Category Archives for "End of Day Analysis"

Next greater fool

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks recovered the bulk of the last three days of selling and finished a few points shy of 1,800.  Volume was higher than the three prior down-days, but below average as we approach next week’s holiday shortened week.

MARKET SENTIMENT
Dip buyers jumped in and reversed this week’s modest selloff.  If buyers continue supporting these levels in coming days, that invalidates the thesis we are running out of buyers.  Markets often roll over quickly and holding up here for a couple more days prevents us from seeing that quick move lower.  Often that means the next is higher.

Markets roll over for one of two reasons, bad news but also paradoxically, good news.  The first one speaks for itself and there is no reason to cover it here.  The other is running out of buyers when the bull market wins over last of the fearful and finally convinces everyone to buy.  It successfully defeats every objection these pessimists have and they rush in as the final piece of good news falls into place.  From then on, it doesn’t matter how bullish follow-on stories are, the market cannot go any higher because everyone already bought in.  (Obviously terms like “everyone” are hyperbole, but you get the idea.)

Since the current market doesn’t have fearful headlines obsess over and by rule it is impossible to predict the next unexpected catastrophe, we are left deciding how many buyers are left to keep buying the good news.  Over the near-term there are a finite number of traders ready to put their money into the market.  While there are gigantic mountains of cash stashed in bonds and money markets earning negative real rates of return, they’ve been there for the last five years and are unlikely to flood into the market tomorrow or next week.  No doubt this is a major fundamental catalyst that will fuel our secular bull, but for this near-term analysis we can ignore them.

Markets move up and markets move down, driven largely by the shifting outlook of short-term traders.  They buy when they feel good and they sell when they get nervous.  Institutional money managers and buy-and-hold investors skip these gyrations as they hold for 12-months or longer.  If we ignore the money hiding in bonds and don’t count the buy-and-hold crowd, we are left with this smaller and more active swing trading crowd.  These guys pushed us up to recent highs, but they don’t have the deep pockets to keep moving us higher.  Some claim we will see a chase for performance into year-end, but to be honest, the chase started 9-months ago and anyone still sitting on their hands this long is unlikely to make a move now.  So the question is, where are the next round of buyers coming from?  I have a hard time answering that question and is why I am reluctant to own this market in the near-term.

TRADING OPPORTUNITIES
Expected Outcome:
While the market can continue higher, there is not a big weight hanging over it and we lack that explosive catalyst to launch us higher.  On the other hand, we are over 60-points from the 50dma and 160-points from the 200dma.  Limited upside combined with lots of open air underneath us don’t setup a favorable risk/reward.  The market likely has a date with the 50dma and either we dip down to meet it, or we grind sideways until it comes to us.  Given that setup there is not a lot of reason to own risk here if we are not getting paid for it.

Alternate Outcome:
While we are not currently in a bubble, we could easily continue higher without pausing and put ourselves in one.  Only price pays and it makes no difference why this market goes higher.  Breaking to new highs could set off another round of short-squeezes and that upside momentum could continue convincing new investors to volunteer to be the next greater fool.  If they are giving away money, we might as well take it.

Trading Plan:
We trade when the odds are in our favor.  That typically means buying when we don’t want to buy and selling when we don’t want to sell.  It is a little too easy and comfortable to own this market, so it is probably a good time to take profits and wait for the next trade.  If a long insists, they could move a trailing stop up to 1,775 and see where this goes.  A short could take a stab at this with a stop above recent highs.

Plan your trade; trade your plan

Boiling a Lobster

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
The slow motion slide continues for a third day.  The givebacks have been minor, less than 1/3 of a percent each day, on light and declining volume.  The market remains above previous resistance at 1,775 and is well above the 50 and 200dma.

MARKET SENTIMENT
So far everything looks great.  We are near all-time highs and the market is not fretting over a looming catastrophe.  This has to be the first time this year the market is not obsessing about something.  Even the last three-days are nothing to worry about since down-days are part of every advance.  This dip is so modest and orderly, few are worried about it.

But here is the thing, the market rallied through 2013 in spite of a nearly constant barrage of fear and pessimism.  You could even say the rally fed on it.  While it is great everyone feels so upbeat, should we be concerned about this shift in sentiment and outlook?

Declining volume shows many are not interested in selling this weakness.  Low-volume was very bullish this year.  The lack of selling keeps supply tight and makes it easier for prices to rally.  But no matter how tight supply is, we still need enough demand to keep up.  More than a bearish headline, the biggest risk for this rally is running out of buyers.

While I am not a bear by any stretch of the imagination, it is often noted that bull markets top on good news.  This is the headline that finally signals all clear and invites the last of the holdouts to jump in.  But no matter how great things look, markets decline without new buyers.  Between the elimination of fear and bullish feelings following Yellen’s confirmation hearings, could that be the good news that got everyone in the market?

There is a fundamental difference between headline driven selloffs and running out of buyers.  Unexpected headlines send everyone rushing for the exits at the same time, markets drop precipitously, but they find a bottom quickly.  The emotion and herd driven selling capitulates relatively quickly and allows the brave contrarian to buy heavily discounted shares from fearful sellers.

Demand driven selloffs are completely different.  Everyone feels good and they largely ignore weakness, assuming it is yet another buyable dip and they would be foolish to sell the weakness.  The market slips slowly, failing to raise any alarms or make holders nervous.  This is analogous to boiling an oblivious lobster by raising the water temperature one degree at a time.  In individual stocks we’ve seen this behavior in AAPL and TSLA.  Are we on the verge of seeing the same thing in the broad market?

While I am reluctant to call a top, the recent change in sentiment and outlook is enough to concern me.  The best trades are the hardest to make.  Owning this market feels way too easy and that makes me suspicious.  We profit by owning risk, not comfort.  Things feel too comfortable for my taste.

TRADING OPPORTUNITIES
Expected Outcome:
It’s been a great ride over the last 12-months, but we all know this cannot go on forever.  No doubt I am likely premature, but it feels like sentiment is shifting and that invariably triggers a new a behavior from the market.  Maybe we trade sideways for a while.  Maybe we dip far enough to bring fear back into the market.  We won’t know when and how far this will go until we are in the middle of it.  Right now 1775 is the key level to watch.  After that it is 1740 and then the 50dma.

Alternate Outcome:
These things always go further and longer than anyone expects.  We are twelve-months into this rally leg and there is no reason it needs to end here.  As long as people keep buying the dip, this market will continue marching higher.  The current stretch above the 200dma doesn’t even come close to the record.  Doubting this market is going against the trend and countless traders have died for the cause of “too-far, too-fast”.

Trading Plan:
It all comes down to risk versus reward.  What is the upside from holding here as compared to the downside?  How much higher can the market go in the remaining months of the year?  How far can it fall?  While it can easily continue higher, a modest reward might not be worth taking an outsized risk.  We are in this to make money and the only way we can do that is by selling our winners.

INDIVIDUAL STOCKS
TSLA slipped to recent lows and gave back most of yesterday’s bounce.  While there is lots of room for this stock to bounce back, in situations like this it is better to be a little late than a lot early.  Wait for this stock to find a bottom before jumping in.  That means holding current levels for at least several more days and then buying the high volume bounce off a key level.

AAPL is holding support above $510, but other than that small ray of hope, the stock is lifeless.  The recent product launches and big name investors failed to reignite the growth stock.  While the dividend is nice, that might be the best part of owning this stock over the next decade.

