Category Archives for "End of Day Analysis"

PM: On the 6th day we rested

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks finished modestly lower on Friday, but held above 1580 in light volume.

MARKET SENTIMENT
This is a tough market to trade and the only groups making money are proactive swing-traders and option premium sellers.    The market is currently pushing toward recent highs, leaving us wondering if this strength is a another selling opportunity or the start of the next leg higher (or lower).

Volatility’s picked up in recent weeks showing traders are becoming restless and ready for the next move.  We rarely get this long to sell the top, meaning the next leg is likely higher.  That doesn’t mean the breakout is sustainable, just that the next move is higher.

There are more reasons to avoid this market than buy it.  In fact I cannot think of a reason to buy other than it is going up.  This rally is old.  We are at all-time highs.  There are a slew of negative economic indicators.  Too-far, too-fast.  Etc.  Everything points to a topping market, but we have to ask why the market is not breaking down in the face of all this negativity.

The answer is surprisingly simple; there are more buyers than sellers.  But how can this be?  It’s actually not that counterintuitive if we look at it from the right point of view.  Those that are paranoid already sold, meaning most of the selling already happened.  Buyers that bought this uncertainty are comfortable with their analysis and willing to sit through near-term volatility.  Getting rid fo the nervous and replacing them with the confident takes a lot of supply out of the market and makes it far easier for the rally to continue.  And that is exactly what we’ve witnessed.  Our job is not to figure out what the market should do, but what it will do.  Right now it looks like it will continue higher.

TRADING OPPORTUNITIES
Expected Outcome:
A little selling today is normal, expected, and healthy after a five-day, fifty-point rally.  The dip was modest and found a floor at 1580, well above recent resistance at 1570.  As long as we hold 1570, expect the rally to continue.  I cannot say for how long, but at least expect new highs above 1600.

Alternate Outcome:
Markets have a nasty habit of misleading even the best of us and just when it looks like it won’t breakdown, it breaks down.  I don’t mind being on the wrong side of the trade, but I hate staying on the wrong side.  The market is defying cynics and it is far more profitable to trade with the trend, but we need to watch for the breakdown because it will come when we least expect it.

Trading Plan:
The rebound remains intact as long as we hold above 1570.  Failing support at 1570 shows the trading range is sucking us back in, but the market tis not breaking down until we test and violate 1540.  Bulls can use 1570 as a trailing stop and bears as a short entry.

INDIVIDUAL STOCKS
AAPL is attempting to recover $420 and will probably attract bottom-pickers who push it up to the 50dma near $430.  But look for buying to dry up after the dip crowd runs out of money.  There is no valid reason to expect this selloff is done and look for lower prices in coming weeks/months.  Anyone still in this should sell strength when the stock challenges the 50dma.  If they are a long time believe in the stock they can buy it back later

AMZN lost 7% on gigantic volume.  The stock finished near the lows of the range, but found support above the 200dma.  A high volume break of the 200dma is a good short trigger and will allow a trader to avoid a near-term bounce.  If someone wants to buy the stock, this isn’t a bad place to own it with a tight stop at the 200dma.

Plan your trade; trade your plan

PM: Challenging recent highs

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
The win streak continues as the market finished higher for the fifth-consecutive day and is less than 1% from all-time highs.  Volume was above average but the day ended in the middle of the range due to a ten-point afternoon selloff.

MARKET SENTIMENT
Here we are pushing up against all-time highs again.  Bears reassure themselves with the afternoon selloff and will surely explain away new highs as building a double-top.  These are both valid points, but are they enough to finally bring down this resilient market?  Bulls and bears are evenly matched as shown by the sideways trade, but when in doubt stick with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
I’ve been cautious since early March.  I thought the market would struggle with the transition to the second quarter, but it held up nicely instead.  The market flirted with 1540 three-times and bounced decisively after each.  Topping markets run out of steam, but this one keeps going and we cannot dismiss that.  There are a million reasons for this market to go lower, but it isn’t listening, at least not yet.  Picking tops is hard to do and we get it wrong far more often than we get it right.  It simply  comes down to probabilities, a market continues countless times but reverses only once.  This market is not giving any signals it is ready to breakdown, so stick with the rally until something new develops.

Alternate Outcome:
Every rally must come to an end and this one is no different.  The higher and longer we go, the bigger the eventual correction will be.  We have a couple more weeks to see if the expected May selloff takes hold, but if the rally continues through the Summer, look for a larger pullback this Fall.

Trading Plan:
The market can do three things here, up, down, and sideways.  Breaking and holding 1597 shows the rally is ready to continue.  Finding a ceiling at 1600 means the trading range is sucking us back in.  The breakdown only takes hold if we fall under 1540 again.  We are closer to the upper end of the range need to watch for the breakout, but guard against the swing-trade lower.  If someone is out of the market, it is a little late to buy and early to short, so wait to buy the breakout or sell breakdown in coming days.

