Category Archives for "End of Day Analysis"

Back near record highs

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks added to yesterday’s gains and recovered most of last week’s modest Crimea selloff.  Volume was  light for a second day as many buyers take a wait-and-see attitude toward this rebound.

MARKET SENTIMENT
Owners remain confident while everyone else stays cautious.  Last week’s selloff came on unusually restrained volume given the volatility and headline risk.  This week’s rebound continues the suspiciously light volume.  What this tells us is most owners are perfectly content holding on to what they have regardless of the price action or headlines.  This is a dramatic shift in sentiment from 2013 where the market was constantly spooked by an endless stream of bearish headlines.  Last year many were afraid to own stocks, this year they are afraid to sell them.

While many will claim complacency is a sign we are at a top, by itself complacency is bullish.  When no one wants to sell, supply becomes tight, making it easy for markets to rally on low volume.  Complacency doesn’t kill bull markets, lack of new buyers does.  Rather than focus on owner’s confidence, we need to look at who is buying record highs.  Last year’s bond market selloff flushed many long time bond owners out of that market and their shift to equities propped up stocks.  But we’ve seen a rally in bonds in recent months, taking pressure off bond owners.  This means there are fewer bond sellers and less money to reallocate to equities.  Other investors fled volatility and uncertainty overseas, causing them to seek the safety and security of US equity markets, but those that are still in foreign markets are probably in it for the long haul and we should expect the flow of international investment in our markets to slow.  While it doesn’t take much demand to prop up prices when confident owners keep supply tight, we need to see new money continue flowing into our markets to extend this bull market.

TRADING OPPORTUNITIES
Expected Outcome: Near record highs, but vulnerable to a pullback into the trading range
Stocks are rebounding on light volume, showing low participation on the buy-side.  We can continue heading higher as long as owners stubbornly hold on to their positions, but waning demand threatens to let us slip back into the 1,750-1,850 trading range.

Alternate Outcome:
Nothing gets people excited about stocks like rising prices.  Those left out of the rebound from the 2009 lows are starting to warm up to stocks again as they hear about all the money their neighbors and coworkers are making in the market.  While this can keep pushing us higher for months, these buyers are usually the last to show up before prices roll over so be careful.

Trading Plan:
While it feels like the market wants to challenge 1,900, this is the later stages of this rally leg and we should be taking profits, not establishing new positions.  While we are in a decade long secular bull market and buy and hold investors can sit tight, expect intermediate dips along the way.  Shorter timeframe traders should continue buying weakness and selling strength.

Plan your trade; trade your plan

Relief rally

By Jani Ziedins | End of Day Analysis

End of Day Update

MARKET BEHAVIOR
Stocks recovered a portion of last week’s losses in one of the lowest volume sessions of the year.  We reclaimed 1,850 support and remain above the 50dma.

MARKET SENTIMENT
The market didn’t bounce Monday because dip buyers flooded the market, but because existing owners were uninterested in selling and the resulting tight supply supported prices.  While nothing improved over the weekend, things didn’t get worse either.  Sometimes no new bad news is enough to calm nerves.  Given the low volume rebound, this only reassured owners and kept them from selling while most prospective buyers continue waiting for more clarity before rushing in to buy.  Even though tight supply can slow the slide, we need conviction from buyers to push us back to new highs.  So far buyers are not feeling it and we need to be suspicious of this rebound.

TRADING OPPORTUNITIES
Expected Outcome: At the upper end of the range and vulnerable to a pullback as geopolitical risks loom large
Sometimes the market blows risks out of proportion, others it under appreciates the dangers.  Given the market is 1.3% from record highs, the market is many things, but panicked over current events is not one of them.  While this situation could play out exactly as the market predicts, we are vulnerable to a selloff if anything unexpected comes up.  We only get paid to own risk when we buy at a discount and it is hard to justify owning here for a measly 1.3% discount.

Alternate Outcome:
Selloff or not, if people are talking about something, it is priced in.  While we are barely off the highs despite this geopolitical risks, we could be significantly higher without them.  Once the market moves past this headline cycle, it could easily pop as we catch up to where we should have been.  We don’t need to selloff in order for there to be attractive values.

Trading Plan:
While the situation will most likely resolve itself as the market expects, we are not getting paid to own the risks near all-time highs.  We could go higher from here, but the risk/reward is not in our favor and doesn’t setup a favorable trade.

Plan your trade; trade your plan

Breaking support

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks opened higher, but plummeted into the red, crashing through prior support at 1,850.  Volume was barely above average, suggesting the selling was not nearly as dramatic as the price-action made it appear.

MARKET SENTIMENT
We closed a few points under 1,850 and triggered a wave of automatic stop-loss selling under this support level, but this where the selling stalled, not accelerated.  Flushing out any and all with an itchy trigger finger makes it easier for the market to find a floor on Friday.

Last week we rallied in the face of weak Chinese data and political confrontation in Ukraine, but this week we sold off on the same headlines.  Rather than attribute this strength and weakness to headlines, it appears to simply be typical market gyrations.  Modestly above average volume on such a “shockingly large” decline suggest this weakness was more due to a lack of demand than heard based selling.  We’ve come a long way on all timescales and after running out of momentum chasers and short-covering, a wider pool of prospective buyers seems uninterested in paying record highs for stocks.

While weak demand is weighing on stocks here, we need to see previously confident owners change their minds and sell if this weakness is to accelerate lower.  Through multiple dips, most owners showed they are comfortable holding headline risk and seem unphased by weakness here and there.  That confidence in the future keeps supply off the market and make it easier to find a bottom.  This rally will end like every one before it, but first we need a catalyst to shatter owners’ confidence.  So far that still seems missing.

TRADING OPPORTUNITIES
Expected Outcome: Stalling near upper end of trading range.  Vulnerable to a larger selloff, but need a catalyst.
Markets slipped today, but this 1% dip is unlikely to concern many owners who have confidently sat through bigger selloffs in recent months.  As long as they keep holding, it will be hard to enter a downward spiral of selling.  For that we need something to interject a large amount of uncertainty into the market.  While Ukraine could be that catalyst, the market’s ambivalence last week shows most traders are not buying Obama’s and Putin’s bluffs.  While the market is vulnerable to a bigger selloff, look for it to find a floor soon unless headlines take a significant turn for the worse.