On the other side of the fence, MSFT is near 10-year highs as investors cheer an impending change in leadership.  It also doesn’t hurt that the Windows phone doubled market share.  While the numbers are much smaller than the iPhone and Android, they are making the largest share gains, largely at the expense of BBRY.  It will be interesting to see what direction the next management team takes these promising phones and tablets as consumers start demanding full-powered mobile devices.

Plan your trade; trade your plan

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What happened to all the bears?

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks notched new highs out of the gate, but stumbled into the close.  The market is well above prior resistance at 1775 and we will see how it responds if it retests support in coming days.  The 50dma is over 50-points away the 200dma is lagging by 150-points.

MARKET SENTIMENT
The market hit the skids when Carl Icahn made bearish comments regarding this market.  There are two ways to spin this.  First is this is only one man’s opinion and it is trivial to the big picture.  On the other hand, if this rally is so fragile that a single guy’s comments knock it down a peg, what will happen if there is a legitimate piece of negative news?

There has been a dramatic reversal in sentiment over the last several weeks.  A month ago bulls were an endangered species and many polls showed only 1 out of 5 respondents were optimistic.  Now it is the bears who have become scarce as their numbers are reaching similar lows.  Clearly the market rallied strongly from those bearish lows as all the pessimists converted to bulls and threw their money at the market.  But is the pendulum getting ready to swing the other direction?

In another Yahoo Finance poll, only 19% said they were bearish.  Everyone else was already invested and holding on for higher levels.  But the thing to remember is we only reach higher levels when new buyers bid up prices.  If everyone is already in the market, where are we going to find these new buyers?  Many point to the bond market and Main Street, and I completely agree, but that is the multi-year, secular bull story.  It takes years for those tides to turn and we are still in the early stages, but as traders, we exploit near to intermediate shifts in markets.  That means we need to focus on the money already in the market and ready to buy tomorrow and next week, not next year.  By most indications, much of that money is already committed to this rally and there are few cynics left to convert.  Another popular sentiment measure is the Stocktwits SPY stream.  It spent most of the last year well under 50% as cynics refused to believe in this Teflon rally, but now that all the risks have been removed and we have nothing but clear skies, it ramped up to 68% bullish.

Anyway you slice and dice this, bullish sentiment is getting frothy and it is no surprise that a single comment by a widely respected hedge fund manager could trip up the market.  Now the question is traders with cash will buy this 0.3% dip, or wait patiently for better prices in coming weeks.

TRADING OPPORTUNITIES
Expected Outcome:
While I think the market is poised to pullback, the size of the consolidation is up in the air.  This could simply be a retest of support at 1775, or we could crash 150-points and run into the 200dma.  What matters is how quickly this bullish fever breaks.  If we fall 20-points and everyone starts scrambling for the exits, then it will be a quick pullback.  But if we dip slowly and most make excuses for the weakness and keep their bullish outlook, that means we will slide further and longer.  Over the summer and fall we saw swift downdrafts arising from Syria, Taper, and Default.  That quick turnover allowed us to quickly find a bottom.  But if we don’t have a fear driven catalyst and instead slip slowly on weak demand, that will draw this out and likely go further than most expect.

Alternate Outcome:
Like everything in the markets, there is no easy sentiment signal to trade.  One time the market tops at 50% bullishness.  The next time it is 63%, and the time after it continues rallying well past 80% bullishness.  While 68% on Stocktwits is the highest its been, we could have said the same thing about 63% or 58%.  This thing might keep going well past 75%.  But that is the market.  If this were easy, everyone would be rich.  We very easily could recover the Icahn selloff and continue higher as we suck in the last of the holdouts.  There is always money to buy stocks, it is simply a matter of converting a fear of heights into the fear of being left behind.

Trading Plan:
It is hard to buy the market here.  We don’t have a news driven upside surprise since we already removed all the headline fear hanging over the market.  As a rule, we buy the market when it feels dangerous, not when it feels safe, and clearly this is the “safest” this market’s felt in well over a year.   If there is a coiled spring, it is to the downside as this giddiness deflates on either a bearish headline or simply running out of new buyers.  Long-term bears are giving up in frustration, making this the most attractive place to short the market in quite some time.  We can use recent highs as a stop-loss for any new short position.

INDIVIDUAL STOCKS
What is there to say about TSLA that hasn’t already been said?  As a trade, the problem with holding for the top is no one knows when we are at the top.  Dipping to $180 was simply another routine pullback before climbing above $200.  Then we slipped to $150 and clearly that was the wrong time to get out because the stock was on the verge of bouncing.  And here we are at $121.  A few months ago I suggested locking in profits near $150.  Clearly I was early since the stock went up another 30%, but at this point, selling at $150 looks pretty darn nice.  Never forget we are in this to make money and the only way to do that is selling our winners.

Plan your trade; trade your plan

Wild ride

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks had a wild close to the week as we dipped 23 points on Thursday, but then recovered all of those losses on Friday.  As dramatic as the ride’s been, we are still holding within the 1750 – 1775 consolidation following October’s strong rebound.  While the daily chart shows a wild ride, taking a step back reveals a fairly benign weekly chart.

MARKET SENTIMENT
There are always two sides to every market and price is the perfect balance point between these two views.  Recent volatility chased out anyone that lacked the conviction to sit through Thursday’s sell off.  These sellers were replaced by far more confident owners willing to buy the weakness.  That confidence ended the selloff on Friday and turned it into a powerful short-squeeze that quickly turned the tables on the cocky bears gloating about the impending collapse only a day before.  But in the Bear’s defense, changes in trend are often accompanied by increases in volatility as the long dominant party starts losing its grip on power.  This shift evens the fight and allows the minority to start flexing its muscle.   It is too early to say which scenario is playing out and we need to uncover more clues in coming trade.

TRADING OPPORTUNITIES
Expected Outcome:
When in doubt, stick with the trend; it continues countless times, but reverses only once.  It’s been a good year and the rally that just won’t quit is unlikely to give the cynics what they’ve been looking for all year.  We’re coming to the end of the year and many of the last holdouts are conceding defeat and going with the flow.  While this is often part of the topping process, these shifts take time and the trend often continues farther than anyone expects.

Alternate Outcome:
Recent volatility has people  concerned and paying attention.  String together a couple down-days and confidence will quickly devolve into uncertainty and fear.  While it often takes a catalyst to send us lower, running out of buyers and topping on good news will signal a bigger pullback than the news-driven ones we’ve seen in recent years.

Trading Plan:
Continue watching for trading opportunities.  We remain stuck in a consolidation and until further notice, buy weakness and sell strength.  Since neither Thursday nor Friday’s moves materially breached recent highs and lows, look for a wave of stop-loss trading to accelerate a move out of this region, but if the a wider pool of traders does not embrace this breakout/breakdown, expect it to fade back into the consolidation.

Plan your trade; trade your plan

Where’s the Beef?

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Dramatic reversal in fortunes as the market opened strong on interest rate news out of Europe, but then collapsed nearly 30-points intraday.  This slide pushed us through 1750 and undercut last week’s lows.

MARKET SENTIMENT
There was no clear headline catalyst for today’s selloff and it appeared to be mostly herd induced selling.  Without any real meat to the story behind this slide, it is less likely to stick.  Complacent owners have been trained to ignore weakness since every other dip this year was a buying opportunity and anyone who sold headline fear-mongering came to regret that decision.  What are the chances these same owners will impulsively sell weakness that doesn’t even have a compelling story behind it?  Fear of selling prematurely, again, will keep most owners sitting on their positions this time.  Bears will criticize that complacency, but that resolve by owners to continue holding keeps supply tight and makes it far easier for the market to find a bottom.

