All Posts by Jani Ziedins

PM: And on the fifth day the market rested

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update
The market paused after the biggest five-day gain of the year.  This is both healthy and expected, but is this another buyable dip or the last chance to get out?

MARKET BEHAVIOR 
Stocks took a breather after the strong run stretching back to last Friday morning.  We ended down a quarter percent on light volume, but well off the intraday lows.  We closed near 1490 and another couple of days at these levels shows buyers are willing to keep spending their money up here.  Support is down at 1570 and as long as we hold that level, the breakout remains intact.

MARKET SENTIMENT
The number of cynics resisting this rally shrinks by the day.  Only a fool would short this market, but that might be why it finally works.  If this feels like the least safe time to be short in months, that is exactly what makes it the safest.  But in this instance safe is a relative word.  There is no such thing as safety in the markets, but there are times less risky than others.  While this market could continue higher, without a doubt we are closer to the top today than we were yesterday.  Eventually this market will run out of gas and will top while everyone is still looking up and buying dips.

TRADING OPPORTUNITIES

Expected Outcome:
Without a doubt I am a broken clock expressing my reservations about this market.  I first doubted this rally a few weeks back when we first hit 1560.  Clearly I was premature, but I knew this going in and said as much.  For my trading style it is easier to get out early.  Obviously I wish I had these last 30 points, but if I tried holding for the top, I would inevitably hold too long because no one can reliably call tops.  There is no reason people need to listen to me and I’m happy for all those still making money, but I just don’t trust this market.  Every market pulls back eventually and this one is living on borrowed time.  And just like a broke clock, if I keep doubting this market I will eventually be right, the only question is how much profit I missed by sitting this one out.

Alternate Outcome:
Markets work until they don’t and clearly this one is working.  It doesn’t matter where buyers come from as long as they keep paying premium prices to own this market.  These things go further and longer than anyone expects and obviously that is the case here.  When in doubt stick with the trend.

Anyone trading with a trailing stop should move it up to support at 1570.  If we break this level so soon after a breakout, the rally is in trouble.  An ambitious, daring, and masochistic trader could short any weakness on Monday with a stop above the recent high at 1597.

AAPL daily at end of day

INDIVIDUAL STOCKS
What is left to say about AAPL?  It is trading near recent lows ahead of earnings in a couple of weeks.  I’m getting a lot less hate mail over my critical analysis of AAPL and maybe sentiment is finally shifting in this stock.  I don’t know what earnings will be, but this stock is getting close to a bottom.  If earnings are good, the bottom is already in.  If earnings are weak, we’ll see one last flush before finding support in the upper $300 range.  But remember it will be a long, long time before this stock returns to darling status and everyone is overweight it again.  Don’t get greedy and take profits early and often.

NFLX gave up early gains and finished near flat for the day.  This stock is destined to trade $200 again and it will be sooner than later if the broad rally remains intact.  But don’t stick with this name if the SPX falls under 1570.

LNKD powered into the close on a short squeeze and made a new all-time high.  Anyone shorting this stock is just inviting people to take their money.  No one needs to own LNKD at these levels and valuations, but it is foolish to bet against this stock.

Stay safe

AM: Modest selling

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:20 EDT

AM Update

MARKET BEHAVIOR
Stocks opened weak on the first dip since last Friday’s low.  Some selling after five-days of gains is normal and expected.  The market is finding support at 1580 in mid-day trade and the breakout remains intact as long as we hold 1570.

Gains over the last five-days were the largest we’ve seen since the start of the year.  Accelerating gains after such a long run is something to be wary of, but while they are impressive, they have not materially broken the upper trend line.

MARKET SENTIMENT
This week was another example of buying the dip being the right trade.  Many were anticipating a larger selloff, making the rebound more likely.  All the profit-taking in March’s consolidation was unable to weight on the market.  The result was higher prices once that selling exhausted itself on last Friday’s disappointing employment.

It’s become painfully obviously this market will not breakdown on news.  The only thing left is running out of buyers.  This means we will slide lower while everyone is still looking up and is a more difficult turning point to spot than a clear shock to the system.

The shift will occur when pessimists give up fighting the tape.  These are the last people willing to embrace the rally and thus the last buyers to keep this thing moving.  The picture is a little more complicated when we include international investors fleeing precarious economies and bond investors warming up to equities again.  Chances are those that fled the Cyprus’ fallout have already done so.  If they were not motivated enough to move immediately after events, they are even less likely now the situation is calming down.  As for bonds, they are coming back and rising prices takes pressure off of bond holders.  The last buyer I can think of is the incremental IRA investor sending in his contribution before the April 15th deadline.  How many of these above buyers can we count on in coming weeks to continue pushing this market higher?