Alternate Outcome:
Sometimes markets fall for no other reason than herd driven selling.  If the market crashes through the 50dma, expect many traders to adopt a sell first, ask questions later approach to risk management.

Trading Plan:
If the selloff stalls on Friday, we could be in the mist of another buyable dip.  For the short thesis to work, we need far more scary headlines to shatter the market’s confidence.

Plan your trade; trade your plan

Dipping under 1,870

By Jani Ziedins | End of Day Analysis

End of Day Update

MARKET BEHAVIOR
Stocks gave up early gains and finished in the red for the second consecutive day.  We broke under recent support at 1,870, but the “free-fall” only pushed us down a few more points before bouncing off 1,865.  Volume was higher than yesterday, but still below average.

MARKET SENTIMENT
Without any real headlines to attribute today’s weakness, the media blamed “profit-taking”.  Despite breaking recent support, we didn’t see sellers flood the market as volume remained constrained, meaning today’s weakness was more due to a lack of buying than wave of selling.

Most owners remain confident and are waiting for higher prices.  Every time they sold weakness in the last couple years was a mistake and traders have become conditioned to hold weakness and buy dips.  While it’s worked to this point, we need to be more careful the less fearful traders become.

TRADING OPPORTUNITIES
Expected Outcome:  Near upper end of trading range
Momentum remains higher and so far today’s weakness doesn’t look like anything more than the normal ebb and flow of supply and demand.  Down days are a normal part of going higher and without fearful headlines, expect any weakness to be short-lived as owners confidently hold through modest dips.

Alternate Outcome:
Markets often move as a herd.  Typically it takes something to spook the herd into a stampede, but sometimes selling begetting selling is all that is needed.  Journalists always invent reasons after the fact, but sometimes people sell for no other reason than other people are selling.

Trading Plan:
Some weakness here helps keep the market fresh, but the downside risk of owning sill out weights the upside reward of a grind higher.  Long-term owners can continue holding, but intermediate traders should consider locking in recent gains.

Plan your trade; trade your plan

 

Holding 1,870

By Jani Ziedins | End of Day Analysis

End of Day Update

MARKET BEHAVIOR
Stocks recovered to flat after slipping modestly in early trade as they continue finding support at 1,870 for the fourth consecutive day.

MARKET SENTIMENT
The market remains near all-time highs because owners and buyers keep believing in these levels.  We’ve seen multiple headlines that could have sent us tumbling if this rally was fragile and over-extended.  Instead it ignored this “noise” and suggests we are standing on firm ground.  Today’s trade was on light volume, showing this strength was due more to reluctance by owners to sell than buyer’s enthusiasm to buy.  Since price is derived from both supply and demand, as long as owners remain confident and reluctant to sell, the resulting tight supply supports prices.

TRADING OPPORTUNITIES
Expected Outcome: Upper end of trading range
Markets often oscillate around the “right” price.  Sometimes they are too high, and others too low.  Since there is virtually no fear in the markets, that suggests it is more likely we are too high, rather than too low.  This makes it a riskier time to own stocks since the upside is more limited than the downside.  Momentum is clearly higher, but the risk/reward of owning here not great.  The best profit opportunities come from buying fear and selling confidence.

Alternate Outcome:
The recent dip to 1,740 cleared many weak holders and left us with a confident ownership more willing to hold risk and volatility.  When no one is interested in selling headlines or weakness, markets march higher.

Trading Plan:
Stocks are the most risky to own when it feels the safest.  Be careful with long positions here as the potential upside is dwarfed by the risk below.  Long-term owners can continue holding, but they should wait for better prices before adding to positions.  Short-term traders should lighten up and bears can jump on violations of support.

Plan your trade; trade your plan

Sideways is constructive

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks closed practically unchanged for the third consecutive day as buyers keep holding the market near all-time highs.  While we ended flat, there have been countless sharp intraday declines that always bounced back nearly as quickly as they came.  No matter how swift the dip, it never picked up momentum and the selling stalled.  Volume has been elevated the last three days, showing a good amount of churn.  Is this smart money getting out, or day traders chasing their tail as they overreact to every head fake the market throws at them?  We will know the answer soon enough.

MARKET SENTIMENT
Friday’s headline event is December’s employment report.  Many expect respectable gains around 200k as the recovery slowly picks up steam.  But to be honest, it’s been years since good or bad employment numbers triggered sustained moves.  Lately we’ve seen near-term volatility immediately after the release, but then the market quickly moves on to other ideas and concerns.  Of course looking back over the last year, no matter what headline or report came out, the market kept marching higher.

While this rally cannot continue forever, seeing the market bounce after every attempted selloff is supportive.  Fragile markets crack easily and this one is extremely resilient with all these bounces off 1,830.  People sell for many reasons, but they only buy for one, because they think prices will continue higher.  No matter how much selling bears and profit-takers throw at the market, buyers soaked up all that supply.  Markets typically roll over quickly and holding 1,830 for 6-days after repeated attempted selloffs is bullish.

TRADING OPPORTUNITIES
Expected Outcome:
While many expect decent employment numbers in the morning, it is only one piece traders are using to evaluate the market and economy.  A little above or below expectations will be a non-issue.  Since Taper is a done deal, the market no longer fears too good, so we don’t need to worry about that.  No matter what numbers we put up, it will remove one more risk factor and uncertainty.  As long as it isn’t horrible, expect the prior trend to continue.

Alternate Outcome:
Recent high-volume trade could be interpreted as distribution.  If smart money is getting out, we could see the market roll over fairly quickly once we run out of “next greater fools”.  Of course the best signal this is happening is declining prices.  As long as we remain near all-time highs, we have a sufficient supply of buyers willing to support the market.

Trading Plan:
Either we coast higher or collapse lower.  Holding 1,830 is supportive and expect new highs.  But if we violate support, especially the 50dma and 1,800, this will turn into the correction people have long been calling for.

Plan your trade; trade your plan

Cannot Fight the Market

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks keep bouncing off 1,825.  We tested this level five times since the start of the year and every time buyers prop it up.