Q:  If complacent owners were not selling, who was?
A:  All the active traders trying to outsmart the system.

Near-term volatility is driven by opinionated bulls and bears who insist on buying strength and shorting weakness.  Unfortunately, sideways consolidations are the exact wrong time to make these directional bets.  Bears shorted weakness last week, but were forced to cover during this week’s strength.  Then bulls bought the last few days of strength, only to get chased out by todays collapse.  And so the up and down cycle continues.  The thing to remember is active traders don’t have deep pockets and explains why these volatile moves fizzle so quickly.  Without bigger money jumping on this selloff, it will stall this time too.  Since most holders are increasingly comfortable with their positions, I don’t expect many to rush for the exits any time soon.  That resolve puts a floor under this market.

TRADING OPPORTUNITIES
Expected Outcome:
As discussed in recent weeks, we expected the market to consolidate and trade sideways following the 130-point rebound from the October lows. It shouldn’t surprise any of us these breakdowns and breakouts over the last two weeks stalled.  Now we are left pondering the latest selloff.  Another round of selling will likely push us down to 1740, but that could be where short-term selling exhausts itself and we bounce on tight supply.  But rather than try to catch the falling knife, wait for support.  This selloff could easily take us back to the 50dma or even 1,700.  While I expect a bounce sooner than that, the swing-trader in me would like to see a bigger selloff simply because that gives us bigger profit opportunities on the rebound.

Alternate Outcome:
While there is no story behind this move, it is hard to deny the strength of the herd.  When we see other people selling en masse, it shakes our confidence and conviction.  Drop far enough and the most resolute bull turns into a sacred bear.  While it is more likely this market will find a bottom in the near-term, we must defend against a larger selloff that takes us further than even the bears expect.

Trading Plan:
Sideways chop is only suitable for day-traders and longer-viewed investors who ignore the volatility.  Intermediate time frame traders are best suited to sit this one out since these failed breakouts and breakdowns cause us to chase our tail and lose money in the process.  If anyone must trade, buy weakness and sell strength.

INDIVIDUAL STOCKS
TWTR splashed on to the scene with an impressive 73% first day pop.  Since few got the IPO price, the rest of us are left deciding if TWTR is worth more than $20 billion.  At this stage earnings and valuations are meaningless.  This is a momentum stock and will trade according to the whims of the greater fool theory.  For the more practical trader, these IPOs will settle down over the first few weeks and give the bull the opportunity to get in on a valid buy point as it clears the initial IPO consolidation.  Until then, let the gamblers pay in this name.

AAPL had a bad day in sympathy with the broad market and is just above $510.  We will probably dip closer to $500 before finding support.  While support creates a nice entry for the bull, be wary of a dip under $500 and the 50dma.  We only date stocks because invariably they all let us down if we fall in love with them.

TSLA slipped for a second day following earnings and news reports of a 3rd car fire.  The euphoria quickly shifted to concern with the stock down nearly 30% in less than two-months.  The higher they rise, the harder they fall.  If the stock can consolidate around these levels for a couple of weeks, it will likely bounce, but keep this a trade with clearly defined sell points.

Plan your trade; trade your plan

Buy complacency, don’t fear it

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

MARKET BEHAVIOR
Stocks climbed modestly and closed within two-points of the record close.

MARKET SENTIMENT
As extended as people claim this market is, it continues hanging in there.  Yesterday morning’s sharp dip to 1755 no doubt seduced bears into shorting the plunge they’ve long been waiting for.  Unfortunately for them, most of those new shorts were forced to cover the rebound and provided a good chunk of the buying that pushed us right back to record levels.

There is a lot of talk about how dangerous the recent wave of complacency is.  But these pundits have it completely and totally backwards.  Complacency is extremely bullish!  Complacent owners are fat, dumb, and happy.  They haven’t a care in the world and zero interest in selling.  Without sellers, supply tightens up, making it extremely easy for prices to rally.

Don’t fear complacency, fear running out of buyers.  This rally will die when people stop buying and not a second sooner.  Quit worrying about how complacent owners are, instead focus on the people stuck outside this rally, looking in.  That is the group that determines the fate of this bull market.  With the large number of traders that bailed during the summer’s Taper, Shutdown, and Default whipsaws, there is plenty of money watching from the sidelines in dumbfounded disbelief.  And this doesn’t even include the ocean of bond money that has been fleeing the jump in rates.  Complacent owners uninterested in selling and a huge pool of money left out of the rally create ideal conditions for a continuation.

TRADING OPPORTUNITIES
Expected Outcome:
The previous commentary is focused on the medium and long-term outlook, as traders we want to know what will happen in coming days and weeks.  I have little doubt there is a cluster of bearish stop-losses just above recent highs and breaching these levels will trigger another short-squeeze.  Since we have only been at these levels for a couple of weeks, don’t expect a huge wave of short-covering and we will see the buying quickly taper.  From there we will likely fall back into the recent trading range as the wider group of prospective investors grows more comfortable with buying the market near record highs.

Alternate Outcome:
The one catalyst that will destroy the growing complacency is a fearful headline that dramatically alters people’s’ expectations of an uneventful grind higher.  Watch for a new uncertainty with the potential to spread like wildfire.   As long as we see it early, we will be out before most realize they should be afraid.

Trading Plan:
The market remains within the recent range between 1740 and 1775.  We should expect market makers to push us above this level in coming days for no other reason than to trigger another wave of short-covering.  But rather than buy the breakout, expect the market to fall back into the trading range.  We covered 130-point over a few weeks and we still need a little more time to consolidate recent gains.  The best trade remains buying weakness and selling strength.

INDIVIDUAL STOCKS
TWTR is the most talked about new issue since FB.  But FB’s debacle makes it far less likely we will see the same here.  The market was giddy for FB and we all know how that turned out.  This time the market is far more cautious, meaning the stock is unlikely to be overbought in the early days.  I still wouldn’t trade it in the first two weeks, but it will probably head higher over the medium-term.  But that is a trading call, not a fundamental analysis of the company’s future prospects and ability to grow into this outrageous valuation.  And of course we also need to see where it starts trading on Thursday before we can appreciate how much upside remains.

TSLA dipped into the $140s for the first time in nearly three months.  If the stock holds $140, it will likely close today’s gap.  From there it is anyone’s guess if the euphoria returns or reality sets in.  Anyone holding this name needs to have an exit plan because the days of easy buy-and-hold profits are out the window.  Without a clear plan, we are far more susceptible to emotional trading decisions and more often that not that leads to poor trading decisions.

MSFT popped on news of the CEO finalists.  F‘s Mulally is generating the largest amount of buzz.  While some criticize this choice because he is coming from a manufacturing background, that only shows they don’t understand how he turned F around.  He didn’t save F by improving its assembly lines, he saved F by making it cool.  He got rid of the vanilla fleet styling and encouraged designers to take chances.  That is how we ended up with the edgy designed Focus, Taurus, and Explorer.  If he takes over at MSFT, I expect he will instill that same passion as a user and steal a page from AAPL’s playbook, turning MSFT into a cool brand. MSFT has all the right pieces, it just needs a dash of cool to bring the customers back.