INDIVIDUAL STOCKS
AAPL had an uninspiring up-day as it finished at the lows of the day.  Volume was well off of average as few felt compelled to adjust their position two-days after earnings.  A lot of hopeful holders are still hanging on, but another move lower without a fundamental catalyst in sight will demoralize the last optimists and ironically lead to the end of the selloff.

AMZN dipped in after-hours trade following earnings and closed extended trade near the 50dma.  A material breach of this level on Friday or coming days makes an attractive short entry, but if the stock holds up it is a better buy than short.  This is a momentum story so wait for momentum to develop and don’t jump in front of this stock on principles alone.

Plan your trade; trade your plan

PM: Can the rally continue?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks closed unchanged on average volume.  This was the fourth-day buyers showed up in sufficient numbers to support these levels.

MARKET SENTIMENT
It is really hard to get excited about the market here, but that is what makes it work.  Everyone expects a pullback, even bulls preface their bullishness by saying they expect near-term fluctuations.  What this means is those fearing a major correction already out.  Swing-traders took their profits and are ready to short this market.  Even bulls are waiting for weakness so they can add to their positions.  Most of the selling already took place and we have a growing pool of money outside the market ready to come back in.  This is why the inevitable selloff still eludes us.

TRADING OPPORTUNITIES
Expected Outcome:
Good old supply and demand.  Sellers threw everything they had at this market and here we stand, 1% shy of all-time highs.  If this was the best bears could do, there is nowhere to go but up.  I don’t understand it, but that’s the way the market works.  If this made sense anyone could do it.

Sell in May and go away has been a thing for the last several years and many of traders expect another weak Summer.  But if that is expected, it makes it less likely to happen.  Maybe this year we rally through Summer and have a larger correction in the Fall.  Certainly a possibility we have to consider

Alternate Outcome:
Until yesterday the Expected Outcome was a selloff but it just hasn’t worked out that way.  Buyers continued buying this month and we found solid support at 1540 and the 50dma.  I still don’t trust this market, but it nullified many of my criticisms and I must acknowledge and respect that.  I don’t have to own the market here, but bulls deserve credit for putting up such a good fight.

Just because I stopped fighting this market doesn’t mean I embraced it.  I remain paranoid of our precarious position and 1540 and the 50dma are the key levels to watch.  As long as we hold above these the rally is on, but another test and violation of support is unlikely to bounce back.  Stay with what is working, but keep a close eye on the exits.

INDIVIDUAL STOCKS
AAPL’s increased dividend and share buyback program failed to impress and the stock finished flat on the day.  Most interesting is how little the stock moved following earnings.  Results were a mixed bag and both bulls and bears got a little of what they wanted.  But we have to award the draw to bears because momentum is clearly on their side and another fundamental catalyst came and went without reigniting the stock.

Realistically speaking the most bulls can look forward to is a minor refresh of the iPhone5 and a retina display coming to the iPad mini.  What else is there to bring this stock back to life?  Look for selling to continue and even accelerate into the mid to lower $300s.  This will be the last flush and finally put a floor under the stock.  The most loved stock needs to become the most hated and today’s uninspiring earnings moved us one step closer.

GLD is making a comeback, but the obvious bounce is rarely the real bounce.  Everyone is buying the dip and that is why the price is coming back, but what happens when dip buying dries up?  This occurs often enough on Wall Street that it earned the name “dead cat bounce”.  I cannot say how long or high the bounce will go, but we will retest $130 before this is over, making this a better selling opportunity than buying one.  I’m not a gold bull or bear and don’t have a particular opinion one way or the other, I am simply looking at it from a crowd psychology vantage.  The speed of how quickly dip buyers embraced the selloff makes me suspicious.

NFLX traded flat after blowout earnings.  There are still a truckload of shell-shocked shorts praying for this gap to slide back down, but unfortunately the market gods are far more inclined to humiliate the hopeful and desperate than help them.

AMZN reports earnings Thursday and this one is a coin flip   With such an outrageous valuation the stock is standing on a trapdoor and any bad news will send the stock reeling.  But Bezos and Co are masters at pulling rabbits out of hats.  Can they do it again?  Buying or shorting earnings is like betting on black or white.  The safer and higher probability trade is waiting for the news and then trading the subsequent move.

Plan your trade; trade your plan

PM: Hard to fight this bull

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks rallied to 1579 and continued the three-day win streak following a bounce off the 50dma.  Volume was average and an improvement over yesterday’s light volume rally.  Of course volume was boosted by midday drama and panic selling when a hacker tweeted on the Associated Press’s Twitter account an attack on the White House.  The market initially sold off ~1% before rebounding minutes later when the story was refuted.

MARKET SENTIMENT
We’re back in the hunt for new highs after a two-week dip to the 50dma.  All that was wrong in the world is now right, or at least that’s what the buyers think.  Our job is figuring out if these buyers know something the rest of us don’t, or are dumb money arriving just before the curtain falls on this rally.

