Category Archives for "Intraday Analysis"

Jun 06

AM: Bounce or false bottom?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:44 EDT

S&P500 daily at 1:44 EDT

AM Update

MARKET BEHAVIOR
Stocks slipped again in early trade, challenging 1600 and the 50dma.

MARKET SENTIMENT
The market clearly wants to test these widely followed technical levels, but the real question is how much stop-loss selling is left to trigger.  If we saw a large amount of preemptive selling on the way down, there are fewer traders left to dump this violation of support.  Under this scenario we will see an initial surge of selling when we break support, but since so much defensive selling happened early, it quickly exhausts itself and bounces in decisive a capitulation bottom.  This is the exact behavior we saw on April 18th when the market rebounded strongly after testing the 50dma.

The alternative is many traders are anticipating the inevitable bounce and have all their stops clustered under 1600.  A modest dip will set off a furious tidal wave of selling that doesn’t stop until we plunge at least 20 points.  At this point either outcome seems likely and the most conservative trade is to watch from the sideline.  It is an ego boost and gives us bragging rights to challenge the market and win, but allowing our ego trade is a good way to go broke.  Let the market show its hand and jump on the subsequent move.

TRADING OPPORTUNITIES
Expected Outcome:
The market briefly dipped under 1600 as I wrote this and all we can do is wait and see what happens.  Was this the capitulation bottom, or the prelude to a major QE selloff?  I wish I had the answer, but like everyone else I’m simply a spectator.  1600 is an important level because so many people are watching it and basing their near-term outlook on how we respond. Over the next couple days we will know a lot more about the what the market thinks and how people are positioned.  A bounce is buyable for a trade, but resist adding new shorts if we keep selling off.  Bull or bear, expect a short-squeeze/bull-trap bounce in the next couple days.

Alternate Outcome:
Trading would be so much easier if the market actually did what it is supposed to do.  The problem is it has a nasty habit of convincing us we are wrong just before proving us right, or convincing us we are right just before proving us wrong.

Bears are looking for a collapse, bulls a bounce.  Obviously one is right and the other wrong, but if only the market’s price-action was so clearcut.  A likely outcome is fake out with a false move before reversing and revealing its true intentions.   A bounce before a plunge, or a plunge before a bounce.  Just because the market is doing what we expect doesn’t mean we can let our guard down.  Prepare for, even expect it to snap back in our face.  In uncertain and volatile periods like this, take profits early and often because they will likely be gone in a couple of days.

Trading Plan:
Let the market do its thing.  I still expect a near-term bounce because everyone is on the selloff bandwagon, but the momentum is clearly on the bear’s side.  A bounce is buyable with a stop under recent lows.  It is late in the game to be adding new shorts and existing shorts should look to take profits.  The goal isn’t to make all the money and hold for top dollar is a sure way to give back all your hard-earned profits.

GLD daily at 1:44 EDT

GLD daily at 1:44 EDT

INDIVIDUAL STOCKS
AAPL challenged its 50dma this morning, but is holding it at the moment.  It is hard to be excited about this company given the complete lack of meaningful innovation over the last couple years.   Rumor is AAPL will release new default icons for iOS next week.  Without a doubt they need to get rid of the cheesy glare and  gimmicky graphics on the in-house icons, but hopefully there is something bigger than that.  Of course at the same time we also don’t want another half-baked iMaps episode either.  If the market is not wowed next week, expect traders to continue souring on AAPL’s and actually start to question the company’s long-term prospects.  It’s up to Apple to prove it is not the next Palm Pilot or BlackBerry and the way it is bleeding market share is not a good start.

GLD reclaimed some of its luster in the face of today’s selloff.  Thank a plunging dollar for the lift.  Gold could continue higher on Dollar weakness, but if we are making a currency trade, trade currencies, not gold.  Fundamental reasons to own gold continue eroding along with people’s trust.  Maybe gold will come back some, but it will be a long while before it reclaims its economic fear driven heights.

Plan your trade; trade your plan

Jun 05

AM: Selling continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:55 EDT

S&P500 daily at 1:55 EDT

AM Update

MARKET BEHAVIOR
The market stumbled lower and undercut recent support at 1620.  The next major level for bulls to defend is 1600.