Plan your trade; trade your plan

Don’t be a pig

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

MARKET BEHAVIOR
Stocks gave up a lot of ground in the first hour of trade, but recovered most of those losses by midday.  The market continues holding above 1750 as neither buyers nor sellers are showing up with enough force to move us out of this region.  Markets typically grind higher and fall swiftly.  Holding these levels for more than two weeks suggest this is more grind like since we are already moved beyond the window that qualifies as swift.

MARKET SENTIMENT
Holders are content holding and prospective buyers are sitting on their hands.  This limits supply and keeps a lid on new demand.  The result is tight, sideways trade.  At some point we will either run out of buyers propping up these levels, or those sitting on the sidelines will grow tired waiting for a pullback and jump in at current levels.  Since most of the profit taking and cynical, new-high shorting happened last week, the advantage shifts to the bulls.  The market swallowed that supply without missing a beat and will likely rise as the number of available shares dries up.

TRADING OPPORTUNITY
Expected Outcome:
It feels like the market wants to hold these levels for the near-term.  That means we should expect several failed breakouts and breakdowns before this consolidation is over.  When the market trades sideways, the best move is buying weakness and selling strength.

Alternate Outcome:
The market is more relaxed than it has been at any other point this year.  While that doesn’t automatically mean we are on the verge of selling off, it does make us more vulnerable to a new and unexpected headline.  While rallies often go longer and further than anyone expects, eventually it will end and we need to be ready to jump out before everyone else.

Trading Plan:
In sideways markets, buy weakness and sell strength.  Be wary of the obvious breakouts and breakdowns because the market is likely to throw a few head fakes at us over the near term..  While we are ultimately setting up for a continuation higher, the market will likely continue trading sideways for a bit longer as it consolidates recent gains.

INDIVIDUAL STOCKS
TSLA was hammered after-hours as it beat official estimates, but fell short of what the market was secretly hoping for.  While the company continues its strong growth, it isn’t taking over the world as quickly as the most optimistic bulls were hoping for.  Is this a buyable dip, or the end of the drunken euphoria?  That is hard to say for sure.  The best trade is letting this play out for a few days.  If the stock quickly finds a bottom, then we can buy the dip next week.  But if paranoid owners start rushing for the exits, it could get ugly and it would be foolish to try and catch that knife.  We are in this to make money and the only way to do that is by selling our winners.  There is nothing wrong with taking some profits off the table because we all know what happens to the pigs.

Plan your trade; trade your plan

Overly bullish

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

MARKET BEHAVIOR
Stocks made a small move higher, reclaiming some of last week’s equally minor selloff.  We are 0.4% from all-time highs and closed above 1740 for the 10th consecutive session.  Markets that roll over tend to do it fairly quickly.  Holding near the highs this long suggest we still have upside ahead of us.

MARKET SENTIMENT
While it is hard to throw a stone without hitting someone who claims this market is overly bullish, I have a hard time finding all these bulls everyone else keeps talking about.  There was another Yahoo Finance poll over the weekend.  While Bullish easily beat Bearish and Neutral, can we really say 42% is overly bullish?  Does the average guy on the street think stocks are a safe and easy way to make a fortune?  Has everyone already forgotten about the 2008/2009 market crash?

The one thing that makes me confident we are not near the end of this bull market is just how many times a day I hear people say we are at the top.  People still don’t trust this market and these all-time highs terrify them.  Many traders have PTSD and all they see in every chart is another market correction.  Every dip over the last four-and-a-half years has been buyable, yet they still cannot bring themselves to trust a market that goes from the lower left to the upper right.  But that is the secular story, as traders we want to know what will happen next week and next month.

TRADING OPPORTUNITIES
Expected Outcome:
Profit takers and short-sellers already leaned into the market over the last two-weeks.  They sold what they were going to sell and the market barely flinched.  That bodes well for a continuation, especially as the newly laid shorts get squeezed as we set yet another new high.  There are no guarantees in the market, but holding above 1740 for two-weeks shows this market is not running out of buyers willing to pay these prices.

Alternate Outcome:
Call a top for long enough and eventually you will be right.  Bears will inevitably be right and they will be right when we least expect it.  Its been a good year in spite of Debt Ceiling I and II, Sequester, Cyprus,  Taper, Shutdowns, and all the other stuff I already forgot about.  But here’s the thing, markets rally in the face of fear and right now we are running short of the stuff.  About the best the critics can come up with is that we are “too high”.  The lack of a meaningful worry means the market is vulnerable to a new obsession sweeping over traders, causing them to hit the panic button.  It might not come next week or next month, but it is coming and we need to be prepared for it.

Trading Plan:
Holding recent gains makes it more likely that the next move is higher.  But at the same time, without a lot of fear left in the market, that means we don’t have much of upside potential either.  At best we have a slow grind higher, at worst we stumble into year-end.  A high probability of modest gains or a low probability of large losses.  Given what a strong year its been, now might be a nice time to lock in gains and coast into year-end.  For those trying to eek out the last few dollars of profit, stay alert and remain nimble.

INDIVIDUAL STOCKS
TSLA and NFLX roared back after slipping in recent days.  Fear of an imminent broad market top leads many traders to cut their exposure to the highest beta stocks first, and there are few stocks with higher beta than TSLA and NFLX.  Both of these names also suffered a recent bout of CEO’s talking down the stock.  As a momentum investor, I have no idea of such comments will let the air out of these bubbles, but as a fundamental investor, it is really hard to argue with the CEO and founder of both these companies.  If they are concerned, then we might take a hint.  Remember, the goal of this game is to make money, not sell at the top.  The most successful investors often claim the secret to their success is selling too early.  If we want to be more like them, maybe we should take the hint.

TSLA has earnings tomorrow and it is increasingly difficult for the company to surprise bulls to the upside.  Maybe they do it again, one errant comment out of the earnings call like we saw with NFLX and FB and the stock will be down 20-points.

Plan your trade; trade your plan

Still hanging in there

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

MARKET BEHAVIOR
Stocks ended a two-day losing streak with a nice 0.3% gain.  Friday was the sixth close above 1750 as the market consolidates recent gains and is building support at this level.

MARKET SENTIMENT
We are holding within 1% of all-time highs as recent fears are fading from memory.  The market exploded higher as the weight of Taper/Shutdown/Default was lifted from its shoulders, but while we feel better about the world, most of the upside has already been realized.  We get paid for owning risk, not buying comfort and anyone chasing up here is a day late and a dollar short.  Most often the best trades are buying what we don’t want to buy and selling what we don’t want to sell.

Politics aside, the biggest risk facing the market is an abrupt overhaul or repeal of Obamacare. While there are plenty of stories on how Obamacare affects business and hiring, it is a known quantity that markets have come to terms with.  Upsetting this balance would toss a big portion of our economy into near chaos if the bill was gutted and left for dead.  What would happen to insurance policies?  People with preexisting conditions?  Subsidies?  Insurance company actuarial tables that were designed around expected enrollments?  Abruptly overhaul or repeal Obamacare and all of a sudden no one knows what the rules of the game are anymore.  Markets hate uncertainty and that would pull the floor out from underneath nearly 20% of our economy.  There is a good reason the market surprised many pundits when it shot higher following the Supreme Court’s ruling upholding Obamacare.  The market hates uncertainty more than it hates Obamacare and the last thing it wants to do is reopening the healthcare debate.

TRADING OPPORTUNITIES
Expected Outcome:
There are two ways hot markets cools down, giving up a portion of recent gains or churning sideways for an extended period.  130-points over 15-trading sessions was an amazing run and no one is surprised the market is taking a break.  The bigger question is if we pullback to support, or simply trade sideways before resuming the up-trend.