MARKET SENTIMENT
Weak markets roll over quickly and this one had plenty of opportunities to breakdown, but the inability to do so is a gigantic signal to us.    Today’s trade had two sharp dips near 1,830, yet the selling never gained momentum and we bounced right back.  With every invitation to selloff, yet holding firm, shows this market is not ready to pullback no matter how bullish sentiment appears.  Holders continue holding and buyers keep buying.  While this market is getting overheated, there is no reason it cannot keep getting hotter, and that is exactly what keeps happening.  In spite of conventional wisdom, complacency is extremely bullish…….until it isn’t.  As long as owners continue holding the dips, supply remains tight and it only takes modest demand to push us to new highs.

TRADING OPPORTUNITIES
Expected Outcome:
Clearly I’ve been premature with my expectations of demand drying up, and in the market early is the same thing as wrong.  Strong bullish sentiment makes this market vulnerable to unexpected surprises, but expect clear sailing until then.

Alternate Outcome:
We can ride this wave higher, but the margin for error gets smaller with each uptick in sentiment.  Stay paranoid and be ready to bail at the first signs of trouble.

Trading Plan:
This market wants to go higher.  Reasons don’t matter, we just need to ride along.  We can own here with a stop under recent lows, near 1,823.  Expect market participants to keep finding reasons to buy and continue holding until something scares them out.  Just make sure we stay close to the exits.

INDIVIDUAL STOCKS
AAPL hasn’t enjoyed the markets recent strength as it retests the 50dma following the widely expected China Mobile deal.  What many bulls predicted to be a huge upside catalyst was instead met with a yawn.  Everyone points to the great valuation, but when so many people are bullish on a stock, it is often better to take the other side of the trade.  Those who want AAPL already own it and there are few left to buy it now that all the widely predicted catalysts are behind us (buyback, dividend, product refreshes, and now China Mobile).

Tech hardware is a brutal business and few thrive for more than a single product cycle.  AAPL’s had the unusually good fortune to hit three consecutive home runs with the iPod, iPhone, and iPad, but its been nearly four years since AAPL disrupted the industry with radically innovative products.  While they continue printing money with their existing devices, it seems feels like they are being out-innovated by the competition.

Plan your trade; trade your plan

New Mood

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks showed healthy gains for the first time in 2014 and we finished up 0.6%.  We recovered the last two days of losses and are only a dozen points off the New Year’s Eve highs.  The market broke above recent resistance at 1,810 and is in the upper end of a trading channel that stretches back to the November 2012 lows.

MARKET SENTIMENT
2013 was a great year and many think we cannot produce a repeat performance in 2014.  A recent Yahoo Finance poll shows most people expect more modest gains this year.  As contrarians, if we discount what the crowd predicts, that leaves us with three other outcomes; up a lot, down a little, and down a lot.  While intuition tells us lightening doesn’t strike the same place twice, the market often strings together multiple years of eye-popping performances during powerful bull markets like the unstoppable 80’s and 90’s.  Modestly lower is always a possibility if the fragile recovery stalls for a few quarters.  Recent gains were predicated on the expected recovery and any hiccups in company earnings will pressure stocks.  Much lower requires dramatic new developments traders don’t see coming.  Since worries are few and far between, the market is vulnerable to a cascade of selling like we saw following the US debt downgrade in 2011.

If a person is bullish, then they can be really bullish.  If a person is bearish, they need to decide if that is modestly bearish because they think the market is a little ahead of itself, or if they are a lot bearish because they think the market is oblivious to major risk factors not currently priced in.

Today’s bounce following three days of modest selling shows owners are content owning and few are locking in recent profits.  While complacency is often seen as a bad word in markets, in reality it is often bullish because complacent owners hold through volatility and that keeps supply out of the market.  Only after we run out of buyers does complacency become a problem as traders continue holding while the market keeps sliding lower.

TRADING OPPORTUNITIES
Expected Outcome:
How do we tell the difference between bullish complacency and bearish complacency?  Easy, the market keeps going higher on bullish complacency and bearish complacency  forms a series of lower highs.  Since we are within 1% of all-time highs, it is premature to call this complacency bearish.  That doesn’t mean we cannot see normal gyrations as the market consolidates recent gains, but so far recent market trade points to bullish complacency.

Alternate Outcome:
Quarters often exhibit different personalities as the herd changes trading strategies.  Sometimes they chase the market higher, other times they all sell together, and most often they cannot make up their mind and we get stuck inside a trading range.  Q4 of 2013 was a chasing quarter.  If the market changes its mood, that leaves us with either a sideways consolidation or a reversal of trend.  Time will tell, but price will give us tradable clues.

Trading Plan:
It always comes down to timeframe.  Longer-term holders can continue holding for the eventual economic recovery.  Shorter-term traders can look for a trading range to develop following the strong Q4 performance and swing trade the consolidation.  Value investors are finding it increasingly difficult to identify good buys.  Some are digging to the bottom of the barrel and betting on laggards catching up, but patient managers are waiting for the inevitable five or ten percent dip that happens every year.

Plan your trade; trade your plan

Welcome to 2014

By Jani Ziedins | End of Day Analysis

Intraday Analysis

MARKET BEHAVIOR
Stocks slipped for a third consecutive day as they stumble into the new year.  Volume was slightly above average as traders return from Christmas vacation and get back to work.  The market cleared prior resistance near 1,810 and broke to new highs in the final weeks of 2013, but it would not be unusual for it to retrace those low-volume gains and test support at 1,810.  Holding support shows broad support for these new highs and builds a solid foundation for further gains in coming weeks.  Failing to hold the breakout shows big money doesn’t support the move orchestrated by a smaller pool of holiday traders.

MARKET SENTIMENT
Stocks ran up in light volume over the holidays, quarter end, and year-end, but investors have shown less enthusiasm in buying these new highs following a change in the calendar.  No doubt there was lots of portfolio shuffling into quarter and year-end for window dressing and tax reasons.  But now that we are in a new year and these strictly bureaucratic maneuverings are behind us, few are willing to continue bidding up stocks.