No matter what the Fed does, equity prices will only go higher when people actually buy equities.  When everyone is in equities because they think prices will continue higher is exactly when they top and nose over due to lack of demand.  Until Ben starts buying stocks, his influence over the equity markets is dependent on equity investors buying into the hype.

TRADING OPPORTUNITIES

Expected Outcome:
I still don’t feel comfortable with this market, but holding above prior resistance at 1570 shows the breakout is alive and well.  We are at the upper end of the trading channel.  A break above this trend-line will signal exhaustion and should be sold, not bought.  A modest dip to the lower trend-line could be another buying opportunity as long as we hold key support levels.

Alternate Outcome:
While the trend is solidly intact, it is hard to embrace this rally after five-months of gains and an unbroken streak of rebounds.  We are also in the fifth-year of the larger bull market. While everything looks good, that is what always happens at tops.  I still believe in the secular bull, but every decade long run has bounds dramatic of weakness.

INDIVIDUAL STOCKS
AAPL retreated to $430 and is largely trading sideways ahead of earnings in two-weeks.  Unless we get leaks and believable rumors, expect the stock to stay around these levels because neither bulls nor bears are likely to change their mind in coming days.

NFLX is higher on a day the market is selling off.  Look for short-covering to continue pushing this stock higher, assuming the broad market holds up.

LNKD daily at 1:21 EDT

LNKD recovered from early weakness and reclaimed $180.  The bounce off of $175 shows there are more willing buyers at these levels than sellers.  Holding LNKD here is only for the bravest of the brave, but shorting this stock here is just plain foolish.

AMZN added to yesterday’s break above the 50dma.  With so many bulls and bears trading the breakout/breakdown, the smart plays has been swing-trading the up and down.  This probably won’t change until earnings where we will finally see a more directional move.  My inclination would be to wait for earnings and trade resulting move.

GOOG is largely mirroring weakness in the indexes.  What was AAPL’s loss has been GOOG’s gain.  If AAPL disappoints on earnings, look a large portion of that money to come GOOG’s way.

Stay safe

PM: Getting frothy

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update
Markets added to their weekly gains as we push toward 1600.  Is this move sustainable or on the verge of exhaustion?

MARKET BEHAVIOR
Stocks added to yesterday’s breakout and are just a few points shy of 1600.  Thursday’s volume was near average and shows traders are re-engaging this market after several weeks of anemic trade.

Wednesday’s breakout finally moved the market above the month-long trading range and shows it is ready something new.  While we are moving higher, be cautious of a failed breakout and retreat back into the trading range.  Sometimes markets are direct, other times they fake us out before revealing their true intentions.  Things look good for the rally as long as we continue holding above previous resistance at 1570.

MARKET SENTIMENT
For as many things as people are worried about, you wouldn’t know it by looking at stock charts.  This market is running to all-time highs and humiliating any and all naysayers in the process.

Markets require demand to go higher.  Without new buying they fall under their own weight no matter how confident holders are.  People sell stocks for many reasons, but they only buy for one, because they predict it will go up.  So far people continue buying this market even at these seemingly extended levels.  While I expected the market was topping, we always knew the alternative was a continuation higher.  The month-long consolidation and flirtation with all-time highs convinced many holders to lock-in profits and wait for the next trade.   These are many of the traders chasing the market higher.  We all know this will come to an end at some point, we just are not there yet.

One of the topping signs we are looking for is the biggest weekly gain after an extended run.  This is the classic exhaustion top.  Through the first four-days of the week we are already up 2.6%, the largest weekly gain since the New Year’s Fiscal Cliff pop.  Another up-day on Friday will extend this even further.  While it is hard to argue with the market, history is not kind to moves like this and it is hard to chase the market here.

TRADING OPPORTUNITIES

Expected Outcome:
Clearly the trend is higher and we cannot get in the way of this bear meat grinder,  but that doesn’t mean we have to embrace this rally.  Sometimes the best trade is doing nothing.  Shorting this market is suicidal.  Holding this extended rally reeks of greed.  The only thing left is sitting in cash and waiting for the next high-probability trade.

Alternate Outcome:
There is a lot of fear of heights in this market and that is why we continue higher.  For as giddy as the chart looks, there are still new buyers willing to buy this market.  No matter what anyone says, as long as buyers keep showing up, the market will continue rallying.

INDIVIDUAL STOCKS
AAPL traded sideways after Wednesday’s nice gains.  We are less than two-weeks from earnings and expect some fireworks as either bulls or bears will be sent running for cover.  If someone wants to trade this, consider limiting risk by using call or put spreads.