Another sustained bounce off of 1540 is impressive, but only if it holds.  There is no such thing as a triple-bottom, but no one told this market that.  We’re not out of the woods yet and we need one more support day on Wednesday to show this rebound is more than just dip-buying from a small group of swing-traders and short covering from premature bears.

If the market holds, we have to respect that and the resulting strength can be attributed to widespread expectations this market is on the verge of pulling back.  Even bulls say they expect a near-term weakness before resuming higher.  Everyone recognizes the nearly straight up move is unsustainable, but it will continue until people stop talking about a pullback.

TRADING OPPORTUNITIES
Expected Outcome:
If the market holds recent gains on Wednesday and finishes strong, we must give the credit to the bulls and this Teflon rally.  I have no idea how much higher this can go and I don’t need to participate in the rally if I don’t feel comfortable with it, but no matter what my personal bias is, continued strength indicates the next move is higher.

Alternate Outcome:
Market weakness on Wednesday will send up warning flags buying is waning and we could be near the end.  Unsustainable dip buying can prop the market up for a few days but it takes real buying to continue a move.  If follow-on buyers fail to show up tomorrow, we will start the widely expected pullback.

INDIVIDUAL STOCKS
AAPL’s earnings came and went.  The stock rallied after hours on a new buyback and increased dividend, but outlook tempered enthusiasm and the stock finished flat in extended trading.  Given all the back and forth between bulls and bears, the least expected outcome was no move on earnings.  I still chalk this up as a win for bears because another fundamental catalyst came and went without reversing the nasty down trend.  Look for the slide to continue until at least $350.

AAPL and Steve Jobs are famous for ignoring customer opinions and instead tell them they don’t know what they  want.  This works brilliantly when faced with new products categories customers doesn’t yet understand, but it is a disaster if you get it wrong.  AAPL insists customers don’t want five-inch smartphones, but someone should tell all the people drooling over the Galaxy S4.

AMZN reclaimed the 50dma for the fourth time in recent months.  There are only so many times a stock can tempt fate before coming up short.  I wouldn’t want to hold or short this into earnings, but if earnings disappoint, there is a lot of air under this stock.

Plan your trade; trade your plan

PM: Too much pessimism?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks bounced back and recovered all of Thursday’s losses in average volume.

MARKET SENTIMENT
The thing that concerns me is how popular it’s become to bash this rally.  It seems everyone is predicting a pullback, even bulls qualify their bullishness by saying they expect some near-term weakness.  The challenge is figuring out what this means.  Those who are harshly critical are already out and likely short. By itself that took a lot of selling pressure from the market.  The only ones left to sell are the confident and complacent holders since the weak were flushed out in the preceding volatility.

The key to figuring out where the market is headed is understanding how other traders are positioned.  When everyone is bullish, there are lots of potential sellers.  But if traders are growing weary and expecting a correction, they called it quits.  If the cautious and pessimists bailed while prices remained stable,  it is bullish because we will see a rally once the preemptive selling abates.

The other thing to consider is market can do more than just up or down.  It can go up a lot, up a little, trade sideways, pull back a little, or pullback a lot.  So far the consensus expects a modest pullback and thus becomes the least likely outcome because it is already priced in.  That leaves both ups, flat, and down a lot.  The only scenario to consider is down a lot because flat and both ups can be bought and held.  The only outcome that requires a significantly different tactic is down a lot.

The reason down a lot is still on the table is while many active traders are out, the longer viewed investors only expect a modest dip and are willing to hold through it.    The bigger selloff occurs when these longer-term holders get spooked and start selling.  This pool of institutional money is far larger than the small group of active traders already out of the market.  The one thing I struggle with is smaller moves don’t need a reason bounce around, but larger moves require a catalyst to shake the confidence and resolve of otherwise calm and collected money managers.  While the market is poised for a down a lot scenario, without a bump from an external factor, we could glide across the thin ice without falling in.

TRADING OPPORTUNITIES
Expected Outcome:
Monday will be an important day for the markets.  If bulls cannot add to today’s gains, it shows they are losing control.  This is the obvious buy point and if dip buyers fail to show, that means we’re running out of them and this rally is done.  But chances are this buy-the-dip phenomena is becoming so obvious, non-swing traders are getting in on the action and making “easy money” buying the obvious bounce.  Unfortunately for them, real money is made being one step ahead of the crowd, not two behind.  That is why I am suspicious of the sustainability of this support.  We can coast a bit higher, but if this really  is a head-and-shoulder pattern, look for a modest bounce and slide back through 1540 in coming days.

Alternate Outcome:
Without a near-term breakdown, we have to be ready for the market to continue.  Sentiment shifted against this rally and recent volatility cleared the market of weak and uncommitted holders.  With these guys out of the way, the path higher is clear.  I’ve been suspicious of this market for several weeks, but holding together like it has is impressive and shows there could be more life to this story.  I’m okay being wrong, but I refuse to stay wrong and will do a 180 if the evidence no longer supports my cautious hypothesis

INDIVIDUAL STOCKS
AAPL couldn’t hold earlier gains and is struggling to stay afloat ahead of earnings.  The good news for AAPL bulls selloff took a good chunk of downside off the table and set an even lower bar for the stock.  But buying here is clearly going against the trend and is nothing more than catching a falling knife.  The better trade is letting this stock find a bottom first.  You will be late, but the risk will dramatically reduced.  The best thing that can happen for the stock is a sharp, high-volume selloff following earnings.  This will extinguish any hope left in the stock and set the stage for new ownership to step in and ride it higher.