The only overhang coming into December was the inevitable Taper.  Some feared a selloff on the winding down of easy money, but in typical market fashion we saw the exact opposite as the market surged on the news.  With Taper anxiety and uncertainty behind us, there is nothing holding this market back.  While that sounds extremely bullish, we must remember that strong moves follow heavy weights being lifted from the market as reality turns out less bad than feared.  Without fear to fuel this rally, the only thing left is letting momentum carry us higher, and so far that’s been working.

The risk is when the market doesn’t have fear, there is plenty of room for it to become fearful.  While no one knows what the market’s next obsession will be, the market is a worrier by nature and we all know it is coming.  The last time the market was this complacent we fell nearly 20% on a US credit downgrade.  While it is always possible to skate obliviously on thin ice for hours without falling in, all it takes is one bad headline to ruin our day.

TRADING OPPORTUNITIES
Expected Outcome:
The market needs to consolidate the low-volume holiday gains and three days of selling is hardly alarm-worthy.  Failing to hold support at 1,810 and 1,800 is where things get interesting, but without any fear inducing catalyst, expect momentum to continue carrying us higher.

Alternate Outcome:
Rallies die only after most stop calling for a top.  While recent strength silenced most of the critics, has complacency finally sucked in the last of the buyers and set the stage for a reversal on lack of demand?  Price is truth and failing to hold support will be our best signal the supply of willing buyers is drying up.

Trading Plan:
Look for support near 1,810 to demonstrate support for recent gains.  Hold these levels into next week and expect new highs.  Fail to hold support and things get interesting.

Plan your trade; trade your plan

Pausing or stalling?

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks dipped in early trade, but rallied back to breakeven by the close.  We stopped just shy of resistance at 1,810 as buyers were unwilling to chase the market higher for a second day.

MARKET SENTIMENT
Depending on your point of view, either the market took a break following yesterday’s impressive rally, or it stalled as demand dried up.

In this afternoon’s post, I discussed who is sitting out of this market and what it will take to get them back in.  Tonight, I will look at who is already in the market.

Momentum traders are on board this rally.  They learned months ago it is futile second guess this strength since they regretted every dip they sold because it quickly rebounded to new highs.  Last week they said markets will continue higher because of QE.  Now they say we don’t need QE to keep on going.  At this point they  just invent reasons to keep holding.

Paranoid traders who avoided this market because of Fiscal Cliff, Sequester, Obamacare, Contagion, Shut Down, Debt Ceiling, etc no longer have an excuse to not own this market.  Now Taper’s come and gone, there is nothing to fear except being left behind.

It is easy to forget about the buy and hold crowd since they never trade.  They don’t buy much and sell even less, making them mostly a ghost when trying to anticipate near-term market moves.

Most shorts bought with both hands yesterday as they were forced to cover on the strong rebound.  All that are left is the most stubborn shorts who are unlikely to buy back their shorts no matter how high this goes.

An entire herd of former bears are now enthusiastic bulls.  These traders blow with the wind and are the ones who helped us go from 20% bulls a few months ago to nearly 70% now.  As they changed their mind, their buying fueled this rally to all-time highs.  But the remaining 20% bears are a stubborn bunch and we have better shot at getting Bozo the Clown elected president than persuading any of these hardened bears to join the party.

TRADING OPPORTUNITIES
Expected Outcome:
While I respect yesterday’s extremely bullish reversal, I have a hard time getting excited about a market with so few buyers left to keep pushing this rock uphill.  Call me stubborn, early, wrong, or better yet all three, but I simply cannot embracing the market here.  I’ve been a raging bull since the bottom back in November 2012, but there just comes a point when expecting continued strength doesn’t make sense any more.

While the largely meaningless trade of the next couple weeks is unlikely to move the market far, things will get interesting in January, especially once some of the early adopters of this rally pass the 12-month mark and can start locking in long-term capital gains.

Alternate Outcome:
These things go longer and further than anyone expects.  That is clearly the case for this rally that most called a dead cat bounce back in January.  While the ranks of bears and cynics thins by the day, their capitulation buying is what keeps this rally alive.

Trading Plan:
We are coming into year-end and volume will drop dramatically next week.  Low volume allows smaller trades to have a larger impact on prices and we should expect increased volatility.  Maybe we run up, maybe we come down, or maybe we just chop around, but without the big players the market behaves far less predictably.  Buy and hold can sit through it, but the rest of us should consider taking some time off.

Plan your trade; trade your plan

Taper rally?

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Huge intraday reversal following the Fed’s policy statement that formally launched Tapering, yet pledged to keep interest rates low for years to come.  The day’s range was well over 40-points on 30% above average volume.  Following the initial Taper surge, prices continued ramping into the close as bears were scrambling to buy back their shorts.

 

MARKET SENTIMENT
The market loves to surprise us.  Few expected a strong performance following a Taper  announcement.  In May we tanked in the year’s biggest sell off on a hint of Taper.  In September we surged when the Fed surprised us by not Tapering.  But today we ramped up even more on the announcement of Taper.  The two most likely explanations are the promise of low-interest rates for as far as the eye can see.  The other is removing uncertainty.  Now the market no longer needs to worry about Taper since we know exactly what the game plan is.

The interest rate justification is a bit fishy since the Fed has long promised to keep interest rates near zero.  The other thing is this move is through conventional means that mostly affect short-term interest rates.  Long-term interest rates will largely be set by the market once the Fed’s bond buying program winds down.  The one potential concern for the market is a material portion of this rally’s success stems from companies buying stock financed through ultra cheap bond issuances.  With increased interest rates on the long end of the curve, companies are less likely to continue buying their stock at the same rates.

Without a doubt actual volatility is ramping up as we keep whipping between 1,780 and 1,810 over the last several weeks, but implied volatility tanked today as demand for options plunged due to today’s strength and the elimination of uncertainty surrounding Taper.  A potential red flag is volatility typically increases at market tops due to the messy power transition between bulls and bears.

Trading Opportunities
Expected Outcome:
While I still don’t trust this market, today’s strength in the face of what should have been a selloff shows this market is standing on firm footing.  Sentiment cannot remain at current levels indefinitely, but so far owners refuse to sell their stocks no matter what the headline.  This confidence keeps supply tight and supports prices.

Alternate Outcome:
While today was not the day the market resets sentiment to more sustainable levels, that day is coming and we need to tread lightly.  The safer the market feels, the more dangerous it is.