NFLX finished at the highs of the day as the bounce off of $160 is sticking.  Hopefully bears locked in their short profits because this is headed higher as long as the market holds up.

AMZN daily at end of day

AMZN smashed through the 50dma…….again.  Will this be the time it holds?  Like everything else this time of year, it all comes down to earnings.  A strong number will squeeze shorts and send the stock higher for a few days, but a miss could be far more damaging given how high the expectations are.  This is also a good candidate for an option trade.  One could also wait for earnings and jump on the surge or crash, whichever it happens to be.

LNKD is running into resistance at $180.  Clearly the stock wants to go higher and look for a short squeeze when it breaks this level.  But like all of these speculative stocks, all bets are off if the market starts melting down.  Hiding out in these stocks during a correction is like seeking safety in a tree house during a tornado.

Stay safe

AM: Is this time different?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:11 EDT

AM Update
Stocks are challenging 1600.  Is that the next major milestone on our way higher?

MARKET BEHAVIOR
Stocks continued the rally, running up to 1597 before easing off the highs by mid-day.

MARKET SENTIMENT
Stocks covered nearly 60-points since Friday’s opening low.  This is the fourth surge of ~60-points over a few days since the market bottom in November.  The first was the rebound off the November lows.  The second was the Fiscal Cliff pop over New Years.  The third followed February’s dip to the 50-dma.  And we are in the middle of the fourth.

The common trait is they came on the heels of an aggressive selloff and widespread fear.  The November lows dipped 100-points over a month.  The selloff into the end of the year slid 50-points before bouncing on December 31st.  February slumped 45-points before bouncing.  Last week only pulled back 33-points from the highs before surging 60.

Prior selling is what fuels the next rally.  The selling leading up to this pop is the lowest we’ve seen and makes me question how much fuel is in the tank.  The strongest surges occur early in a recovery when the market is most oversold.  Almost five-months into this rally we are many things, but oversold is not one of them.  Coming this far on the heels of modest selling makes me wonder if there is enough buying left to power another sustainable leg higher?  I don’t see it and I remain reluctant to chase this market here.

Clearly I was early in jumping off the rally bandwagon, but it is impossible to know just how far the crowd will push these things.  And they might not even be done, at this rate we would blast through 1650 next week.  I’d love to catch those gains, but I don’t feel comfortable with this market and I will continue to sit out until it starts behaving in a way I understand.  I’m okay missing additional upside because chasing something I don’t understand is nothing more than gambling.

TRADING OPPORTUNITIES

Expected Outcome:
Stocks keep marching higher, but everything indicates the market is skating on thin ice.  This is great for those willing to take a chance, but it only ends well if they know when to lock in profits.  Eventually one of these dips will not bounce and many traders will give up all their gains waiting in vain for that bounce.

Alternate Outcome:
Am I falling into the trap of tunnel vision by allowing my skepticism of this rally to skew my analysis?  Undeniably I’ve been wrong, but the question is if my analysis is fundamentally flawed, or simply early.  Obviously there is demand at these levels because buying is the only thing that can push prices higher.  One possible mistake is I am looking for an intermediate top, which occur more quickly.  Major tops take longer to develop and run up higher before finally breaking down.  I certainly hope this is not the case because I am a medium-term bull, but the longer it takes for this market to top, the bigger risk there is to the downside.  It was a long time ago, but things were quite pleasant in the Fall of 2007 prior to one of the biggest bear markets in history.  I don’t believe we are in a similar situation, but the higher this market goes without correcting, the more it scares me.

INDIVIDUAL STOCKS
AAPL is trading sideways this morning and modestly in the red.  It is unlikely we will get new fundamental information prior to earnings, but rumors could moving the stock ahead of time.  Of course given all the previous rumors of dividends, product launches, and stock splits that never materialized, market will be far more skeptical of unsubstantiated rumors.

NFLX is trading above recent resistance at $170.  At this point is seems the selling exhausted itself and the stock is looking to retest the 50dma.  If the market holds up, this is a far more interesting buy than short.

LNKD daily at 1:17 EDT

GOOG’s fallen out of favor and missing the markets move to all-time highs.  Is this part of the divergence that leads to a broad market top, or just a single stock getting sent to the dog house?  GOOG appears to be the biggest beneficiary of AAPL’s selloff.  Further AAPL selling, especially if it is due to losing market share to Android, will see much of those proceeds find a new home in GOOG.

LNKD is surging higher and just shy of making a new all-time high.  While not a technical 50-dma bounce, the stock is clearly finding support in the area and wants to continue higher.