AMZN is struggling with the 50dma.  Not good for a stock that has come this far and has a staggering valuation.  A disappointing earnings could finally break this stock.  I wouldn’t bet against earnings, but there is a trade riding this stock lower if it breaks down.

Plan your trade; trade your plan

PM: Finding support at 1540

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks broke the 50dma and 1540, but didn’t trigger a wave of accelerating stop-loss selling.  Volume was above average, but less than Monday and Wednesday’s elevated levels.  Today’s slide was the fourth down-day out of the last five.

MARKET SENTIMENT
I’m surprised the market didn’t see more stop-loss selling when it broke recent lows and violated widely followed support.  There are two possible explanations.  Sellers saw this coming and exited before actually reaching their predetermined stop levels or complacent traders ignored their stops, preferring to wait for the expected rebound.  One is bullish, indicating most of the selling already happened, the other is extremely bearish because there is still a lot of selling to come.

TRADING OPPORTUNITIES
Expected Outcome:
The lack of stop-loss selling today makes a bounce more likely.  Support at 1540 encourages holders to keep holding and this limits supply in the market.  But I’m only looking for a bounce to 1570 before dip buying exhausts itself and selling takes over again, pushing us through 1540, and ultimately down to 1400.  This minor rebound would build the complimentary right-shoulder to April 2nd’s left-shoulder.  A day-trader could take advantage of these minor fluctuations, but the rest of us are better off sticking with longer time-frames.

Alternate Outcome:
The lack of selling under 1540 concerns me.  I still think a pullback is in our future, but the market might not be ready for it yet.  One possibility is a brief bounce before rolling over, but if most sold ahead of the expected crash, the market has already refreshed itself and is ready to resume the up-trend.  While not as sustainable as a demoralizing selloff, recent volatility is flushing buyers from the market and creating a pool of the next chasers.

INDIVIDUAL STOCKS
AAPL cannot find a break.  Today’s selloff pushed it under $390 and no one is interested in buying it no matter how cheap it gets.  The increasing despair felt by shareholders is actually constructive for finding a bottom.  The most loved stock needs to become the most hated before the selling will exhaust itself.  Only after everyone has left it for dead will the selling finally stop.  Recent weakness silenced the most rabid bulls and has them eying the exit.  The stock still needs to purge those hanging on from much higher levels and replace their hope with discipline from far more patient and longer-viewed value investors.  But this is the medium-term outlook for the stock.  The long-term outlook for the company will likely end far different from what most are predicting.

Some people criticize AAPL’s unfair comparison to MSFT and they are right, just not for the reasons they think.  While MSFT is boring and lacks the appeal and innovation AAPL is famous for, MSFT never faced any real competition and still has a 70% strangle hold on the PC market.  Compare this to AAPL’s fierce battle with Android and Samsung.  AAPL’s long since given up the crown to Android, it recently fell behind Samsung, and is on the verge of being outsold by the Galaxy S4.  If MSFT’s stock price was flat for the last decade with stable profit margins and 80% market share, how is AAPL going to thrive in a fiercely competitive and commoditized hardware segment?  While this selloff might finally bottom and bounce off $350, that is likely only a temporary floor for the stock as AAPL goes back to being a small niche player in a much larger market.

Plan your trade; trade your plan

PM: Will 1540 hold?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks gave up all of yesterday’s rebound and then some.  We found support at the 50dma, but still finished near the lows of the day.  Volume was well above average as formerly confident holders were selling enthusiastically.  This was the third test of 1540 and breaking it will trigger a huge wave of technical stop-loss and short selling.  The recent pattern is alternating strength and weakness and a strong rebound Thursday will build a larger margin of safety above all the sell orders sitting under 1540.

MARKET SENTIMENT
Yesterday felt like the rally was back on, today the inevitable correcting is taking hold.    What will tomorrow bring?  Every breakout/breakdown over the last month was a head fake.  Was today’s selloff simply another buyable dip?

The key to figuring it out is getting into the heads of other traders.  Was the two huge volume down-days this week enough to shake out weak holders, yet not so bad it damaged the confidence of the majority still holding?  With all the various breakdowns around the market, the haze of complacency is vanishing by the day.  Some traders are taking a proactive stance and selling while others are anxiously holding on.  Some of these holders remain confident while others are simply indecisive.  This latter group is who will provide the supply if the market does breakdown.  Hope is not a strategy and holding on simply because the market bounced back every other time is a good way to lose money.