Trading Plan:
If the market adds to gains tomorrow, a trader can buy with a stop at 1,810 and cost into year-end.  Those that are already in the market need to grow increasingly cautious and protective of recent gains.  Move up your trailing stops up and remember, the more comfortable you are with your positions, the more nervous you should be.  It is tough to be short given this market’s resilience, but the most bold can short this strength if we fail to add to today’s gains on Thursday.  Use a stop above Wednesday’s highs.

INDIVIDUAL STOCKS
AAPL didn’t participate in today’s rebound because China Mobile has not announced the iPhone yet.  Best guess is they are trying to extract better pricing from AAPL.  If China Mobile wins concessions from AAPL, that likely means other carriers will follow.   A couple of years ago AAPL was in the driver’s seat when it had the only smart phone people wanted.  But with Android clones dominating market, AAPL is in a weaker position and phone companies will likely pressure AAPL’s revenues, margins, and earnings.

Plan your trade; trade your plan

Hope, Fear, and QE

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks gave up five-points Tuesday, failing to hold Monday’s rebound.  The market briefly slipped under 1,780, but recovered this support level by midday.  It is at the lower end of the recent 1,780 to 1,810 range.  Falling under this level will likely lead to further selling, a test of the 50dma, and prior support at 1,750.  If the market holds current levels through the end of this week, it will likely rally in the final weeks of the year.

MARKET SENTIMENT
Fear Taper, hope for no-Taper, or don’t care.  Those are the three attitudes the crowd can take toward the Fed’s policy statement.  The reason we want to gauge sentiment is it is often profitable to take the other side of the trade.  This isn’t because the crowd is “dumb money” but because the crowd’s opinion is already priced in and supply and demand dictates the market will do something else.

If the crowd fears Taper, it will come into the policy statement underweight so it won’t be hurt by the anticipated selloff.  That means most of the selling already happened, making it far easier for the market to rally on the news.

If it hopes for no-Taper, it is holding through recent weakness, expecting the Fed’s non-move will lead to yet another surge in prices.  But since most already own stocks coming into the event, there are few left to buy the news and that lack of demand makes it harder to support current levels.

And finally, if few change their mind based on the Fed statement, the crowd will maintain current positions and the lack of trade will keep up the status quo.

TRADING OPPORTUNITIES
Expected Outcome:
Since there is little fear in the market, it doesn’t seem like the market sold ahead of Wednesday’s policy statement  Without an ample supply of underweight traders to buy the news, it is unlikely we will get a no-Taper pop we’ve seen following past meetings.  And since so few people sold ahead of time, that leaves a large supply of optimistic owners that could easily become nervous sellers.

Alternate Outcome:
A month of sideways trade saw cautious owners lock in profits bears lay on short positions.  These traders are ready-made buyers if the Fed forces them to chase a surge higher.

Trading Plan:
Given bullish sentiment and proximity to all-time highs, the potential for an explosive move higher is limited.  On the other hand, given those same conditions, we are vulnerable to a material selloff if confident owners become fearful sellers.  Nothing shatters confidence like seeing everyone else rush for the exits.  While the high probability is sticking with the up-trend, the potential for a larger move is to the downside.  How a person trades this setup is up to their style, risk appetite, and trading plan.

INDIVIDUAL STOCKS
AAPL bulls got an early Christmas present with the China Mobile announcement, but the stock is surprisingly down on the news.  It seems like everyone widely expected it and there was no one left to buy the news.  Now that all the positive catalysts of product refreshes, buybacks, dividend increases, and China Mobile are behind us, what is left to convince people to bid up the stock?  If the story returns to decreasing profits, margins, and market share, this might be a good time to lock in recent profits and wait to buy the stock back at lower levels.

Plan your trade; trade your plan

Market bounce

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks reclaimed 1,780 in early trade and held this level through the close.  Volume was higher than Friday, but still below average.  The market is inside of the 1,780 to 1,810 trading range still holding above the 50dma.

MARKET SENTIMENT
The talking heads are going round and round over whether the Fed will announce a reduction in QE on Wednesday.  Some say yes, most say no, but the consensus is the Fed will come out with strong language preparing the market for a slow withdrawal of fiscal stimulus in coming months.

Today’s rebound started strong, but failed to add to early gains and settled 5-point off the early highs.  Many traders are simply waiting for the Fed’s policy statement before adjusting their positions.  No doubt if there is a post-Fed pop, today’s strength brought some of that buying forward and makes an explosive move higher less likely.

TRADING OPPORTUNITIES
Expected Outcome:
The market remains in no man’s land, stuck between,780 to 1,810.  At this point it is a coin-flip if we get Taper.  The consensus seems to expect no Taper, so it is likely priced in.  We could get a short-lived bounce as news driven traders chase the move, but expect the market to quickly return the previous state.  Over the last couple weeks, the market has a couple lower-lows and lower-highs following the Thanksgiving all-time high.  Since then traders have been reluctant to buy near the highs and the market drifted lower on light demand.  (heavy selling is accompanied by above average volume)  Unless the market is shocked by good news out of the Fed, expect the light-volume drift lower to continue after the Fed induced volatility passes.

Alternate Outcome:
The market made it most of the way to the 50dma and often we don’t need more than that before refreshing the rally.  Without a scary headline, holders don’t have a reason to sell and are happy to own stock at these levels.  As long as they refuse to sell into weakness, supply will remain tight and it will be easy for the market to bounce on modest demand.

Trading Plan:
So close to the Fed statement, it is a bit late to put on a trade.  It is a binary trade and little more than a coin-flip, so the conservative approach is to trade the resulting move.  The most likely outcome seems to be an initial pop as the Fed kicks the can down the road, followed by weakness as most already expected this move and bought in anticipation.  Failing to hold 1,780 is sortable and surging above 1,800 is buyable.

Plan your trade; trade your plan

Still no dip buying

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks slipped for a third straight day, undercutting recent support at 1,780.  The next technical level is 1,760 and the 50dma.