MARKET SENTIMENT
We slide as buyers stay away and stop-losses trigger under widely followed support levels.   The pain trade is clearly on for late buyers of the recent rally.  There is no obvious headline driving the decline, but we know headlines are only loosely related to market moves.  Traders are afraid to buy and the continued slide is forcing out weaker holders.  When that happens, it doesn’t matter what the headlines say.

Recent weakness shows the value of selling into strength and taking profits.  We are in this to make money and the only way to do that is selling our winners.  It also highlights the risks of chasing a strong market.  The best trade is often the hardest trade.  That means selling an invincible stock and buying when everyone is convinced things are collapsing.

TRADING OPPORTUNITIES
Expected Outcome:
I still don’t believe in the selloff, but that’s what stops are for.  At some point the rally will bounce because they always do, the only  question is if it is a real rebound or bull-trap.  As we discussed through May, a pullback following such strength is normal and healthy.  1600 has long been the line in the sand and retreating to this level is not alarming.    How the market responds here lets us know what comes next.

The market is down nearly 5% from recent highs and that qualifies as a refreshing pullback.  It is reasonable for the market to enter a trading range for the remainder of summer.

Alternate Outcome:
No matter what we think, we must respect and follow our stops.  It is better to be out of the market wishing we were in, than in the market wishing we were out.  Buyers remain reluctant to jump in and buy the dip.  The longer they withhold their support, the further we slide.

Trading Plan:
Assume the rally is intact until we violate 1600.  If the market falls under our stops, we must sell, no questions asked.  It is easier to buy back in if we get out prematurely than it is to recover mounting losses by sticking around too long.  As always, if we don’t feel comfortable, stay out of the market.  It is easy to make money in the markets, the hard part is keeping it.  Don’t force bad trades.

Plan your trade; trade your plan

Jun 04

AM: Another round of selling

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:06 EDT

S&P500 daily at 3:06 EDT

AM Update

MARKET BEHAVIOR
Stocks retreated following early strength.

MARKET SENTIMENT
In spite of this weakness the market is still above recent lows and is maintaining its composure.  With so many calling for a correction and claiming recent price action was the top, support at these levels for the third day is constructive and bullish.  Many of those that could be shaken out are getting shaken out, eventually leading to selling exhaustion and price recovery.

Understand what people think, how they are positioned, and what moves they have available to them.  Most expect a pullback after such a strong rally, sold recent weakness, and the only thing they can do is buy back into the market.  As for the bears, many shorted recent weakness and will be forced to cover when prices bounce.

TRADING OPPORTUNITY
Expected Outcome:
Continued support here is a warning for bears to cover shorts before they get squeezed out.  There is nothing wrong with making an aggressive trade, but recognizing when the trade is not working as planed is a key part of surviving the market.  Market collapses are scary fast, yet this selloff is two-weeks old tomorrow and hasn’t even fallen 4%.  Trading against the trend requires nimbleness and a deft hand. Take profits early and often; don’t get greedy and hold too long, allowing profits to turn into losses.

When we finally bounce, don’t expect the strong rally to resume.  The market moves in three directions; up, down, and sideways.  We did a lot of up recently, everyone expects down, so sideways it is.  Sell the breakout and buy the breakdown.

Alternate Outcome:
One of these days bears will be right and the market will correct when no one expects it.  It will start like any other dip, except this one doesn’t find a bottom and continues lower.  The best defense is keeping an open mind when the market doesn’t behave as expected, and when all else fails, hard stops.

Trading Plan:
Swing traders can buy the market with a stop under yesterday’s 1622 low.  Look for a move up to recent highs.  Breaking through 1622 likely means a retest of support at 1600 and represents another dip buying opportunity.  Slipping under 1600 will trigger a wave of stop-loss selling. At this point it is anyone’s guess if that will lead to a multi-day selloff or quickly find a bottom, but we will worry about that when we get there.  At this point assume every dip is buyable until we come across one that isn’t.

INDIVIDUAL STOCKS
AAPL continues holding above the 50dma and $440.  Seeing the eight-month selloff take a break is encouraging.  The big fundamental catalyst comes next week at AAPL’s developer conference.  In the past AAPL used this platform to announce new products and services.  Given the huge price decline since the iPhone5’s release, pressure is on Cook and Co to wow developers, the media, customers, and the market.  The fear for an AAPL bull failing to unveil anything more than software tweaks.  Without a big announcement, expect the slide to continue as investors assume AAPL is out of ideas.