If the market holds 1750 on Monday, that shows it doesn’t want to pullback any further.  It had every opportunity to slide on profit-taking and cynical bears shorting all-time highs in recent days, but this resilience is noteworthy.  It shows dip-buyers are aggressively chasing even the most modest pullbacks and their money is putting a floor under the market.

Alternate Outcome:
With so little fear in the market, it is vulnerable to a new, previously unaccounted for risk factor.  Keep an eye out for anything that could send traders scrambling for the exits.  There is always risk of the unknown, but we can protect ourselves if we see it before everyone else.

Trading Plan:
Shorts should get ready to cover if the market doesn’t stumble in coming days.  It is always better to get out proactively when our investment thesis isn’t working as expected and our losses are modest. Avoid the stubborn pride that makes us stick around until the market moves so far against us pain forces us out.  Longs can buy continued support, but expect a slow grind higher since most of the explosive move is behind us.

Plan your trade; Trade your plan

Another rest day

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

MARKET BEHAVIOR
Stocks finished lower for a second day, but the losses were fairly modest in comparison to recent gains.  The market started weak, but recovered early losses by midday as traders bought the dip.  Unfortunately for them, things unraveled in the final hour of trade and we closed near the day’s lows.  Of course “unravel” is bit strong to describe today’s 0.38% decline.  The market is still well above support and a little cooling off is expected and healthy.  This is nothing to sound the alarm over yet.

MARKET SENTIMENT
Many traders bought the midday rebound, but it was short-lived as we slid into the close.  Given yesterday’s “engulfing candle”, prospective buyers remain cautions and today’s weak close justified that sentiment.  While the long-term trend remains solidly intact, 130-points over three-weeks is a hell of a run and a little pullback here is long overdue.

Bears love to talk about how “overly-bullish” this market is.  When we keep setting record high after record high, how can this be anything but over-bought?  Here is another Yahoo Finance poll that shows an “overwhelming” plurality of traders have “no fear”.  The 42% bulls far outweighs all the other categories, but is this the right way to look at the data?  What if we combined everyone fearing a bubble and compared them against those that think the world isn’t in such bad shape?  Then we find 42% think things are okay, while 68% fear we are on the verge of some kind of bubble.  Framing it that way, it is hard to claim this market is overly bullish and traders are complacent when nearly two-thirds of all traders think we are standing on a trapdoor.

TRADING OPPORTUNITIES
Expected Outcome:
Given today’s weak close, we probably have a little more selling in the near-future, but this is nothing more than two-steps forward, one-step back.  Look for a retest of 1730/1740 support before a larger legion of dip buyers jump in and buy the discount.

Alternate Outcome:
While most markets go up and down, occasionally we run into a market that goes up and up and up.  It’s been a strong year and this outcome is less likely given where we are, but it is possible big money will buy any and every dip no matter how small.

Trading Plan:
While the trend remains intact, expect some near-term weakness as prospective buyers wait for the market to dip to support.  Maybe they will rush to buy before we get there, or maybe they wait to see how far we will go.  I don’t have a crystal ball and we will evaluate the situation as it develops.  Prospective buyers should wait a little longer to see if we get better prices. Shorts can hold for a little more downside.  But both sides should realize this will be a modest dip, so don’t wait too long to initiate new positions or cover shorts.

Real-Time Trade Alerts
A free look into my portfolio:  As of this writing, I am 300% short the SPX through the SPXU leveraged ETF and have been since Wednesday morning.  My target is the 1740 region and depending on how the market responds to this level, I will look to cover and go long if we find support.  To get more trade ideas like this, subscribe to the Real-Time Trade Alerts using the tab above this post or follow this link.

Plan your trade; trade your plan

Time for a break?

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Another up-day, making it thirteen out of the last fifteen.  The market continues defying both bears and gravity, but how long can it last?  The rate of gains slowed after we passed 1740 as traders grew more cautious of these dizzying heights.  So far the market is giving every indication we transitioned to a directional phase and that means countless new highs are ahead of us.  But like every move in the market, it won’t be straight line and we should expect an occasional step-back for every two-steps forward.

MARKET SENTIMENT
Bears are obsessing over the low-volume.  In their view, we cannot trust any move that doesn’t have a lot of people participating in it.  But here is the thing, traders do more than just buy and sell.  In fact, they do a more holding than anything else.  We are rising on low-volume because most owners don’t want to sell and that speaks “volumes”.

Every dip this year was a buying opportunity and anyone who fell for the head-fakes doesn’t want to be fooled again.  While this market will top like every one before it, it won’t be because of owners’ complacency.  That is another popular misconception.  When owners are disinterested in selling, that keeps supply tight and makes it far easier to rally on modest demand.  Low-volume strength was the secret sauce for the first-six months of the year, and early indications are the same behavior will close the year too.

But that is the two-month outlook.  Trading over the next few days will responded to different currents.  It is really tough for big money to buy a market that is up nearly every day over a three-week period.  We saw a lot of short-covering and breakout buying push us higher, but these active traders represent a small sliver of the market’s capital.  Soon these gains will stall when big money doesn’t continue buying this nearly non-stop move higher.  We don’t need a big dip to interest underweight money managers, but they need something to ease their conscience that they are not buying the top.  It is perfectly reasonable, normal, and healthy to see this string of up-days take a break and the market to re-test support at 1740.  That is actually far more bullish and sustainable than continuing higher without resting.

The potential catalyst for a modest pullback is the Fed meeting.  Most traders, including myself, are not expecting a change to QE, but that means it is already priced in.  We don’t need bad news to soften the market and could actually dip on good news if the market sells the news.  While I still believe most of the Taper trade is long behind us, it could easily inject a little volatility, leading to a near-term re-test of support before we brush it off and resume the up-trend into year-end.

TRADING OPPORTUNITIES
Expected Outcome:
While I think the up-trend will continue, we should expect some near-term weakness that allows the market to consolidate recent gains.  Depending on a trader’s timeframe and risk-tolerance, they can either choose to hold through the dip, sell into strength, or for the most ambitious and nimble, take a stab at trading the counter-trend move.  I still expect the market will make new highs in coming weeks, but near-term down-days are an important part of moving higher.

Alternate Outcome:
There is no reason the market needs to pause and could actually accelerate into a climax top.  These things go further and longer than anyone expects and the least expected outcome is another week of non-stop up-days.  But this is a less likely outcome and to succeed in this game we need to always consider the risk/reward of any trade.  While it is conceivable we could continue higher for another few days, how much downside risk are we exposing ourselves to for a few extra points of upside?  The goal isn’t to make all the money, just the easy stuff.

Trading Plan:
This is the wrong time to be initiating new longs.  The market already expects no change from the Fed, so there will not be a sustainable pop on the news.  In fact, if there is a pop, that could be a good opportunity to lock-in recent profits and looking for a better level to buy back in.  Longer-term traders can hold the volatility because so any near-term weakness looks like it will simply be part of the process of moving higher.

INDIVIDUAL STOCKS
AAPL had an ugly reversal and while it didn’t violate support, this is unlikely to be a one day event.  $500 is easily in play and risks go up if we fail to hold the 50dma.  A lot of traders and investors are excited about the value in this stock, but that increases the risk of it being over-owned.  When everyone loves something, who is left to buy it?

