite of what the crowd feared.  The crowd’s fears are already priced in the market.  If people are promoting it, they already traded it.  If they have few worries talking about how much money they made, they are fully invested and the only thing they can do is sell.  If they are afraid of their own shadow, they are already out of the market and the only thing they can do is buy.  This is a difficult concept for people to trust, but if people are talking about it, we can ignore it.  Its worked over the last four years, just like the hundred years before that, and it will be the same over the next hundred.  I have no doubt there is another major bear market in our future, but it won’t be caused by any of the things people are taking about.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks are resting for a second day following the 100-point run over the last few weeks.  This is normal and expected.  Most likely this is just another buying opportunity.

Alternate Outcome:
Watch for a break of 1600 when buyers fail to show up and support this market.  There is only so much money ready to buy this market and every upday burns through a little more of it.  It is obvious this market is immune to negative headlines, so we need to watch for weakening demand.

Trading Plan:
Until we get price action that tells us otherwise, assume the rally is intact.  Modest weakness here is a buying opportunity as long as we hold 1600.  Don’t short a break of 1600, instead wait for a series of lower-highs and lower-lows to develop first.  This market will not collapse in a waterfall selloff due to a negative headline, but waning demand typified by a series failed rebounds.

GLD daily at 1:28 EDT

INDIVIDUAL STOCKS
The selling in AAPL continues for a second day, but we are still holding $450.  As we discussed earlier, the rate of gains could not continue, so a pause and pullback were expected.  The thing we don’t know yet is if this is just a consolidation before assaulting $470 or exhaustion of dip-buying on our way to new lows.  A return to the 50dma is likely and how big money respond to this level will give us a strong indication about the future of this move.  If buyers step in and defend the 50dma, there is real money behind this move and we are finally in the expected rebound.  But if buyers fail to show up, the bounce is running on fumes and we will see new lows.

GLD broke support at $140 and but is trying to make a comeback.  A similar story as AAPL, there was a flurry of dip-buying, but is big money ready to follow on and continue supporting recent gains.  Personally I think the dip in Gold was a bit too easy and we likely have a bit more selling before this thing is done.  In volatile trades like this, it is best to take the easy profits because often they don’t stick around long before next violent swing.

NFLX is holding recent gains as buyers continue supporting these levels.  This is a risky hold, but a stupid short.  Don’t fight the trend in names like this.  Either buy it or stay out of the way.

Plan your trade; trade your plan

PM: Taking a break

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks gave up a little ground, but are still above Tuesday’s close.  We cannot go up every day and after covering 100-points in three weeks, the market is entitled to some well-earned rest.  Volume was average, but less than yesterday, showing the selling was rational and orderly.

MARKET SENTIMENT
Nothing like a few point selloff to get bears excited again.  Just like a broken clock, they will be right at some point.  As nimble traders we have to decide if this is finally their moment.  Predictions of this market’s demise are clearly premature since we are only half a percent from all-time highs.

TRADING OPPORTUNITIES
Expected Outcome:
While this might not be the top, we could see a modest dip after the impressive streak of up days.  The new level of support is 1600 and any bounce off this level is buyable, although eager buyers might not allow the market to fall to 1600 before stepping in.

Alternate Outcome:
At some point bears will be right and we get closer with each passing day.  We are just shy of all-time highs and it is clearly premature to call for a top, but we must stay vigilant and stick to our profit targets, trailing-stops, and stop-losses.   This market will top when everyone expects it to continue higher and our rules will prevent us from being seduced into giving back all of our hard-earned profits.

Trading Plan:
1600 is the level to watch.  As long as we remain above that, the rally is alive and kicking.  A dip to 1600 that finds support is buyable.  Breaking 1600 means we need to be more cautious and locking in gains is good defense.  The 50dma is racing higher with each passing day and it will reach at least 1580 by the time the market dips to it.  Failing to hold the 50dma is another concern and expect stop-loss selling and shorting to pressure the market back down to 1540.  At that point the viability of the rally is finally in jeopardy.  Until then the wind is at our back and stick with the rally.

LNKD daily at end of day

INDIVIDUAL STOCKS
AAPL finished at the lows of the day, but held $450.  Much like the broad market, AAPL earned a break and today’s selling was on light volume.  The stock is acting well and this is the longest streak above the 50dma in well over half a year.  But don’t lose sight of the fact this stock is in the middle of a brutal correction and half a dozen similar bounces fizzle and collapsed lower.  The question any bull needs to answer is who will buy this stock here?  This was the most widely held stock and many were overweight AAPL near the highs.  The selloff humiliated and humbled many investors and they are far less likely to embrace it with such reckless abandon any time soon.  The dividend boost and share buyback make it attractive to income investors, but these are highly price sensitive investors and will not bid the stock back up to old highs.