Plan your trade; trade your plan

Jun 03

PM: A bullish reversal

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
The market staged a positive reversal after falling to 1622 in early trade.  Volume was well above average as the morning dip flushed out another round of stop-losses.

MARKET SENTIMENT
While it is premature to say this bounce is the real deal, it clearly overcame early weakness and prevented it from cascading into wider selling.  Bears had the perfect setup and failed to deliver for the umpteenth time.  Early stop-loss selling quickly fizzled and didn’t spread because most of the potential sellers sold last week.

Success in the market is not found in the charts or the fundamentals, but understanding what people think and how they are positioned.  Many traders anticipated a correction and bailed at the first signs of weakness.  This lead to steep declines on the 22nd and last Friday, but all that selling consumed the bulk of available supply, meaning there was little downside left.  When we run out of sellers there is nowhere to go but up.

TRADING OPPORTUNITIES
Expected Outcome:
Most of the nervous selling is behind us, so expect the market to continue rallying on tight supply.  This will lead to a near-term short-squeeze as aggressive bears are forced to cover, but the wider pool of buyers remain nervous, so don’t expect them to climb over each other to continue pushing this market higher.  Buy strength and sell weakness until the market indicates it is ready for the next directional move.

Alternate Outcome
Further weakness and undercutting 1622 invalidates the thesis most weak hands are already out of the market.   The next key level is 1600 and failing to hold that puts the rally in jeopardy.

Trading Plan:
The dip is buyable with a stop under 1622.  Look to take profits near the previous highs as the market stays range bound through summer.  Seeing the market break 1600 on the low side or 1700 on the high side means the market is ready for its next directional move and we will trade that when we get there.

Plan your trade; trade your plan

Jun 03

AM: Buy the dip

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:29 EDT

S&P500 daily at 2:29 EDT

AM Update

MARKET BEHAVIOR
Stocks are modestly lower in early trade as last week’s selling continues.  We are still well above major support at 1600 and the 50dma, but violated minor lows at 1635 last week and undercut Friday’s lows this morning.

MARKET SENTIMENT
The Sell in May folks are now promoting Sell in June.  It doesn’t have the same ring to it, but we shouldn’t let semantics get in the way of stubbornness.  Bears also point to the Hindenburg Omen, a scary warning of imminent calamity.  Add to this the already pervasive claims this market is extended, over-bought, and overly-bullish.  No one trusts this market and people invent new reasons to stay away each week.

We all want to buy and hold the next big move, but it is our innate fear of heights that keeps most out of the biggest winners.  We are natural cynics and distrust anything that moved too far, too fast.  This is a mixture of disbelief and regret we missed the big move everyone is talking about.  We want to join the party, but insist on waiting for the inevitable pullback so we don’t look foolish chasing a hot stock, or in this case market.  But typically the market either never pulls back, or when it does, we chicken out because it looks like it is breaking down.

Fear and indecision is what keeps most out of the best, easiest, and safest moves.  This market rallied over 300-points since the November lows and people still don’t trust it.  This has been one of the easiest times in market history to hold stocks as we marched higher week after week with no real pullbacks along the way, yet most are still afraid of it.  There will eventually be a time when everyone finally embraces this market and is truly over-bought, but when traders and headlines scream this is the top every time we dip 20-points, we know we are not there yet.

This market will top, but only after everyone stops expecting it.  Supply and demand dictates when everyone fears a correction, they sell proactively and aggressively at the first signs of weakness.  With so many people watching this market with an itchy finger, much of the defensive selling is already behind us as many blew their load early.  That premature selling takes supply out of the market and makes it easier for the market to bounce.  Further, these early sellers are the next buyers as they chase the market higher.

Many traders are waiting for the monthly employment report on Friday, but it has been a year since the market reacted strongly to an employment report.  It was a big deal when we transitioned from job losses to gains,but the market expects modest gains and as long as we keep getting them, this report is simply talking-head fodder.

TRADING OPPORTUNITIES
Expected Outcome:
Friday’s weak close did not lead to an avalanche of selling today, and while we are modestly lower, the market is calm and rational.  Unfortunately for us, markets cannot go up every day, so selling of 10, 20, and even 50-points is normal and expected.    Resist the urge to jump out the window every time the market doesn’t go up.

The market is likely transitioning to a flat trading range for the remainder of the summer.  I’m just spitballing things here, but expect the market to stay between 1600 and 1700 over the next couple months.  The best trade is buying weakness and selling strength.  Savvy and experienced investors can sell option premium.