TSLA had a dramatic day, but managed to pull out of it and actually close up a dollar and a half.  While a lot of traders jumped at the chance to buy the stock near $150, I’m not sure the selling is done.  Last Friday Musk said the company didn’t deserve this valuation and it is really hard to argue with the CEO.  If the stock reclaims the 50dma on elevated volume, then the party is back on, but at this juncture, expect prospective buyers to step back and wait and see what happens.  Their lack of buying could lead to further weakness and even more attractive levels for them to buy shares.  They will not be in a hurry if they think the stock will get even cheaper.

NFLX found support at the 50dma, but volume was barely average and not very convincing.  This looks more like dip buying than major institutions using the weakness to add to their positions.  Wait for the high-volume confirmation before buying the 50dma bounce.  On the other side, owners need to have a plan to take profits.  Maybe they sell a violation of the 50dma, or they wait for a breach of support at $270, but either way, have a plan to take profits.  It is always better to be out of the market wishing you were in, than in the market wishing you were out.

Plan your trade; trade your plan

Fear of Heights

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks finished modestly higher, setting new all-time intraday and closing highs, as buyers and sellers continue supporting these levels.  The breakout is holding recent gains and suggests we are not on the verge of breaking down.  Unsustainable levels see quick reversals and sitting above 1740 for the last seven sessions suggests this is the real deal.  Markets can do one of three things, up, down, or sideways.  We traded mostly sideways through the summer, but the market is giving every indication we already entered the next up leg.

MARKET SENTIMENT
While not a definitive measure, it is interesting to see the Stocktwits SPY sentiment gauge slip from 60% bulls to 45% bulls over the last week and a half.  No surprise sentiment surged to 60% as prices rebounded from the Default lows, but we are clearly seeing a negative shift even as the market continues making new highs.

This shows many traders are reluctant to trust these levels and they expect us to pull back from recent highs.  The thing to remember is most of these cautious traders already expressed their outlook by selling the strength.  The market has been resilient enough to swallow this profit-taking and bearish shorting without missing a step,.  Further, if those that don’t trust these levels are already out, that means there are fewer left to sell and the resulting tight supply will keep the rally alive.

Yahoo Finance had another interesting poll showing 27% still think Cash and Bonds are the best place to keep their money.  That ties big-caps and easily outpaces the NASDAQ and Small Caps.  Clearly these last two surveys of sentiment are not “overly bullish”, yet I keep hearing people claim the market is.  “Overly Bullish” is the crowd’s state of mind, not a price level, and is the mistake most of these “experts” are making.  Contrarian investing is going against the crowd and more often than not that means sticking with the trend when no one else trusts it.

TRADING OPPORTUNITIES
Expected Outcome:
Why fight what is working?  We expected the market to transition from sideways summer volatility to a directional fall move and is exactly what we’ve gotten.  Countless gurus pointed out how horrible September and October typically are and said we should stay away.  Of course many are the same people that warned us to sell in May.  As long as people don’t trust this market, expect it to continue rallying as the holdouts are forced to chase into year-end.

Alternate Outcome:
The market is running out of things to fear.  We still have Taper and another round of Debt Ceiling talks, but so far those fears are fading into the background.  Bears have been the Boy Who Cried Wolf and they are losing their credibility as each crisis turns into a false alarm.  But rather than become complacent, we must keep an eye out because the wolf is coming.  No one knows when or where, but he is coming.

Trading Plan:
It is tough to buy the market up here, but I have every expectation we will continue higher.  How we get there is a bit less certain.  Maybe we dip on a headline or maybe we melt up as underweight traders keep buying every dip.  Either way, being long is the right call and short is an exercise in futility.  Anyone in the market should keep moving up their trailing stops and ride this thing as far as it will go.

INDIVIDUAL STOCKS
AAPL reported impressive earnings, but the stock sagged after-hours on disappointing margins.  The stock is still holdable as long as it stays above $510.  The one thing that continues concerning me is how pros, amateurs, and analysts all think AAPL is a great buy.  They point to dividends, cash hoard, buybacks, and China as all reasons this stock will go higher.  But if everyone who wants AAPL already has AAPL, who is left to buy?  While I think Apple is a great company with popular products, the stock is entering a mature phase.  We saw this with MSFT, CSCO, WMT, DELL and every other great growth story before it.  There is no reason to think that AAPL is immune from the same decade of stagnant stock price.  Steve Ballmer doubled revenues and earnings at MSFT under his tenure, but the stock was stuck in the $20 for most of that time.  Cook will likely continue adding to AAPL’s bottom line, but is that enough to move the stock back to old highs?  Only time will tell.

NFLX is still suffering from the earnings reversal and Icahn hangover.  The stock is still above the 50dma and is not screaming sell just yet, but any bull better be prepared for some volatility if we slip under this widely followed moving average.

TSLA is a few days ahead of NFLX in regard to penetrated the 50dma.  Last week it tried to rally back above this key level, but failed and slipped back under today.  The stock is down seven out of the last nine days.  For any long-term holders, this might not be a bad place to take some off the table.  Sell half and lock in some profits.  The adventurous can let the house money ride.  We are in this to make money and the only way to do that is selling our winners.

Plan your trade; trade your plan

Holding recent gains

By Jani Ziedins | End of Day Analysis

MARKET BEHAVIOR
Stocks recovered half of Wednesday’s sell off as buyers were willing to step in at these levels.  This is the fifth close above 1740 and we are slowly consolidating recent gains and building support.

MARKET SENTIMENT
We moved past the fiscal and political driven volatility and the market is quietly digesting third-quarter earnings.  It almost feels serene following the all the shouting and political theater a couple of weeks ago.  This calm is constructive and lets traders rationally evaluate and trade their outlook without worrying if they are standing on a trapdoor.

Trading above 1740 for a fifth-day gave profit-takers plenty of time to harvest recent gains and thus far buyers have been willing to step in and defend these levels.  Once this wave of profit-taking and cynical new-high-shorting passes, look for prices to continue rallying on tight supply.  No matter what people think the market should do, we continue making higher-highs and higher-lows and we cannot fight the trend.

Given all the fear and uncertainty over Taper, Shutdown, and Default, the fact the market held up so well signals we are not standing on a trapdoor.  The market had every invitation to breakdown, but it bounced instead.  That alone tells us the market is not “over-owned” because few owners were interested in selling the endless stream of headline fear mongering.  If anything, the market is under-owned since all the nervous sellers over the last few months are looking for a way to get back in.  Expect their demand to prop up prices as they rush to buy every dip.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  While there is nothing wrong with locking-in recent profits, the longer we hold support, the safer it is to buy back in.  The rebound chased out most of the bears in a powerful short-squeeze, but it will take time to win over the rest of the skeptical traders standing on the sidelines.  But with year-end only two months away, expect big money to feel pressure to chase performance into the end of the year.

Alternate Outcome:
It’s been a fearful year between Fiscal Cliff, Sequester, Cyprus, Taper, Shutdown, and Default, but the market is standing as high as ever as it weathered the storm.  Right now it is hard to think of anything the collective is fretting over.  While it feels comfortable, the market is a worrywort by nature and it will quickly find, or invent, another crisis.  Depending on what it is and how worked up traders get, we could see larger selling if it catches traders off guard and causes currently confident owners to lower future expectations.

Trading Plan:
Keep a trailing stop at 1710, 1730, or 1740, depending time-frame and level of risk.  Those out of the market can look at getting in Friday if we continue holding 1740.