Remember, 50% of a stocks move comes from the broad market.  If we see the markets breakdown, get out of these speculative stocks and look to buy them back after the market finds a bottom.

Stay safe

PM: All time record!

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update
Stocks broke out to new highs.  Will we continue higher, or is this just one last head-fake before the inevitable correction?

MARKET BEHAVIOR
This was the third largest up-day of the year as we smashed record highs.  Volume finally rebounded, but was only average for such a monumental move.

MARKET SENTIMENT
Markets did it again, they humiliated bears for the umpteenth time.  I was bullish for most of the rally, but even I didn’t expect it could go this far.  Previous tops since 2009 developed quickly and this one is stretching on.  That means either 1) this is not a top, or 2) this is a different kind of top and the resulting correction will be different too.

Markets marched relentlessly higher since the opening low on Friday, acting like a giant four-day short-squeeze.  I’d love to say this was real buying, but it is hard to find a catalyst to justify this move other than people buying simply because everyone else was buying.  We haven’t removed a major issue weighting on the market or eliminated a tail risk everyone was fearing.  We didn’t receive unexpected good news proving the economy is far stronger than anyone expected.  We haven’t uncovered compelling insight the future is better than already forecast.  People are simply following the herd and buying because everyone else is.  The last time traders did something simply because everyone else was back in the post-election selloff and we know how that ended.

I really want to believe in this breakout, but I just can’t find a redeeming quality in it other than it is going up.  Obviously I’m wrong, but I’m okay with being wrong if it means staying out of a market I don’t understand or feel comfortable with.

TRADING OPPORTUNITIES

Expected Outcome:
Over a month ago we said one way this rally could end is a strong surge higher.  50-points over 4-days probably qualifies as a strong surge.   The reason surges at the end of long run exhaust a market is the last of the crowd finally rushes into the trade, leaving no one else to buy.

Part of this market’s resilience stemmed from confident holders refusing to sell in the face of weakness.  That kept supply tight and allowed us to rally on light volume.  But how much higher can we go before these investors start locking-in profits?  At some point demand will not be able to keep up with supply and that will be the top.  Obviously we are not there yet, but that day is coming.

Alternate Outcome:
The world is an ugly place.  US equities and Treasuries are not doing well because they are fundamentally sound, but because they are the least bad place for global investors to park their money.  The only reason we look so good is because everyone else looks so bad.  If a person focuses on the qualities of our market in isolation, of course they look poor, but take a step back and it makes sense why there continues to be demand for our equities and debt at these historic levels.  Until there is a viable alternative currency and market in terms of liquidity and safety, everyone will have to hold their nose and buy what we are selling.  Europe was the closest alternative but their financial problems eliminated them from contention.  Its been a long time since Japan was investable.  And it is illegal for foreigners to invest in Chinese companies directly or hold large piles of yuan and they run a surplus so there is little government debt to buy.  None of these global dynamics will change anytime soon, so expect wealthy foreigners to continue pumping money into our markets.

Look for recent resistance at 1570 to act as support.  As long as we hold above this level, look for the rally to continue.

INDIVIDUAL STOCKS
AAPL had a nice comeback and is above $430.  Expect resistance at the 50dma as the stock  trades in a range ahead of earnings in two-weeks.

AMZN daily at end of day

AMZN continues to struggle with the 50dma.  Inability to march ahead is a concern for bulls.  Like most stocks, everything hangs on earnings.  Given the slowing gains and high valuation, there is more downside risk than upside opportunity.  A pop higher would send shorts running for cover, triggering a few day short-squeeze, but a disappointing report could trigger a far larger selloff.  This is a highly speculative trade and option spreads are a good tool to manage risk.

LNKD’s 50dma is catching up to the stock and look for it to provide support.  This story is similar to AMZN in terms of valuation and short interest, the difference is LNKD’s run is far younger than AMZN.  Every move has a lifespan and there is more life left in LNKDs young run.

NFLX was absent from today’s record breakout, but this consolidation is good.  It flushed out chasers and tempted bears to get even more short.  Both of these are setting the stage for another explosive move higher, likely taking out $200 as long as the broad market holds up.

Stay safe

AM: We did it, the sequel

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:06 EDT

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

Stay safe

PM: Bizarro world

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

MSFT daily at end of day

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

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

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

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

Stay safe

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

AM Update

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

AAPL daily at 1:51 EDT

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

Stay safe

PM: The teeter-totter ride continues

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

AAPL daily at end of day

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

Stay safe

AM: Finding support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

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

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

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

GOOG daily at 1:28 EDT

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

Stay safe

LA: Are the good times ending?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

Stay safe

WR: Worst week of the year

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Weekly Review
Is it too easy to buy this dip?