Alternate Outcome:
While it doesn’t happen often, sometimes the crowd gets it right.  This market could implode Hindenburg style and we cannot stick stubbornly to our original thesis once the market moves convincingly against us.  We came a long way and at some point we will run out of buyers.  Once that happens it doesn’t matter what the headlines are or what the Fed does, without demand markets tank.  Assume the uptrend is intact until it proves otherwise, but once it does, be flexible and quick enough to profit from the new trend.

Trading Plan:
Look for a bounce to buy the dip and use the recent lows as a stop.  Assume the market is stuck in a range and take profits as we approach recent highs.  The aggressive can then reverse and short the subsequent weakness.  A break below 1600 or break above 1700 means we need to watch for the next directional move.

S&P500 daily at 2:30 EDT

S&P500 daily at 2:30 EDT

INDIVIDUAL STOCKS
AAPL continues finding buyers above the 50dma and shows legitimate support for the first time since the selloff began.  I suspect most new buyers are coming for the recently raised dividend and these investors are notoriously price sensitive.  Growth investors are shying away from this name and it is unlikely we will see them push this stock any time soon.  A trader can make money here, but it takes a different strategy than the easy buy-and-hold days of years past.

GLD‘s volatility continues as we jump 2% today following Friday’s 2% decline.  Speculators and day-traders are gaming the metal trying to scalp a profit here and there.  The loser is the cautious investors seeking safety and security.  It will take a while for the commodity to regain its safe-haven status and expect recent volatility to continue.

Plan your trade; trade your plan

May 31

AM: Sideways it is

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:21 EDT

S&P500 daily at 2:21 EDT

AM Update

MARKET BEHAVIOR
The sideways trade continues as the market bounces around break-even this morning.

MARKET SENTIMENT
The window for a panic driven crash came and went.  We had one dramatic down-day last week, but trade has been unremarkable, even boring since then.  Traders are an opinionated bunch and we all think the market is either undervalued or overvalued, that’s just how we are wired.  But reality is the market trades sideways far more often than it breaks out or breaks down.  No one wants to listen to an analyst say this will be a boring, quiet, and dull summer.  We want promises of drama and excitement.  We want horses to bet on.  But what we want and what we get are often different things.

Bears are right when they say the current rate of gains is unsustainable, but they are wrong when they claim we need to pullback from these overbought levels.  Sideways trade is another tool markets use to rest and refresh.  This is exactly what happened in March and April and it could easily happen here to0.

Don’t despair, there are plenty of ways to profit from sideways markets, we just need to use different tools.  Instead of buying breakouts and selling breakdowns, we buy weakness and sell strength.  Selling options is another effective tool for savvy and experienced derivative traders to profit from time-decay.

TRADING OPPORTUNITIES
Expected Outcome:
Staying in a tight range following the “obvious” top last Wednesday means that selloff is dead and buried.  Everyone who wanted to sell, or could be scared out of the market, sold days ago and there is very little supply left to shake out of the market.  We can still selloff, but it will take all new and unexpectedly bad news to drive that weakness.  This market already decided it no longer fears recycled headlines about QE ending or any of the other concerns constantly circulated by the financial press and bears.

Market go up, down, or sideways.  The stalled selloff shows there is little potential for greater declines, so that is the least likely outcome.  That doesn’t mean impossible, just less likely than the other two possibilities.  The recent rate of gains have been impressive and common sense tells us they cannot continue indefinitely.  Markets rally in steps and our step from 1550 to 1650 was a good one.  Another short squeeze could continue the drive higher, but the most likely outcome is the one on one is talking about, trading sideways for the remainder of the summer.

Alternate Outcome:
The longer we hold these levels, the less likely a panic driven selloff becomes.  But less likely is not the same as impossible.  The most important part of sustainable success in the markets is good defense.  No matter how we feel about the market and our positions, guarding our profits is always our top priority.  Look for a series of lower-highs and violating support to show buying is drying up and we need to get out.

Trading Plan:
Buy weakness and sell strength until the market shows it is ready for the next directional move.  The current range is 1635 to 1675 and swing-trade around these levels.  More meaningful support and resistance is 1600 and 1700.  Penetrating either of these indicates the market is ready for its next directional move.