MARKET SENTIMENT
Volume was surprisingly light for a second day as a wave of fear and panic selling failed to hit the market.  While this orderly selling can be bullish because it shows most holders are confident and unwilling to sell modest weakness, it also means there is a huge amount of potential selling still hanging over the market if fear and panic take hold.  Since trading volume is near average, it shows sellers are not showing up in droves and this weakness is primarily caused by a lack of demand as dip buyers remain MIA.  Is this because they are waiting for more attractive prices, or more worrisome, we are running out of new buyers willing to prop up the market near all-time highs.

TRADING OPPORTUNITIES
Expected Outcome:
At this point the near-term trend is down since we were unable to hold support at 1,800 Wednesday and 1,780 Thursday.  Low-volume selling indicates we are nowhere near capitulation and there is plenty of downside potential if the herd gets spooked and rushes for the exits. The next level to watch is 1,760 and the 50dma.  Where we go from there largely depends on how emotional traders become.  If they remain calm and collected, expect more selling.  This market is stalling on over bullishness and we need to reset sentiment before the rally can resume.

Alternate Outcome:
This dip will bounce at some point because they always do, the only debate is how low we go first.  We’ve seen a lot of distribution over the last three weeks with 12 of the last 18 days finishing in the red.  Anyone selling at the top has plenty of cash to buy the dip when it reaches an attractive level.  Recently we have been bouncing sooner and sooner and could very well could be on the verge of yet another rebound to new highs.  The key is reclaiming support at 1,780 and 1,800.  With the market so perfectly setup to selloff, if bears cannot get the job done, they show they are powerless to hold this rally back.

Trading Plan:
The new lines in the sand are 1,780 above and 1,760 below.  Reclaiming 1,780 shows buyers are finally stepping up to defend this rally.  Falling under 1,760 could finally trigger that high-volume wave of capitulation selling as confident owners turn into fearful sellers.  So far nothing indicates this move is more than a routine pullback to support, but given how much potential selling is still out there, things could get ugly in a hurry if fear takes over.

Plan your trade; trade your plan

Time to get out?

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
It was a bloody day in the markets as we gave back all of Friday’s employment pop.  The market is a couple of points above support at 1,780 and a dip under this level will trigger a second wave of stop-loss selling.  The market remains comfortably above the 50dma, but we will likely test this level if we cannot hold 1,780.

MARKET SENTIMENT
The question on everyone’s’ mind this afternoon was “buy the dip or sell before it is too late?”  This selloff roiled the calm ride we’ve had to this point.  This is far from a crash but it did serve as a wake up call for many traders.

Volume was only 7% above average, showing an orderly selloff without much panic.  This tells us the decline was more a function of buyers not showing up than a mass rush for the exits.  Like everything in the markets, there are two ways to read this.  The bullish view is confident owners don’t sell weakness and the market will quickly bounce on the lack of shares available for sale.  The bear’s counter argument is we haven’t seen the real wave of emotional selling hit the market yet.

For the first eleven months of the year I believed in the bulls argument that confident owners keep supply tight and prop up prices.  But given the dramatic shift in sentiment and churn in ownership from value oriented dip buyers to momentum chasers, I no longer have confidence in the resolve of owners to keep holding in the face of weakness.  These are buyers who rushed to the market once the coast was free of doom and gloom headlines.  These new, fair-weather owners are likely to be scared by their own shadow their selling will pressure markets.

TRADING OPPORTUNITIES
Expected Outcome:
It doesn’t feel like the dip is done.  The low volume selling shows we haven’t hit the emotional capitulation that often signals a bottom.  We will likely break support at 1,780 on Thursday and that stop-loss selling will trigger another leg lower.  The next stop from there will be the 50dma.  After that it largely depends on traders emotions.  Will confident owners keep holding and end the selloff?  Or will headlines screaming Taper cause many to throw out all their carefully laid plans and allow the herd selling destroys their resolve?

Alternate Outcome:
Every other dip this year felt like the real thing, why is this one any different?  We dip a couple percent, everyone gets all worked up, selling exhausts itself, and we make new highs a week later.  While this pattern cannot continue forever, its been the best trade of the year.

Trading Plan:
While we might see a modest bounce in the morning as dip-buyers try to defend 1,780, expect a fresh wave of selling to hit the market if this support level doesn’t hold.  How each trader responds to this move largely depends on their timeframe.  Nimble swing traders can short this violation of support with a stop above 1,780.  Intermediate-term traders looking to buy the dip should wait for lower prices.  Longer-viewed traders need to get ready to buy their favorite stocks when emotional owners are selling them at steep discounts.

While I expect further selling, the one thing that will turn me into a buyer is if we slip under 1,780 but bounce back decisively.  Failing to trigger another leg lower after breaking support shows the selling exhausted itself and this is yet another dip buying opportunity.

Plan your trade; trade your plan

Testing 1,800 again

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks slipped in modest trade as buyers took a break.  We remain near the upper end of the recent 1,780 to 1,810 trading range and barring any major headlines, we will likely bounce around these levels as the market consolidates recent gains.

MARKET SENTIMENT
It is not unusual for the market to cool off after Friday’s strong rebound and the previous 150-point run from the October lows.  While it is easy to grow enthusiastic following such strong moves, rationally we acknowledge that every day cannot be an up-day.  But is this just cooling off or hinting at far more insidious stalling?

Last Friday’s better than expected employment report erased a five-day losing streak, but since then buying has been fairly tepid.  Yesterday the market failed to punch through 1,811 three different times.  Market makers and HFTs love pushing us to new highs because that often triggers a short squeeze and stimulates trading that puts money in their pockets.  But if they didn’t have the strength to push us those last few points, we have to wonder if this latest rebound is already running out of gas.

Sentiment swung dramatically from the depths of the Budget Crisis and most measures of sentiment are near historical highs.  While these conditions can persist for long stretches of time, it does suggest upside is more limited if the crowd already embraced this market and is fully invested.  We need new buyers to keep pushing prices higher.

TRADING OPPORTUNITIES
Expected Outcome:
Previously 1,800 acted as support and it will be insightful to watch how the market responds now that we are just a couple of points above this support.  Do we bounce off it as the good times roll, or does last week’s slow-motion slide continue as we dip back into the 1,700s?  Supposedly our politicians are coming together around a budget deal, but if that good news fails to excite the market, that likely means most of the good news is already priced in and more selling is likely.