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

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

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

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

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

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

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

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

Stay safe

PM: Half-full or half-empty?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

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

MARKET BEHAVIOR

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

MARKET BEHAVIOR

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

LNKD daily at end day

INDIVIDUAL STOCKS

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

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

Stay safe

AM: Buy the dip?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EST

AM Update

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

MARKET BEHAVIOR

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

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

MARKET SENTIMENT

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

AAPL daily at 1:23 EDT

INDIVIDUAL STOCKS

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

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

Stay safe

PM: Looking forward to employment

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

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

MARKET BEHAVIOR

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

MARKET BEHAVIOR

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

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

TRADING OPPORTUNITIES

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

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

NFLX daily at end of day

INDIVIDUAL STOCKS

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

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

Stay safe

AM: Where’s the bounce?

By Jani Ziedins | Intraday Analysis

S&P500 Daily at 1:27 EDT

AM Update

Stock struggle to come back after yesterday’s selloff.  Will they continue the pattern of bounces or give us our fist back-to-back down days in nearly three weeks?

MARKET BEHAVIOR

Stocks bounced back from yesterday’s selloff, but only recovered a fraction of those losses by late morning.  We are trading in the high 1550s, but struggling to break above 1560.  If stocks close in the red this afternoon, it will be the first back to back loss in nearly three weeks.

MARKET SENTIMENT

Wednesday’s high-volume selloff shook some complacency from the market and reminded people there is risk in this game.  Up to this point every dip has been buyable and we are seeing signs of an attempted bounce this morning.  While every previous selloff bounced, we need to remember that each rebound consumed a portion of the available pool of buyers.  After a certain point we run short of new buyers and the market falls under its own weight regardless of positive headlines or outlook.

While we know what is coming, the far more difficult part is timing the trade.  Every rally tops and this one will be no different.  All the bears calling for a pullback since January 2nd will eventually be proven right, but that is little consolation to their portfolio that was decimated by the premature call.  Markets go up and they go down, everyone know that.  All the money is made in figuring out when.

This rally is beyond obvious when mainstream media is promoting all-time highs in the Dow and S&P.  Many perma-bears are coming around because no one want to hear stories of doom-and-gloom anymore.  While I count myself as an optimist and a firm believer in the resilience of our economy, markets moves in waves.  The overshoot to the upside and downside every time, always have and always will.  The savvy trader exploits these swings in sentiment.  Last November saw a wave of pessimism hit the markets and lead to an oversold condition as traders bailed out for no other reason than everyone else was selling.  This herd mentality skews moves to the upside too.  When the crowd is calm and complacent, we let down our guard too.  The ironic thing is the market is safest when people are most scared and riskiest when everyone is most comfortable.

TRADING OPPORTUNITIES

Expected Outcome:
I wish I had a crystal ball and knew for sure if this dip was buyable or the start of something larger, but the best I can do is trade probabilities   Its been a good run, the mass media is promoting all-time highs, we just started a new quarter, and fear of an economic collapse has been replaced with fear of missing the rally.  All these conditions point to a market closer to the end than one that still has room to run.

There is a lot of positive news already built into the market and simply meeting expectations is not going to move us higher.  On the other hand anything that falls short will catch investors off guard and rekindle those pessimistic and irrational fears.  There is no reason this market cannot bounce back today, but a second consecutive down-day and close under 1548 will rain on this parade.

Alternate Outcome:
The last few weeks of sideways trade facilitated profit taking and gave nervous holders the opportunity to bail out.  Wednesday’s high volume selloff also cleared dead wood and tempted bears to short this market.  These sellers are creating fuel for the next rally leg.  Holding above 1550 and reclaiming 1560 by Friday shows buyers are still supporting this market and the next move is higher.  No matter what the daily price-action shows, the rally remains intact until we start making lower-lows and lower-highs.

AAPL daily at 1:28 EST

INDIVIDUAL STOCKS

AAPL fell back into the $420s and any hope of resuming the previous rebound is fading fast.  We are within $10 of setting a new low and expect a wave of selling to hit the stock if it falls to this level as stop-losses and shorts are triggered by this widely followed technical level.  Eventually AAPL will boost its dividend and buyback, upgrade existing products, and launch new products, the question is if these will be enough to bring a lethargic stock back to life.  Once a stock loses its aura of invincibility, it is really hard to get it back.  The tech industry is littered former pioneers and innovator who continue operating great companies, but their stocks have been dead money for years. Is AAPL on the verge of joining that club?