INDIVIDUAL STOCKS
TSLA shook off a dip under the 50dma as it recovered this widely followed level.  This is encouraging behavior since it shook out all the stop-losses under the 50dma, but selling stalled and did not cascade out of control.  If the bounce continues on high volume, it is a valid entry, but keep a tight stop since we are late in this move and the chances of failure are elevated.

AAPL continued higher as Icahn pushed for a $150b buyback.  While that would be very shareholder friendly, AAPL management typically ignores shareholder pressure.  $513 is support and the stock is holdable as long as we stay above this level.  Volatility creates great buying and shorting opportunities for the nimble swing-trader, but its been a tough ride for the buy-and-hold investor.  Expect the sideways trade to continue as momentum investors have since moved on to TSLA, NFLX, and FB.  AAPL is a great company with fantastic products, but eroding market share and declining prices will prevent it from reclaiming prior highs.

NFLX is struggling with an identity crisis following Tuesday’s massive reversal and revelations Icahn cashed in half his stake because the valuation was getting a little rich.  Expect this to put a damper on festivities for a while, but if the stock holds current levels in the face of the defensive selling and aggressive shorting, that is bullish because it is building the launching pad for the next leg higher.  For shorts, the stock doesn’t break lower soon, cover the short before you are forced to in yet another short-squeeze.

Plan your trade; trade your plan

PM: The 2% crash

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks finished at the lows of the day and continued the streak of consecutive down days.  The market closed under 1700 for the second day, but for all the bleeding, the market is only down 2.1% from all-time highs.  The market seems attracted to the 50dma and the 1680 level that provided resistance and support stretching back as far as May.

MARKET SENTIMENT
This selloff feels scarier than the numbers indicate.  Five consecutive down days is the biggest losing streak of the year, but the damage is only pushing us back to levels first seen last week.  Emotion driven selloffs are swift and breathtaking.  The only breath this dip is taking is from all the people talking about it.  It is crazy the number of naysayers that are promoting the end of the world and pointing to a 2% decline from all-time highs to prove their point.  Sure this weakness is making recent buyers uneasy, but that is how hot markets cool off before continuing higher.

All the media coverage is focusing on the impending govt shutdown, but we’ve been down this road before and anyone who reactively sold that weakness came to regret that decision as the market bottomed and resumed the uptrend weeks or months later.  Complacency is the accusation bears are constantly throwing around, but I hear far more talk about a Debt Ceiling/Taper collapse than bulls talking about buying the dip and 1800 here we come.

While I agree complacency is creeping into the market as every dip this year has been buyable, but complacency by itself is not a fatal flaw and is more often a bullish catalyst.  Complacent owners continue holding through thick and thin, keeping supply tight and allowing smaller demand to keep pushing us higher.  Complacency isn’t the enemy here, but lack of demand.  So far there has been enough better than expected news to force bears to buy back their shorts and win over some of those sitting on the sideline.  That is why this “complacent” market keeps making new highs.

Many are waiting for all these scary headlines to pass before believing in this market, but by then it will be too late and they will be buying the top.

TRADING OPPORTUNITIES
Expected Outcome:
The market keeps looking for a bottom and might dip to 1675ish before this rebound finds its footing and resumes the climb higher.  We will bounce on some constructive debt ceiling headline and everyone will credit that random news story for the surge to new highs, but the recent pessimism flowing into the market is the fuel that will propel the bounce.

Alternate Outcome:
While the market is uneasy approaching the Debt Ceiling negotiations, most traders expect a compromise to be reached within a reasonable timeframe.  If both sides dig in, refusing to budge and threatening to default on debt payments, that nuclear option isn’t priced in and could lead to a swift 10%+ selloff.

Trading Plan:
If the market regains 1700 on Thursday and holds it through the close, it appears like the selling is drying up and all it takes is one optimistic headline to launch another leg higher.  If we continue sliding, that means buyers are shying away and the lower we go, the closer we get to the tipping point of emotional selling.  Holding 1700 is buyable and accelerating through the 50dma is shortable.

INDIVIDUAL STOCKS
BBRY is proving that something that looks too low often keeps going lower.  Anyone who bought the dip is learning first hand the dangers of catching knives.  It will ruffle a few feathers, but can we identify any similarities between the ubiquitous “crackberry” and the unmatchable iPhone?  BBRY failed to keep up with an evolving market.  Is AAPL falling victim to the same tech turnover?  Looking at the nonstop slide in market share for the iPhone and iPad, it sure is hard to argue “this time it’s different”.

Plan your trade; trade your plan

PM: The 1% selloff

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks slipped a little further under 1700 but finished off the day’s lows.  Volume was well below average as few bought or sold Wednesday’s weakness.

MARKET SENTIMENT
Tapering strikes again, at least that is what the consensus claims.  The logic goes something like the following.  We recovered all of May/June’s Tapering selloff because of the Fed’s promised to keep printing money.  This obviously means the QE bubble reinflated itself, but I don’t buy it.  It is tempting to simplify the market into a single entity, but it is really complex tapestry of self-interested individuals.   Just because we recovered the Tapering selloff losses doesn’t automatically mean the QE trade is back.  To be exposed to the same risks we need to recreate the exact same ownership makeup we had two months ago.  Everyone who sold the selloff needs to buy back in and every buyer of the selloff needs to sell out.  What are the odds this happened?  Traders are a stubborn bunch and the most difficult thing is admitting we are wrong.  Very few sellers of Tapering bought back in simply because the market bounced.  In their mind they are right and it will only be time before the market finally sees what they see.  These traders continue sitting on the sidelines, hoping and praying the market rolls over to validate their previously emotional decision to sell.  We’ve all done it at some point.  It is far easier to accuse the market of being wrong than admit we are wrong.  Without a doubt the market rebounded decisively from that selloff, but it was not because of people chasing QE.  That trade is dead and buried.

Anyway, that is a really long-winded way of saying don’t pay attention to the QE/Tapering fear mongering.  Most of those weak hands bailed weeks ago and the market already priced in Tapering.  Maybe it is September, or maybe it is January, but does it really matter?  Everyone knows it is coming and those that are afraid of it are already out of the market.  Sell the rumor, buy the news.

TRADING OPPORTUNITIES
Expected Outcome:
The market is going through a modest pullback, hardly 1% off of all-time highs.  I expected support at 1700, but that was obviously a tad optimistic. The market undercut my stops and I sold for a modest profit.  It is not as much as I had a couple of days ago, but it sure beats losing money.  I still don’t believe this is the start of a larger selloff, but there is no point in having stops if we don’t use them.  But rather than take my ball and  leave in a huff, I’m ready to buy back in when the market retakes 1700.

Alternate Outcome:
The market broke support and presents the best shorting opportunity we’ve seen in a couple of months.  A bear can short here with a stop above 1695 or 1700.

Trading Plan:
Buy a recovery of 1700 and short further weakness.   Summer trade can be both volatile and listless as we’ve seen.  Take profits when we have them because they will likely be gone days later.

INDIVIDUAL STOCKS
AAPL continues its struggle with the 200dma.  This is a decent place to lock-in recent profits since this is more a relief rally than something supported by renewed fundamental strength.  If we keep holding under the 200dma for a few more days we can buy back in and ride it up to $500.

TSLA knocked the ball out of the park with its earnings after the close.  How much higher this goes is anyone’s guess, but it needs to find new buyers to continue making gains.  Previously it feasted on a seemingly endless supply of shorts, but it really feels like most shorts have run for cover.  If Thursday’s early pop fizzles into the close, consider jumping out because it shows buyers are getting scarce.  Stocks like this often top on good news when everyone is most bullish and fully invested.  At the very least move up a trailing stop to $140 or $145.