DXJ daily at 2:20 EDT

DXJ daily at 2:20 EDT

INDIVIDUAL STOCKS
Much like the rest of the market AAPL is trading sideways and consolidating.  It is encouraging to see selling take a break and buyers actually continue buying these levels.  In reality the sideway trade stretches back to January and many of the weak holders and hope left the stock over this stretch.  The real test will be breaking and holding the previous high of $465.  This will be the first higher-high since last September and will be a major development of the recovery.  Failing to do this likely means the lows are not in yet.

GLD continues its volatile trade.  Today’s selloff is giving back most of yesterday’s pop.  No doubt hedge funds are scrambling between AAPL, GLD, and now the over crowded and plunging Nikkei/Yen trade.  Hedge funds are supposed to be smart money, but their results beg to differ.

Plan your trade; trade your plan

May 30

PM: Flat trade?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks settled down following last Wednesday’s massive reversal.  While we’ve witnessed intraday volatility, closes have all been within 6-points of where the selloff dumped us.  It certainly doesn’t feel like it, but the market has been stuck in a trading range between 1635 and 1675 for over two-weeks.

MARKET SENTIMENT
Stability so quickly following an alarming selloff is a big red flag for bears.  Everyone knows the market came too far, too fast and is grossly overbought, but why didn’t we continue imploding following the obvious top last?  Bears will mumble something about irrational exuberance, gullible dip-buyers, complacency, or some other bearish buzzword, but the truth is far simpler than that, the plunge abruptly ended because we ran out of sellers.

When traders expect something, they trade ahead of it.  If the crowd anticipates a pullback, they take profits and short the market, they don’t stick around and wait for floor to fall out from underneath them.  When people share a similar outlook and sell proactively, they take supply out of the market, leaving fewer to actually sell the breakdown.

Why this stability is a warning flag for bears is it shows there are no sellers left.  The few sellers left leading up to Wednesday’s reversal all bailed out in the subsequent down days   Everyone who continued holding through the obvious top or confidently bought the dip is not going to flinch at a little more weakness.  Their willingness to hold steady keeps supply tight and there is nowhere for the market to go but up.

There is nothing wrong with making an aggressive trade, but we must pull the plug when it doesn’t work as expected.  There was a strong case for a wider correction, but when it didn’t happen as expected, we have to reevaluate our assumptions.  It is okay to be wrong, it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
The market had the perfect setup to selloff, yet here we stand practically flat for the fifth day in a row.  This strength and stability proves the market is not willing to give everyone the selloff they are waiting and hoping for.  The rate of recent gains cannot continue indefinitely so consolidation and sideways trade here is normal and expected.

Alternate Outcome:
The best way to know the market is ready to breakdown is to see it breakdown.  Rallies always end and this one is no different.  A series of lower-highs and violating support shows buying is drying up and the inevitable pullback is taking hold.

Trading Plan:
Everyone wants to trade breakouts and breakdowns, but the truth is the most frequent move is sideways.  Recent support shows the market doesn’t want to breakdown and continued gains at the previous pace is unsustainable.  Until the market proves it is ready for the next leg higher or lower, assume we are in a trading range and buy weakness and sell strength.  Near-term levels to watch and trade are 1635 and 1675.  More significant levels signaling a potential continuation or breakdown are 1600 and 1700.

Plan your trade; trade your plan

May 30

AM: Fear QE ending?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:07 EDT

S&P500 daily at 1:07 EDT

AM Update

MARKET BEHAVIOR
The zig-zag continues as we rebound from yesterday’s selloff.

MARKET SENTIMENT
It’s becoming clear neither side has control over this market as each directional move stalls and reverses.  Markets only rise and fall when people buy and sell stocks, and people only buy or sell stocks when they change their mind.  Right now bulls are confident in their positions, bears know we are over-valued, and everyone is waiting for the market to do what they think it should.  When everyone stands around, markets trade sideways because no one is changing their mind.  To get things moving again we need to spook bulls out of their positions or make bears fear being left out of a risking market.  Will this stubborn standoff continue through summer?  Only time will tell.

All this talk of QE ending is diminishing the impact of the actual announcement and eventual money tightening.  Everyone remembers what a disaster Y2K was, right?  While we can joke about it now, it was a serious matter at the time, but the reason it was a non-event is because everyone talked about it, feared it, and ultimately prepared for it.  When everyone is adequately prepared for something, it passes without an issue.  The more people talk about and fear the ending QE, the sooner we can ignore it.  People trade their outlook and expectations.  If traders fear the end of QE, they will move out of the market and that QE driven selling will be long behind us by the time it is actually announced.  In fact it will likely lead to a sell the rumor, buy the news event.  How crazy will it be if markets rally on the ending of QE?  Crazy enough to work.