But this is not a one-way street.  Bears are increasingly cocky as they finally see the pullback they’ve been waiting for.  If we rebound and continue higher, it will be due to the huge volume selling on Monday and Wednesday.  The anxious are climbing over each other to get out and after a certain point we will run out of sellers.  Twenty percent above average volume is strong for an intermediate dip.  If that is all this is, we will bottom soon.  If this is a much larger correction, twenty-percent is just getting started and we could see a hundred percent surge in volume if the market slices through the 200dma.

Both sides have equally valid arguments, our job is deciding which outcome is more probable.

TRADING OPPORTUNITIES
Expected Outcome:
Neither bulls nor bears can take control of this market as we bounce around the trading range.  No one knows for sure what will happen, the best we can do is look for clues.  We face a real test on Thursday.  If the market stumbles, we are dangerously close to an avalanche of selling just under 1540.   Break this level and many money managers will flee ahead of the widely expected pullback.  When it comes to selling, it doesn’t matter what starts it.  Once the stampede starts, it takes a life of its own as people sell for no other reason than everyone else is selling.  The market could easily bounce one more time, but the potential downside is far more frightening than any reward is worth.

Alternate Outcome:
Bears are turning into the boy who cried wolf and if they don’t deliver soon, they will lose all credibility.  A powerful rebound and holding 1570 through Monday  shows bulls still own this market and the next move is higher.  The sideways consolidation and high-volume dips are clearing the market and setting the stage for a move higher.  The linchpin is holders.  If they continue holding and are not afraid of a little weakness, that will keep supply tight and there is nowhere to go but up.  If they fall prey to the fear-mongering, there are a lot late buyers that will rush for the exits when their positions fall into the red as we dip under 1540.

INDIVIDUAL STOCKS
AAPL had another bad day and set new 52-week lows.  It managed to hang on to $400, but just barely.  The stock is finally losing its status as a market darling and becoming something people are ashamed to admit still owning.  This is pure anecdotal, but I get far less animosity directed my way when I criticize AAPL than I did a couple of months ago.  The cheerleaders are losing their faith and that is an important part of finding a bottom.  We might see on last plunge lower, but we are closer to the end of this selloff.

There are an absurd number of conspiracy theories surrounding gold’s selloff, but the truth is it was simply and over-owned asset and fell victim to its own success.  There is not a cartel of reserve banks conspiring against gold.  This has nothing to do with Cyprus.  The long-held investment thesis behind owning gold is as a hedge against money printing, inflation, and the inevitable economic collapse.  While it sounded good, the theory failed to pan out no one else is interested in buying Gold.  This is supply and demand plain and simple.  No one wants to buy gold at $1700/oz and this week they said they don’t want to buy it at $1500 either.  The ferocity of the selloff is due to the high leverage traders were using to buy this ‘safe’ asset and margin calls triggered an accelerating cascade of selling.  The simplest explanation is most often the right explanation

Plant your trade; trade your plan

PM: Wild ride

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
It’s been a wild couple weeks and today’s strong rebound maintained the volatile whipsaw theme.  We recovered two-thirds of yesterday’s selloff in above average volume.  This was the rally’s forth-bounce off the 50dma and the second in less than two-weeks.

The market spent most of March stuck in a trading range between 1540 and 1570.  We broke out to the upside last week, but it was short-lived as we plunged to the lows of the trading range.  Today’s rebound puts us back above 1570 and it’s anyone’s guess what comes next.

MARKET SENTIMENT
The only thing that worked in the last six-weeks was buying weakness and selling strength.  The relentless head-fakes chewed up both bulls and bears trading the breakout/breakdown.  Was Tuesday’s rebound just another head-fake or signs of real strength and support indicating the rally is not ready to breakdown?  For as many people waiting for the pullback, the market is holding up surprisingly well and you have to give the rally the benefit of the doubt here.

Headlines just don’t matter and nothing will stop this rally other than running out of buyers.  I’ve been wary of this market for weeks, but bulls have been just as frustrated by the sideways chop and this turned into a battle of attrition.  Whichever side has larger numbers will eventually prevail.  Can buyers continue showing up in sufficient numbers or are the on the verge of being overrun by sellers?  No matter what anyone thought, they’ve been wrong so far, at some point we will finally have a winner.

TRADING OPPORTUNITIES
Expected Outcome:
Selloffs typically take hold quickly and maintaining these levels for a couple more days increases the probabilities of new highs.  If this market is really running short of buyers we will see the cracks grow wider in coming days.  If buyers continue stepping in at these levels it shows there are far more of them left than anyone expected and the inevitable pullback is still a ways out.

I am blown away by the resilience of the bull and how decisively they continue buying dips.  Obviously this cannot last forever, but bulls continue holding the upper hand until we see clear signs this rally is breaking down.  Right now the line in the sand is 1540.  Break though this and the selloff is finally taking hold.