FB continues hanging in there around the $38 IPO level.  The stock that is supposed to nose over will likely continue higher.  It failed when everyone loved it and now it thrives when everyone doubts it.  Go against the crowd, not the trend.

Plan your trade; trade your plan

PM: Time to run for cover?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks had their worst day in nearly a month, but all that highlights is what a benign ride its been.  Volume was below average, but the highest in recent days.

MARKET SENTIMENT
Rather than fear a 0.4% dip, we should embrace it.  Everyone knows we cannot go up every day, yet the first day we see any weakness and all of a sudden the sky is falling.  No doubt this could be the start of something larger and why it is always prudent to take profits after nice runs, but we are still well above support and claiming this is anything more than a normal down-day is trying to pick a top.

After such a strong rebound, we need selling to put fear back into the market and keep everyone honest.  The market doesn’t like being easy or predictable, so it throws in head-fakes along the way.  Of course it is up to individual interpretation to decide if the recent rebound or today’s weakness is the real head-fake.  There are always two sides to every market and only time will tell who is right.

TRADING OPPORTUNITIES
Expected Outcome:
As long as the market remains above support, we must assume the rebound is alive and well.  Countless bears have been carried out in body bags trying to pick a top and there is no reason to add to the body count here.  Recent support is 1675 and we only need to be concerned if we fall to hold that level.

Alternate Outcome:
I’d prefer seeing the market stall after breaking 1700 before placing a short.  A notable absence of buyers in a spot where buyers should pour in makes an easy short.  Stalling prior to 1700 is far less convincing and this could simply be a pause before attempting new highs.  This rally will eventually end like every other one before.  While it doesn’t feel like we are at the top yet, we must remain vigilant.  Slicing through 1675 is clearly bearish and likely means we will retest the 50dma.

Trading Plan:
Everyone wants a rally to pullback so they can buy more, but every time it pulls back, those same traders are too afraid to buy.

Holders can keep holding as long as the market remains above their stops.  Anyone with nice profits can lock them in and wait for the next trade.  Bears can short a violation of support and bulls can buy a bounce off it.  Chances are the summer volatility will continue, so take profits early and often because they will likely evaporate days later.

INDIVIDUAL STOCKS
Following last night’s earnings release, AAPL is higher in what could best be described as a relief rally.  Profits, selling prices, and margins were all down, but the damage was less bad than feared and the stock rallied.  The silver lining was higher than expected “old” generation iPhone sales, but is this really a good thing?  If new customers think old phones are good enough, is that an early indication the previously dependable 2-year upgrade cycle is coming to an end?  If current generation phones are good enough, does that mean we are moving to a 4 to 5 year upgrade cycle typically seen with PCs?  It will be interesting to see how bulls fit this earnings report into their return to dominance thesis.

People often forget how Steve Jobs turned AAPL around.  In the ’90s AAPL was a bloated, do everything for everyone company.  It gave customers what they asked for and the income statement bled for it.  When Steve Jobs returned, he showed up with a machete and cut to the bone, eliminating all but four computers, a pro desktop, a pro laptop, a consumer desktop, and a consumer laptop.  Less is more was always Jobs’ driving vision, but it seems the new AAPL is drifting away from that strategy.

The original iPhone was launched with one carrier, in one color and the only choice customers had was 4, 8, or 16GB of storage.  It stayed that way for the next three iPhone releases before AAPL finally relented and started making a CDMA iPhone  4 for Verizon.  The next year brought white phone, Sprint, T-Mobile, and finally an unlocked phone.  Currently AAPL stocks 30 iPhones 5s to cover all these customer options and people wonder why margins are falling.  Yet investors are clamoring for big phones, cheap phones, and more colors, and if you believe the leaks, they are coming.  Peak margins came when AAPL gave customers 3 choices, but for comparison, lets see how many phones AAPL will need to stock if it adds a cheap phone, a big screen, and three colors.

5 colors * 5 wireless carriers * 3 models * 3 storage sizes = 225 varieties!!!

They might sell more phones, but at what cost?  Everything for everyone rarely works and it looks like AAPL is going to learn that lesson all over again.  The company thrived under Steve Jobs because it did not listen to customers and investors.  Only time will tell what happens next, but it doesn’t look good.

Plan your trade; trade your plan

PM: Happy Birthday America!!!

By Jani Ziedins | End of Day Analysis

AM Update

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

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

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

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

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

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

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

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

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

Trade your plan; plan your trade

PM: Calm before, or after the storm?

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Why we keep going up

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Holders keep holding

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
The volatile trade continues as the market gave up nearly half of Thursday’s gains.  Volume was extremely light as no one felt like trading ahead of next week’s Fed meeting.  The market remains above the 50dma and so far is respecting this widely followed technical level.

MARKET SENTIMENT
The market fell on a lack of demand, as indicated by the light trade, not a surge in selling.  This shows owners are content holding and those sitting out of the market are staying out.  Confident holders are bullish because they don’t sell modest weakness, keeping supply tight.  Those sitting out of the market will eventually come around because there are few things as persuasive as seeing other people make money.  The rally from the November lows made everyone forget about Obama’s reelection, the fiscal cliff, debt ceiling, sequester, and Europe.  In no time people will forget about the QE overhang too.

We don’t trade fundamentals or technical, we trade other traders.  When everyone fears something, they trade it, diffusing the situation by pricing it in the market ahead of time.  All this chatter over QE ending is good because those that fear it are already out of the market.  Anyone left isn’t worried about it and won’t panic when it happens.  In fact the market will probably rally on the end of QE simply because after everyone sells, supply dries up, and there is nowhere to go but higher.  But I’m getting ahead of myself, tapering many months away and the Fed will likely continue buying bonds for at least another year.

TRADING OPPORTUNITIES
Expected Outcome:
As long as the market continues holding support we have the green light to buy dips.  The market is entering a volatile summer consolidation, so take long and short profits quickly because they will likely evaporate days later.

Alternate Outcome:
Keep an eye on support and move to a defensive stance if the market retests those levels next week.  Eventually this market will run out of buyers and we will get the correction everyone’s been waiting for, but it will come long after everyone gave up waiting for it.

Trading Plan:
It is okay to hold here, but keep stops just under the 50dma or 1600 level.  We have no idea if the market will survive another test of these levels, so the most conservative thing is stepping aside.  It is better to be out of the market wishing we in than in the market wishing we were out.  Don’t short the market until we break support and hold longs until we get close to 1670.

INDIVIDUAL STOCKS
AAPL closed under the 50dma on extremely light volume.  The half-full side shows holders are not rushing for the exits and comfortable holding a little technical weakness.  Selling often begets more selling, so seeing calm and restraint here is positive.  The half-empty side shows dip-buyers are no longer defending this level.  While holders are calm following a modest dip, if the slide continues, expect anxiety to pick up again.  Anyone long this name with a stop under the 50dma should either be out, or on their way out if they gave themselves a little extra cushion.  There is no reason to hold this stock for another leg lower.  The first loss is always the smallest.  If the stock reclaims the 50dma, it is easy enough to buy back in.

LNKD reclaimed the 50dma on huge volume.  This is a valid entry if someone was looking for an excuse to buy.  Put a stop near or under the recent consolidation.  If someone is short, this is your warning to cover.

Plan your trade; trade your plan