Don’t buy any of the chatter about bubbles, crashes, and the such.  Markets go up and markets go down.  It is as simple as that.  Don’t read too much into these periodic step back.

Alternate Outcome:
Bouncing off of 1,800 and setting new highs will prove there is still plenty of demand for this market at these prices and there is little else to do but hang on and enjoy the ride.

Trading Plan:
If the market is in a trading range, expect near-term weakness.  1,780 is an important level because we bounced off it and a large pile of stop-losses are littered under this level.  Slip under and it will likely set off a wave of selling and push us down to the 50dma.  If we bounce off 1,800 and make new highs, this rally is not ready to take a break.

Plan your trade; trade your plan

 

Don’t Worry, Be Happy

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks continued Friday’s strength and climbed three-points to finish at 1,808, setting a new closing high.  So far the market remains at the upper end of the recent trading range between 1,780 to 1,810 as it consolidates gains.  Are we about to hit our head on the upper end of this range, or breakout?  The market will let us know as early as Tuesday.

MARKET SENTIMENT
Friday’s stronger than expected employment report continues the “no worries” theme.  Traders no longer fret over impending doom and gloom the way they did through the first 10-months of the year.  We gradually eliminated all the major risk factors, including Fiscal Cliff, Sequester, Default, European Contagion, Shutdown, and Taper.  The market rallied strongly as these terrifying headlines turned into non-issues.  More evidence that buying when other people are fearful is a very profitable strategy.

But what happens to a rally that thrives on fear, runs out of fear?  So far momentum is continuing our ascent higher, but we must always ask ourselves who is the next  buyer?  Earlier in the year we had a plethora of money sitting on the sidelines in anticipation of the widely expected correction that never came.  As we conquered every risk thrown our way, reluctant money’s fear of a correction was replaced with a fear of being left behind.

It took a while, but the crowd finally embraced this market.  This is in stark contrast to this time last year when everyone was convinced the Fiscal Cliff was going to annihilate our fragile economy.  With hindsight as our guide, it is painfully obvious what a fantastic buying opportunity that was, but what about now?  Is it too easy to buy here?  Should that alone make us fearful?

TRADING OPPORTUNITIES
Expected Outcome:
When in doubt, stick with the trend.  That has been the right call all year and more recently we keep bouncing back from even the most benign dips.  Last week we were down an almost trivial two-percent from the highs before the employment rebound pushed us right back to record highs.  The question is if there are enough chasers left to continue buying these highs, or if last week’s five-day slide is a material sign of flagging demand.    While the economy is chugging along, markets rarely respond to fundamentals in obvious ways.  That would be too easy and we all know the market is anything but easy.

Alternate Outcome:
If I had a dollar for every time I heard someone say this market’s gone too far.  Those guys were forced to eat their words, so what makes this time any different?  If picking tops were easy, we’d all be hanging out on the beach in some tropical destination drinking ice-cold beverages instead of huddling around space heaters trying to survive this cold spell.

Trading Plan:
With so little fear remaining in the market, the probability of an explosive move higher is greatly diminished.  That leaves two options, a sideways grind higher, or the selloff everyone’s been waiting for.  We are quickly establishing a trading range between 1780 and 1810.  Since we are at the upper end of this range, look for recent strength to stall.  Depending on how dip-buyers respond, we could bounce at 1800, or slip to 1780.  Recent weakness set a floor at 1780 and many traders will use this level as a stop-loss.  Breaking through will trigger a wave of selling and we will quickly test the 50dma.  If we bounce, it becomes another routine dip-buying opportunity.

Plan your trade; trade your plan

Five in a Row

By Jani Ziedins | End of Day Analysis

End of Day Analysis

MARKET BEHAVIOR
Stocks slipped for a fifth consecutive day.  While that sounds worrisome, the declines are measured in tenths of a percent and after all that selling we are only 1.5% from all-time highs.

MARKET SENTIMENT
While the seemingly chronic weakness is weighing on the market’s spirit, it has not been enough to convince most traders to change their outlook or positions.  They keep holding in anticipation of the expected bounce and the selling has been so mild it isn’t applying pressure to holders.  Markets refresh after strong runs by flushing out the excess.  So far these five days have not provided us with a meaningful flush that forces weak hands from the market.  While we can bounce to new highs at any time, failing to reset the giddy sentiment will prevent it from being a meaningful and sustained move higher.

Friday morning brings the November jobs report.  The market was blown away by October’s unexpected strength in the face of the Gov’t shutdown and this week’s ADP numbers were also stronger than expected.  Both of these prior beats lay the framework for high expectations.  The challenge for bulls is finding their Goldilocks number.  Too high and it threatens easy money.  Too low and it signals economic weakness.  But what happens if we slip perfectly between these two landmines?  Do we surge higher, or are the raised expectations already priced in and there is little upside remaining.  Potentially we face a no-win situation if we run into a sell-the-news even if employment hits the sweet spot.  Too highs and traders sell, too low and traders sell, and just right, no one buys.  While this hypothetical is a bit exaggerated, it sure seems like there are more reasons to go down than up and that skew creates a trading opportunity.

TRADING OPPORTUNITIES
Expected Outcome:
Today’s failed follow through on the heels of yesterday’s impressive intraday bounce reveals cracks in the rally.  Every other time this year a strong reversal would leaded to a sustained move higher.  This time buyers are either waiting for more attractive levels or we exhausted the supply of new money.  While it is always risky to go against the trend, today’s weak trade following yesterday’s strong rebound signals a potential change in character.

Alternate Outcome:
The market hates being predictable and buying the dip is getting way too easy.  While the market could continue higher, it wants to convince everyone it is going lower first.  That means continued weakness until most bulls give up and most bears get cocky.  Only after that reversal in sentiment will prices bounce back with a vengeance.  The market moves on its schedule and it is often more patient than the rest of us.

Trading Plan:
As long as we remain under 1800, we need to be cautious.  Owners can lock in profits and dip-buyers should sit on their hands.  Wait for the market to prove itself by reclaiming and holding 1800 before jumping back in.  While we could pop above this support level soon after the jobs report, wait to see if the gains hold before chasing.  On the other side, bears can use any weakness to add shorts while keeping a tight stop above 1,800.