Alternate Outcome:
Recent volatility is chasing off weak holders as effectively as a bigger selloff would.  Six-weeks of choppy sideways trade is refreshing the market like a 5% pullback would.   Yesterday’s plunge sent traders running for cover but lack of follow-on selling today shows holders are still willing to hold and buyers are still willing to buy.  Holding 1570 through Thursday shows new highs are likely.  If the market adds to its gains on Wednesday, bulls are still in control of this market.

Plan your trade; trade your plan

PM: Is this it?

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks suffered their biggest decline in five and a half months on the highest volume since March’s quadruple witching.  The market lost 36-points as it sliced through support at 1570 and didn’t stop falling until 1552.  The next level to watch is 1540 where the market bounced two-previous times and is also backstopped by the 50dma.  Breaking 1540 will trigger wider selling and the next level of support is down at 1500.

MARKET SENTIMENT
The riskiest markets are where people feel the safest.  Five-months into this rally the largest up-week of the year is immediately followed by the biggest loss in nearly half a year.  Increased volatility is often seen in topping markets and if this doesn’t qualify, then I don’t know what does.

Today’s givebacks drop us to levels first seen in early March.  Anyone who bought in the last month is at best break-even and fearing more losses.  The supreme confidence of the resolute bull is giving way to uncertainty and indecision.  Every other dips been a buying opportunity, the question is if this 2.3% plunge is like every other selloff this year.  The problem bulls ran into is recent gains were made on light volume.  They had the strength to push prices higher when confident holders were keeping supply off the market, but the first day of above average supply overwhelmed the few bulls with cash left to buy the dip.

Recent weakness bounced back quickly as the dips grew more mild.  This is because more and more traders grew comfortable buying dips and rushed in earlier and earlier on each subsequent dip.  But today’s decline couldn’t find a bid and kept sliding lower and lower.  Early today the market found support at 1580.  Then it was 1570.  And finally 1560 prior to the attacks in Boston.  Traders tried to buy the dips at each of these key levels, but with so few buyers left they cannot keep up with the wave of supply hitting the markets.  We can only bounce so many times before running out of dip buyers and this market appears over its limit.

While the events in Boston were tragic, the market was already near the lows of the day and it only had a modest impact on prices.  It is unfortunate we live in a world where these things happen, but from a trading perspective, most will view this as an isolated, one-off event and is unlikely to change their outlook on stocks and the economy.

TRADING OPPORTUNITIES
Expected Outcome:
Either this is the long-expected pullback, or just another bounce on the way higher.  Given how old this rally is and how close we are to the highs, there is still plenty of room for additional selling.  At this point there is little reason to be in the market.  A rebound will be slower, methodical, and have limited upside.  A selloff will plunge lower in the blink of an eye.  The risk/reward is heavily skewed against owning stocks here.  That doesn’t meant we won’t see another rebound, it means this is a poor trade to make.  Long-term success in the markets is less about individual results and more about the process.  Remember it is better to be out of the market wishing we were in, than in the market wishing we were out.

The selling will likely continue on Tuesday, but look for support at 1540.  This could be an hour-long pause before plunging lower, or a multiple day bounce before resuming the selloff.

Alternate Outcome:
1540 is the key level to watch.  Bouncing back from this level, or better yet a slight dip underneath it, will show buyers are still behind this rally.  Monday’s selloff shook many weak holders from the market and once that selling pressure dries up the rally will resume.  Bouncing and holding 1560 will show this rally is back.  But if this market cannot hold 1540, stay out of the way and don’t try to catch the falling knife.

INDIVIDUAL STOCKS
Hard not to talk about the huge crash in GLD.  The safety trade isn’t providing much protection, down 13% over two-days.  Commodities are supposed to be relatively stable and is why many traders leverage up their position 3 to 5 times.  This massive crash is largely driven by margin calls as brokers are forcing their over-leveraged customers to sell.  This forced selling is triggering other margin calls and the vicious cycle often repeats until several major funds are forced to liquidate.

In the highly leveraged commodity markets, selling feeds on itself far more aggressively than what equity traders are used to.  This was fine when commodity trading was limited to experienced professionals, but the advent of the GLD allowed the masses to speculate in gold commodities.  As they are learning, this isn’t as easy as it first seemed.

The most frustrating thing for many traders is they were led to believe Gold was a safe hedge against market volatility and money printing.  Today is just another example of the “safest” position in our portfolio being the riskiest.  In many ways Gold mirrors what happened in AAPL.  Both were hugely popular trades that couldn’t lose, but in the process became over-owned.  Once everyone who wants AAPL or Gold had as much as they could hold, there was no one left to buy.  No matter what the fundamentals dictate, prices decline when demand dries up.  There is still a strong case for AAPL and Gold, but it doesn’t matter when no one is buying.  The plunge in Gold is a structural and limited to itself.  This is not indicative of the wider economy and is simply an isolated supply/demand event within a particular security.  There are many reasons to be suspicious of this market, but margin calls in Gold is not one of them.