TRADING OPPORTUNITIES
Expected Outcome:
Until one side changes its mind, expect stocks to trade sideways as both bulls and bears stubbornly stick to their outlook.  The market is incapable of standing perfectly still, so expect some up and down gyrations, but this is a swing-trader’s paradise; buy weakness and sell strength.

Alternate Outcome:
No one knows what the market will do and we simply trade probabilities.  To protect ourselves we will watch for breakouts or breakdowns that show the market is ready for its next directional move.

Trading Plan:
Markets move sideways most of the time and that is what we should expect here.  We need a rest after a strong directional move and the widespread expectation of a pullback mean mutes the downside risk.  At this point, plan on buying weakness and selling strength until we make a decisive break either direction.  Lower support is back at 1600 and sticking with round numbers, expect 1700 to act as overhead resistance.  Breaking either of these levels forces us to evaluate the potential of a new directional move.

Plan your trade; trade your plan

May 29

PM: Expect the unexpected

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

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

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

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

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

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

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

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

Plan your trade; trade your plan

May 29

AM: Another pause

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:17 EDT

S&P500 daily at 1:17 EDT

AM Update

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

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

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

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

TRADING OPPORTUNITIES
Expected Outcome:

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

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

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

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

LNKD daily at 1:17 EDT

LNKD daily at 1:17 EDT

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

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

Plan your trade; trade your plan

May 28

AM: Another short squeeze

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:17 EDT

S&P500 daily at 1:17 EDT

AM Update

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

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

TRADING OPPORTUNITIES
Expected Outcome:

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

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

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

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

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

Plan your trade; trade your plan

May 24

AM: Sanity returns

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:58 EDT

S&P500 daily at 12:58 EDT

AM Update

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

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

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

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

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

LNKD daily at 1:04 EDT

LNKD daily at 1:04 EDT

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

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

Plan your trade; trade your plan

May 23

AM: Selling stalls

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:18 EDT

S&P500 daily at 1:18 EDT

AM Update

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

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

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

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

TRADING OPPORTUNITIES
Expected Outcome:

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

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

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

AAPL daily at 1:18 EDT

AAPL daily at 1:18 EDT

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

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

Plan your trade; trade your plan

May 22

AM: Easy money keeps flowing

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:14 EDT

S&P500 daily at 1:14 EDT

AM Update

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

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

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

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

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

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

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

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

GLD daily at 1:14 EDT

GLD daily at 1:14 EDT

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

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

Plan your trade; trade your plan

May 21

AM: Holding near highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

S&P500 daily at 1:23 EDT

AM Update

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

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

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

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

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

LNKD daily at 1:23 EDT

LNKD daily at 1:23 EDT

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

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

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

Plan your trade; trade your plan

May 20

AM: The chase continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:46 EDT

S&P500 daily at 1:46 EDT

AM Update

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

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

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

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

TRADING OPPORTUNITIES
Expected Outcome:

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

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

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

GLD daily at 1:22 EDT

GLD daily at 1:22 EDT

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

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

Plan your trade; trade your plan

May 15

PM: How high can we go?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

S&P500 daily at 1:15 EDT

AM Update

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

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

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

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

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

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

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

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

GLD daily at 1:16 EDT

GLD daily at 1:16 EDT

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

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

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

Plan your trade; trade your plan

May 14

AM: Another leg higher

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:19 EDT

S&P500 daily at 1:19 EDT

AM Update

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

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

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

Source: Yahoo Finance 5/14/2013

Source: Yahoo Finance 5/14/2013

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

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

TRADING OPPORTUNITIES
Expected Outcome:

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

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

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

GLD daily at 1:19 EDT

GLD daily at 1:19 EDT

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

Plan your trade; trade your plan

May 13

AM: No cracks yet

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:26 EDT

S&P500 daily at 2:26 EDT

AM Update

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

May 10

AM: Rest day part 2

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

S&P500 daily at 1:28 EDT

AM Update

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

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

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

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

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

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

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

GLD daily at 1:28 EDT

GLD daily at 1:28 EDT

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

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

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

Plan your trade; trade your plan

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