NFLX bounced near the $200 level on strong volume.  There are no signs this stock is ready to breakdown and bears are in store for another round of humiliation.

LNKD slipped under a rapidly rising 50dma.  While it would be nice to see the stock bounce off this moving average, holding up here is not bad.  Selling has been contained and buyers are willing to step in at these levels.  If the stock breaks above the 50dma on volume, it is buyable, but expect a wild ride and take profits when it feel like the stock is invincible.

Plan your trade; trade your plan

AM: A rest day

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

MARKET BEHAVIOR
Stocks are down fractionally for the first time since the 1600 breakout.

MARKET SENTIMENT
We cannot rally every day and today’s pause is normal, expected, and nothing to fear.  That doesn’t mean we cannot selloff more in coming days, but it is extremely premature to call this a top.

I keep coming across confusion about contrarian investing and what it really is.  Contrarian investing is based on crowd dynamics, yet most people mistakenly associate it with technical analysis.  Technical traders have momentum and overbought/oversold indicators, but these are based entirely on chart patterns.  Contrarian trading is going against the crowd and has nothing to do with charts.  It focuses on what other traders think and how they are positioned, nothing more, nothing less.

Many traders wrongly think of themselves as a contrarian when they short a stock that’s “gone too far”.  But more often than not, the right contrarian trade is betting on a continuation of “too far” when the crowd remains suspicious of a move.  NFLX, LNKD, AMZN are all examples of expensive stocks that keep getting more expensive.  The contrarian investor goes against the crowd, not the price.  When everyone loves something the contrarian shorts it.  When the crowd don’t trust the market, the contrarian buys it. It doesn’t matter what the chart is doing. This market is up 300-points in half a year because no one trusts this market.  Anyone who went against the trend missed easy profits.  The contrarian who went against the cynical crowd made easy money.

Source: Yahoo Finance 5/9/2013

The distrust of this rally remains extremely high.  For all the talk of how overly bullish this market is, it is darn hard to find any of these bulls in the flesh.  Here is another Yahoo Finance poll that shows just how suspicious traders are of these levels.  People make the mistake of assuming everyone is bullish in a rising market, but that is clearly not the case with this market.  All these cynics are underweight the market, meaning most of the selling pressure is behind us.  The only thing these cynics can do is change their mind and chase this market higher.  These two reasons are why this Teflon rally keeps going.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  Markets move two-steps forward, one-back, and a little consolidation after recent gains is normal and healthy.  As long as traders remain suspicious of this rally, the uptrend will continue.

Alternate Outcome:
What goes up must come down.  Watch for cracks in this rally in the form of lower-highs, lower-lows, and breaking key support.  Until then stick with the trend.

Trading Plan:
Swing traders can take some profits off the table after the recent three-week run.  Those out of the market should resist the urge to chase and wait for a pullback or consolidation.  The only traders who can short this market are the extremely nimble day-traders and they need to take profits early and often.  Until something changes, expect every dip to bounce.  Former resistance at 1600 should now act as support and as long as we remain above this level, the rally is intact and healthy.

AMZN daily at 1:23 EDT

INDIVIDUAL STOCKS
AAPL is consolidating gains near $460.  Seeing buyers step up and continue buying at these levels is encouraging.  AAPL’s growth story remains uncertain, but the company generates a lot of money and increasing its dividend makes the stock attractive to income investors.  But if income investors are coming to the rescue, don’t expect prices to take off because these investors are very price and yield sensitive.  They don’t chase the next big thing the way growth investors do and is why popular income stocks like MSFT and WMT have been unexciting even though revenues and earnings continue growing at both companies.

AMZN is making a break for the 50dma.  We are allowed to have opinions in stocks like this, but we must always trade with discipline.  Keep position sizes small and use hard stops to get us out when we are wrong.  Bears should continue watching this stock for further signs of weakness, but wait for weakness to develop and don’t short anything simply because it is too expensive. Bulls should wait until we break above this consolidation on volume.  This will keep both sides out of this unproductive slop between the 50dma and 200dma.

Plan your trade; trade your plan