Plan your trade; trade your plan

PM: And on the fifth day the market rested

By Jani Ziedins | End of Day Analysis

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

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

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

Stay safe

PM: Getting frothy

By Jani Ziedins | End of Day Analysis

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

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

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

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

Stay safe

PM: Bizarro world

By Jani Ziedins | End of Day Analysis

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

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

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

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

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

Stay safe

PM: The teeter-totter ride continues

By Jani Ziedins | End of Day Analysis

PM Update

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

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

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

Stay safe

PM: Half-full or half-empty?

By Jani Ziedins | End of Day Analysis

PM Update

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

MARKET BEHAVIOR

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

MARKET BEHAVIOR

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

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

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

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

TRADING OPPORTUNITIES

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

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

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

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

INDIVIDUAL STOCKS

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

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

Stay safe

PM: Looking forward to employment

By Jani Ziedins | End of Day Analysis

PM Update

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

MARKET BEHAVIOR

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

MARKET BEHAVIOR

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

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

TRADING OPPORTUNITIES

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

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

INDIVIDUAL STOCKS

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

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

Stay safe

PM: Is this the start of something bigger?

By Jani Ziedins | End of Day Analysis

PM Update

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

MARKET BEHAVIOR

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

MARKET SENTIMENT

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

TRADING OPPORTUNITIES

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

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

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

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

INDIVIDUAL STOCKS

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

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

Stay safe

PM: Hold ’em or Fold ’em?

By Jani Ziedins | End of Day Analysis

PM Update

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

MARKET BEHAVIOR

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

MARKET SENTIMENT

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

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

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

TRADING OPPORTUNITIES

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

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

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

INDIVIDUAL STOCKS

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

Stay safe

PM: What comes next?

By Jani Ziedins | End of Day Analysis

PM Update

Markets tested support at 1550 and AAPL had its worst day since the post-earnings plunge.

MARKET BEHAVIOR

The up-down pattern continued with Monday’s selloff on the heels of Thursday’s record close.  This was the ninth consecutive day of alternating red and green.  Volume was well below average as traders continue their indifference toward this market.

MARKET SENTIMENT

Buyers are not clamoring for the breakout and holders not are rushing for the exits on weakness as this low-volume trend continues into the 4th week.  This can be both bullish and bearish depending on which side is the first to return in force.  Holders continue holding for larger gains and few are locking in profits at these levels, keeping supply tight.  One the other side buyers are restrained, either because they still don’t believe in this rally or alternately everyone already bought in and there are few left to buy.

The big difference is no one needs to buy, but there will always be sellers.  There is only one reason to buy, to make money either through capital appreciation or dividends.  If traders do not think a stock will go up, there is no reason to buy it.  But selling is a different animal and there are many reasons people sell stocks.  The obvious is they think it will go down, but people also sell to pay living expenses or a pension fund’s distributions to pensioners.  Money managers also sell things that go up a lot and skew their original allocations.  In the latter situations, a money manager can still be bullish on a stock or the market, but they need to sell for other reasons.  This dynamic is why a market needs a catalyst to go up, but will fall under its own weight in the absence of a reason to buy.

TRADING OPPORTUNITIES

Expected Outcome:
Even with the wind at its back, this is a challenging market to own.  Given how far we came over the last 4.5 months, it is hard to project more big gains before a normal and healthy pullback.  We can debate if the pullback will be 5% or will cascade into a 20% bear market, but either way we have at least 75-points of risk (5%).  Some of the more optimistic projections call for a continued rise to 1600 before topping.  That gives 75-points of risk for 38-points of upside.  It is hard to get excited about that trade even before we factor probabilities into the equation.  If we wouldn’t buy the market here, we shouldn’t own it either.

Alternate Outcome:
Momentum is clearly higher.  It is far more profitable to bet on a continuation than a reversal because a market continues countless times, but reverses only once.  Holding support at 1560 through Wednesday, or 1550 through Friday shows buyers are standing behind this market and it is not in imminent danger of imploding.  There is little risk to this rally as long as it holds 1550 and we don’t establish a lower-low until we fall under 1538.  While I am cautious of this market, I am keeping an open mind that this rally still has legs

INDIVIDUAL STOCKS

AAPL was hammered and finished at the lows of the day.  The 3% loss was the worst showing since 12% earnings plunge.  Volume was below average and failed to signal a high-volume capitulation bottom, meaning more weakness is likely.  The stock is within $10 of a new low and if it cannot hold recent support, look for a dip to the $400 level.  The fate of this move likely rests in the quarterly earnings in a few weeks.  This is purely anecdotal on my part, but I’m always on the lookout to see what phones people are using.  I see lots of iPhone4 and 4s, but very few iPhone5.  The other tidbit is few people are curious about my iPhone5 and I’ve only had two people comment about it since I got it on the day it came out.  Again this is purely anecdotal evidence, but it seems unlikely they will report blowout iPhone5 sales numbers based on how few I see in the wild.  Given the widespread bullishness still surrounding this stock, it sure feels like the risk remains to the downside.