NFLX is struggling since it broke the 50dma yesterday.  This stock is vulnerable to broad market weakness and is a poor place to hide out if anyone expects a near-term selloff.

Stay safe

PM: Is this the start of something bigger?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

Stocks rattled nervers as they slid hard on elevated volume.  Will this one bounce back tomorrow like all the others?  AAPL still has a way to go before the hopeful give up on the stock.

MARKET BEHAVIOR

Stocks crashed through 1560 and closed at 1553.  The most notable development was the strong volume, the highest since mid-March.  An interesting fact is the last time we had above average volume was the final day of a three-day selloff.    Today was the eleventh consecutive day of alternating gains and losses; will a rebound tomorrow make it twelve in a row?

MARKET SENTIMENT

Clearly today’s dip got people’s attention and this was the most enthusiastic trade we’ve seen in a while.  The market rose to 1571 in the first few minutes, but it was all downhill from there.  No doubt today’s weakness triggered automatic stop-losses just under support at 1560 and the relentless slide through the day flushed out weak holders with itchy trigger fingers.  Capitulation bottoms typically occur on large volume after a prolonged decline when stubborn holders can no longer endure the pain any longer.  This happens after prolonged drop where doubt creeps in and consumes formerly confident traders.  Today’s one-day selloff is simply not enough to rattle the nerves of resolute holders.  Without a doubt we could rebound tomorrow, but it will not be a capitulation bottom and enjoy the same clear sailing seen after a more thorough purge of holders.

TRADING OPPORTUNITIES

Expected Outcome:
The question on everyone’s mind is if this is just another dip on the way higher, or the start of something bigger.  Any weakness over the last 4.5 months was a savvy buy, but will we say the same thing about this dip a month from now?

I cannot say if this is the top, but I know the risk/reward shifted in recent weeks and owing stocks here is more risky than at any other point in the rally.  We could easily see the market bounce tomorrow, but just because the market goes higher doesn’t make it a good trade.  This rally leg will top and pullback at some point because it happens to every bull move; two-steps forward, one-step back.  The signs are pointing to this pullback happening sooner rather than later, but I cannot predict exactly when, no one can.  During periods like this, I would rather be out of the market wishing I was in, than in the market wishing I was out.  I don’t mind missing another 10 or 20-points of upside if it means I avoid the risk of a 75-point selloff.

The market failed to hold 1560 today and leaves the door open to further selling.  Falling under 1548 will trigger an avalanche of automatic stop-losses as the rally makes its first lower-low.  Without a doubt this weakness will rattle the nerves of previously confident, complacent, and greedy holders, leading to even more selling.  But we have to break 1548 first.

Alternate Outcome:
A rebound on Thursday shows buyers are still able to support this market.  A close above 1560 Thursday and holding this level Friday likely mean the next move is higher and we will finally break all-time high.  Anything less and it shows this market is running out of buyers.  The big catalyst is Friday’s employment numbers.  An unexpectedly bullish number could stop this selloff in its tracks.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL finished up half a percent, but well off of earlier highs.  This cycle of raising hopes and dashing them is the demoralizing process that is required before this stock will truly bottom.  There are too many holders waiting for the expected rebound.  There are others that have ridden it down this far who keep holding because they figure it cannot go any further.  Only after these groups have given up on AAPL and sold out will the stock finally end the slide. What happens after that is up for debate.  Former market leaders and bellwethers like MSFT and CSCO are still well off of their all-time highs.  Often what is one market cycle’s must have stock becomes the next’s washed-up has-been.

Recent weakness deflated the sails of hot stocks like NFLX, AMZN, and LNKD.  These high flyers often feel the effects of market moves two and three times.  A modest dip in the indexes cold trigger a 10% correction in these popular momentum stock.   Everyone likes to play stock-picker, but the broad market is responsible for at least 50% of a stock’s move.  Know what the market is doing and we have a significant edge.

Stay safe

AM: More volatility

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:33 EDT

AM Update

Stocks are keeping the up and down routine going as we are selling off following yesterday’s new highs.  Is this just another buyable dip or the start of something more?  AAPL attempts another rebound, completely oblivious to the market weakness around it.

MARKET BEHAVIOR

Stocks dipped on weaker than expected private employment.  This pushed the marked through recent support at 1560 by late morning. If today’s declines hold through the close, this will be the eleventh consecutive alternating red and green day.  At some point this market will string together two up or down days and that could signal the next near-term move, either a breakout or breakdown.

MARKET SENTIMENT

The jobs data was decent, but fell short of expectations and given how much positive news has already been priced in, the market sold off.  It’s easy for a repressed market to top expectation and trigger a wave of buying, but inflated markets are far more vulnerable to disappointment because everyone bought the market ahead of time.