INDIVIDUAL STOCKS
All the good news is out for AAPL. We have new iPhones and iPads in time for Christmas and AAPL bulls got an early present with the leak that China Mobile will start selling the iPhone in coming weeks.  This was the most anticipated announcement all year, yet the stock closed up less than $3.  A good rule of thumb for retail investors, if you know something, then it is likely everyone else also knows it and it is already priced into the stock.  Today’s non move on the China Mobile headline is more indicative of a buy the rumor, sell the news trade and any owners should move up their trailing stops.

TSLA is consolidating recent gains following the German stamp of approval on the car’s batteries.  Any broad market weakness will likely hit this stock doubly hard, so it is still a no-touch until both the market and stock prove they are ready to continue higher.  For TSLA that means clearing the 50dma.

Plan your trade; trade your plan

Testing support at 1800

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks dipped for a second day, but managed to hang on to 1800.  This level was resistance in early November and is now providing support here.

MARKET SENTIMENT
Much of the recent chatter and articles revolve around defending why we are not in a bubble, or talking about the Santa Claus Rally.  While there is cynicism around the edges, far more people are making excuses to hold than claiming this is a golden shorting opportunity.   That is a remarkable shift from a few months ago when the consensus was calling for a pullback.

Sir John Templeton famously said  “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”  We are clearly past pessimism and skepticism, the only question is if this is optimism or euphoria.  This morning the Stocktwits’ SPY sentiment gage was well over 70% bullish, far and away the highest reading of the year.  While not a scientific sample and valid way to extrapolate broad market sentiment, it does give us insight into which side is confidently bragging about their positions.  As the saying goes, hubris precedes the fall.

While sentiment measures make poor timing signals because we never know how far is too far, they do give us a good sense of which direction the market is poised to move.  Since there are few worries holding this market back, it is hard to imagine a single piece of good news that will launch us higher.  On the other hand, one piece of bad news could easily send us into a tailspin.

TRADING OPPORTUNITIES
Expected Outcome:
While a trend is more likely to continue than reverse, we also need to account for the risk/reward for each trade.  While the market could easily continue inching higher, the potential for a big move is to the downside.  While it rarely makes sense to take big risks for small returns, buying calls is one way to squeeze every last drop out of this up-move while also managing downside risk.

Alternate Outcome:
The problem with sentiment is we never know how far is too far until after the fact.  This market could continue grinding higher through next year as the wider population embraces stocks for the first time in five years.  While this outcome relies heavily on the next greater fool theory, it does happen and we need to watch for it.

Trading Plan:
1800 is the line in the sand.  If dip buyers fail to defend this level, it signals further downside.  The 50dma is back at 1750 and retesting this level is not unreasonable and actually constructive for continuing this rally into next year.  If the market holds 1800, expect a slow grind higher for the rest of the month.

INDIVIDUAL STOCKS
AAPL stock had a strong Thanksgiving week as it rallied in anticipation of a good holiday shopping season. It made new high ground today, but stumbled and finished weak along with the broad market.  If we experience further weakness in the indexes, expect AAPL to give up most of these recent gains.  There is no reason for a bull to chase the stock up here and we will have the opportunity to get in closer to the 50dma.

TSLA is trading sideways in the $120s.  It failed to put in a V-bottom and is instead consolidating.  Chances are we have not seen the real capitulation selling yet.  A dip back under $100 would go a long way to stamping out the previously unbridled enthusiasms for this small car company with a huge market cap.  At this point it is hands off and is more gambling than investing.  It could continue sliding to $100 or rally $40.  It is just a coin-flip.  Anyone tempted to buy this dip should continue waiting and let the stock prove itself first.  Better to be a little late than a lot early.

Plan your trade; trade your plan

 

Slow holiday week

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks gave up a modest 0.1% in a light, holiday week session.

MARKET SENTIMENT
Most of the senior traders are on vacation, leaving junior guys in charge of the trading desks.  That explains the light volume, but it also gives us insight into the kind of moves we might expect.  Most of the intelligent thought occurs on the buying side of a trade and is the domain of the most experienced managers.  On the selling side, they largely have set profit targets and stop-losses that trigger sales.  With the senior guys on vacation, we shouldn’t expect rookie traders to initiate new positions or buy dips without the oversight and approval of their bosses.  On the other hand, they do have their orders to sell when stocks hit predetermined price levels.  Limited buying authority and strict sell rules create the potential for a larger than normal selloff  since there will be fewer buyers ready to catch the dip.  That doesn’t mean this will happen, but we should expect fewer dip buyers if we stumble into some weakness.

TRADING OPPORTUNITIES
Expected Outcome:
With few traders looking to buy aggressively this week, we shouldn’t expect a strong move higher.  On the other hand, crossing stop-losses could trigger a wave of selling and we could fall further than expected without the support of dip buyers.

Alternate Outcome:
We have stop-losses on both sides of the market and any strength could trigger a short squeeze, sending us even higher.  Given the low volume of the holiday week, it doesn’t take much buying to move the markets sharply higher.

Trading Plan:
This skew between buying and selling authority over the holiday week sets up a favorable short given the potential for limited dip buying in the face of any weakness.  Or the simpler move is sitting out the low-volume week and taking a well deserved break from the markets.

INDIVIDUAL STOCKS
FB continues to struggle following its most recent earnings call where the company hinted at weakness among young users.  On the opposite side, NFLX seems to be recovering from its earnings call driven selloff when Reed Hastings suggested the stock might be ahead of itself.  While not close to the post-earnings spike, the stock is staying well above the 50dma and challenging $350.

AAPL is consolidating recent gains and letting the 50dma catch up as owners hope for a strong holiday season.  With all new iPhones and iPads, this is the time for the company to reverse the market share losses and reclaim some of its mojo.  AAPL bulls are wishing for a China Mobile deal for Christmas, but while they’ve been waiting years for this deal, Android has become the smartphone of choice and AAPL’s China marketshare is in the single digits.  Will wealthy Chinese really dump their five-inch Android phones for the cool looks of an iPhone?  Only time will tell.

Plan your trade; trade your plan