Stay safe

PM: One way or the other

By Jani Ziedins | End of Day Analysis

PM Update

Indecision continues as the market remains stuck in its trading range.

MARKET BEHAVIOR

Stocks sold off early, but recovered lost ground and finished practically flat.  Volume remains light as few are trading the holiday shortened week. The struggle with 1565 continues and today was the sixth-day in the last two-weeks where the market traded north of 1560 but failed to capture a record close.

MARKET SENTIMENT

This is a hard post to write.  Over the last three-weeks we have been stuck in a volatile, tight rut.  It is hard to find fresh insight when the market keeps doing the same thing over and over and over.  Without a doubt, doing nothing means something, I’m just less sure of what that is.  I remain cautious of near-term weakness, but holding together is giving me second thoughts.  It’s not that my earlier analysis is flawed, it just seems early.  (in the markets early is the same thing as wrong)

The market has two options Thursday, finally set a record high, or breakdown.  We are so close to an all-time high that if we don’t finally do it, there are structural problems preventing the market from gaining those last few points.  At no point in the rally has two-points been so difficult and this signals a shift in personality.

The sideways trade is creating through churn what normally happens with a pullback.  Even though the market has been flat, a lot of buying and selling continues taking place.  A bullish interpretation is weak hands are selling to the strong.  The bearish view is smart money is selling to dumb.    In a couple of weeks we will have our answer.

TRADING OPPORTUNITIES

Expected Outcome:
When in doubt, sit it out.  There is no reason to always have a trade on.  Some opportunities are better than others and the savvy trader recognizes the difference.  This is about exploiting the best setups and this market is being stingy.  I remain cautious of near-term weakness, but holding 1550 shows a meaningful depth of buyers willing to prop us up.  This has worked through abnormally light volume, but can the market continue finding support when the normal volume of selling resumes next week?

Alternate Outcome:
Stocks are stuck in this tight range between 1550 and 1565.  We will breakout/breakdown soon, the question is which way.  I am reluctant to own this market here, but recognize the next move could be higher.  There is a good chance we finally close above 1565 on Thursday and put this whole “all-time closing high” behind us.  If the last three-weeks of churn flushed out weak holders and seduced bears to short the market, we could see a decent breakout above 1565.

Stay safe

PM: Here we go again

By Jani Ziedins | End of Day Analysis

PM Update

The market challenges all-time highs, but comes up short again.  Will tomorrow finally be the day?  AAPL’s pause appears constructive.

MARKET BEHAVIOR

Stocks made a new 52-week closing high and are less than two-points from the all-time closing high.  Today was the sixth-consecutive alternating up-and-down day.  Volume continues declining between the holiday shortened week, spring break, and the last week of the quarter.  It seems like many traders already checked out for the week.

MARKET SENTIMENT

The all-time closing high continues eluding this market, will tomorrow be the day?  It was nearly two-weeks ago the first time we asked that question.  Will if finally happen Wednesday, or will the alternating pattern continue?

Volatility is humiliating both bulls and bears as it sucks in and spits out any reactive and impulsive traders.  The key to surviving periods like this is trading proactively by selling strength and buying weakness.  Often that means going against our gut, but that is precisely why it works.  Evolution wired all of us the same and what we feel is also experienced by most market participants.  To thrive we need to break free from the herd and chart our own course.

Volatility and turmoil is a key sign of market tops, but it also signals consolidation and continuation.  If this were easy everyone would be rich.  It seems some of the bullishness is wearing off as we stall at these levels and the bears coming out of the woodwork again.  By itself that does not signal a continuation because at some point bears will eventually be right.  The question is if there are still too many bears out there?  We will have our answer soon enough.

TRADING OPPORTUNITIES

Expected Outcome:
I keep asking questions because the market is giving us few answers.  The battle between bulls and bears is fairly even here.  My bias is with the bears, but I could easily see bulls pulling this off one more time.  We can talk about this stuff until we are blue in the face, but the truth is we are simply killing time until the market reveals which way it wants to go.  At this point it seems just as likely we finally set the all-time high as break down.  But there are different consequences for each.  Rebuffed by 1565 one more time is far more damaging for bulls than finally closing above this level will be for bears.  Bears have lost this fight for a while and one more setback is not a big deal, but the first bull loss is far more significant and signals a potential change in personality.

Alternate Outcome:
Markets rarely give us this long to sell the top.  Holding these levels thorough Monday clearly shows bulls are still in control.  If the market doesn’t break down over the next couple days, look for the continuation.  Maybe the continuation is one last push through all-time highs at 1576 and only lasts a couple of days, or maybe we rally through the summer before resting.  All we can do is follow the markets lead and pick up the clues it gives us.

INDIVIDUAL STOCKS

AAPL took a break, but is still above the 50dma.  There was a lot of chasing as it finally broke above this widely followed moving average for the first time in five-months.  This is healthy and constructive as long as we continue holding.  The if stock is still finding support, it will hold the 50dma.  A dip so soon after reclaiming this level is a warning flag that it is struggling to find new buyers.

Stay safe