One concern about this market is the wedging higher.  This sucks in buyers and does not refresh the market by forcing out weak hands.  Dips refresh the market because it sends uncommitted holders running for cover, creating the a new pool of buyers to fuel the next leg higher.  But wedging lets these weak holders hold and actually increases the vulnerability of the market because it encourages even more weak holders to join the party.  Once the level of weak holders reaches critical mass, the market collapses in a rush of panicked selling.  Currently the market is down nearly 15-points and it feels like some of this froth is letting out.

TRADING OPPORTUNITIES

Expected Outcome:
Is today’s weakness just another buyable dip, or the start of something larger?  While I cannot say for sure what will happen next, I am concerned about the sustainability of the Q1 rally and think this is a normal and healthy time for the markets to rest a bit.  A day-trader can play these intraday swings, but there is too little upside left in this move to make it worthwhile for me.

Failing to hold support at 1560 is a concern, as would be a second day of selling on Thursday.  Any weakness is setting up for a buyable dip, we just don’t know if it will bounce off of 1560, 1550, 1500, or 1400.  Given how many shallow, buyable dips we’ve seen recently, I’m wondering how much money the dip-buying crowd has left.  Without dip-buyers and triggering stop-losses at technical support levels will  lead to a larger wave of selling than we’ve seen recently.

Alternate Outcome:
Record highs has all the worrywarts and naysayers out in force.  Many traders are anticipating this top and selling into the strength.  These seller will be the new buyers when the market heads higher.  Today’s weakness is an important turning point for the market.  It makes an interesting shorting opportunity, but if the market rebounds, it shows bears still cannot get the job done and the next move is higher.

AAPL daily at 1:34 EDT

INDIVIDUAL STOCKS

AAPL is attempting another rebound and while the stock is in the green, it’s off early highs.  This stock is in a world of its own and is up on a day where the rest of the market is off.  The iPhone has its own ecosystem and so does AAPL’s stock.  AAPL traders are oblivious to the world around them, showing they don’t care about macro fundamentals.  And given the disconnect from AAPL’s earnings data, micro data doesn’t matter either.  What are we left with?  Gamblers.  At this stage traders are just gambling in the stock.  When a stock is completely detached from macro and micro data, fundamentals don’t matter and anyone who is using these to justify their purchase is going to have a bad time.  This is an emotion driven trade and it can only be traded successfully when evaluated from a sentiment analysis.

And for all those “long-term investors” out there who are buying last decades big winner because they know it will come back, I only have one question for you, how many technology market leaders had strong runs 10-years after their initial breakout?  Most tech companies don’t even stay relevant for twenty years, let alone have a runaway stock.  MSFT, CSCO and DELL had great, decade-long runs but have been dead money ever since, even thought the companies are doing great.  Of course AAPL is different from those just like all those were different from the ones that came before them.  The names change, but investor attitudes stay the same.

Stay safe

PM: Hold ’em or Fold ’em?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

Another new high as this rally just doesn’t know when to quit.  AAPL on the other hand cannot figure it out and gave back all of its early gains.

MARKET BEHAVIOR

Stocks rebounded from Monday’s selling and set new intraday and closing highs.  Market traded as high as 1573 before giving up a portion of those gains in afternoon trade.  Volume was below average, but the highest in a couple of weeks.  The all-time intraday high is the only old record left standing and sits less than six-points away.  If the market ends in the green on Wednesday, it will be the first back-to-back up days since March 14th.

MARKET SENTIMENT

The whipsaw grind higher on low-volume continues.  Through this sideways trade, buyers are buying and sellers are selling, but more important, who is selling and who is buying?  Is smart money locking-in profits by selling to dumb money?  Or is impatient, dumb money getting nervous and selling to smart, patient money?

Without a doubt we’ve seen profit-taking at these all-time highs as many traders anticipate near-term weakness, but so far that selling has been matched and even exceeded by the appetite for stocks.  Every dip has been a buying opportunity and this pattern clearly lasted longer than I expected.  The thing I need to figure out is if I am just early, or if I am completely wrong.  There are many reasons for the market to pullback here, but the only indicator that matters, price, continues inching higher.

For market to continue higher, we need to find new buyers.  These could be premature sellers coming back into the market.  It could be remaining holdouts still watching this rally from the outside.  It could also be reallocation.  As Greg pointed out in the AM post’s comments, small-caps did not enjoy the SPX’s strength.  Are traders selling smaller stocks and rolling that money into safer blue-chips?  Is the market seeing inflows from the bond market as retail investors are chasing all-time high headlines?  If the rally continues, it will be on the back of one or more of these themes.

TRADING OPPORTUNITIES

Expected Outcome:
The market is holding up and we have to respect that.  Another close above support on Wednesday will show there are still more willing buyers than sellers and we should expect the next move to be higher.  That doesn’t make the market an automatic  buy because we have to consider the unfavorable risk/reward at these elevated levels, but it will certainly indicate shorting the market is premature.

Failing to hold 1560 on Wednesday is a bigger deal and shows bulls struggling to find new buyers at these record levels.  The market will return to normal volume in the near future and if buying cannot keep up with selling, that will finally be the start of the long-awaited pullback.

Alternate Outcome:
The market marches higher no matter what the headline or how compelling the bear case is.  This rally outlasted countless pessimistic predictions and there is nothing to say it cannot continue humiliating the next wave of top-pickers.  A slowly improving economy will continue convincing investors light on equities to wade in.  Buying by these late-to-the-party buyers is what will keep this rally going.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL turned a nice bounce into another warning flag as the stock reversed from early gains and finished near flat.  This is a stock where everyone is trying to will it higher on hope and hype, but no one outside of the cult is buying it.  Valuation doesn’t matter, cash hoard is meaningless, and history of innovation is discounted.  No matter what the believers point to, the larger investing world remains skeptical and the stock continues its slide as the faithful start giving up.  When a stock has everything going for it, but still cannot get out of its own way, that is a bad situation to get involved in.  Will AAPL recover its innovation leadership position, or is this the ’80s all over again where AAPL will make a fantastic niche product with 3% market share, like the Mac at the turn of the century?

Stay safe

AM: New highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:31 EDT

AM Update

MARKET BEHAVIOR

Stock’s indecision continues as we rebound from yesterday’s weakness and are making new highs, just a few points shy of the all-time record at 1576.

MARKET SENTIMENT

This back-and-forth has both bears and bulls more vocal as they cheer for their side, but this equality is new and a big reason the market’s behavior has changed in recent weeks.  Bulls are still winning the tug-of-war with each new high, but the rate of gains has tapered from the nearly straight-up market in the first two-months of the year.  This is typical behavior as the best gains occur early in a move and become harder to come by the older a rally gets.  At 4.5 months old, it shouldn’t surprise anyone we are seeing more sideways trade.

The Q1 rally proves traders were overly bearish at the start of the year, and converting former bears into buyers is what propelled us higher.  If this rally fueled itself on pessimism, how much gas is left in the tank?

It is easy to predict the future, the harder part is getting the timing right.  Both bulls and bears could be right if we continue another 30-points higher before falling into a 10% correction, but they could both lose money if the bear shorts too early and the bull holds too long.  That is what makes this game so maddeningly difficult.  I have no doubt this market will top because every rally eventually ends, the harder part is figuring out when.

TRADING OPPORTUNITIES

Expected Outcome:
There are three ways this market will top.  It might simply run out of buyers and rollover.  It can surge higher and exhaust itself before reversing.  Or an unexpected negative headline can send holders rushing for the exits.  Holding 1560 through Wednesday makes the rollover top unlikely because we don’t get that long to sell the top.  We still haven’t seen a powerful exhaustion surge, so the market needs to go higher before it can turn lower under that scenario   And the news driven top requires an external and unpredictable catalyst to move the market.

In the absence of bad news, the market is setting up for higher prices if we hold 1560 through Wednesday.  Just because the market is headed higher over the next few days doesn’t automatically make buying and owning the market a good idea.  We always need to consider the risk/reward of every position and given the age of this rally and the slowing gains, it seems like there is more downside risk than upside potential here.  And of course a material selloff under 1560 today or tomorrow means this market is struggling to find buyers and we need to watch for further weakness.

Alternate Outcome:
A lot of profit taking occurred over the last 4-weeks of sideways trade.  We need buyers to continue higher and these recent sellers could buy back in and keep pushing this market higher.  The longer we hold these levels, the more likely this outcome becomes, especially if we consolidation stretches out and gives the 50 and 200dma time to catch up.

AAPL daily at 1:31 EDT

INDIVIDUAL STOCKS

AAPL recovered a large chunk of yesterday’s selloff.  This could simply be a dead-cat bounce as shorts cover for a tidy profits after the recent selloff.  Buying at $430 is less convincing when the stock couldn’t attract support above the 50dma.  Anyone who wanted to buy the dip already bought it, meaning there are few buyers waiting in the wings to prop this name up.  Look for more weakness as hopeful bulls sour on this name.  I don’t see a rebound in this name until everyone has given up on it and stops defending it.

Stay safe