Category Archives for "Intraday Analysis"

AM: A rest day

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

MARKET BEHAVIOR
Stocks are down fractionally for the first time since the 1600 breakout.

MARKET SENTIMENT
We cannot rally every day and today’s pause is normal, expected, and nothing to fear.  That doesn’t mean we cannot selloff more in coming days, but it is extremely premature to call this a top.

I keep coming across confusion about contrarian investing and what it really is.  Contrarian investing is based on crowd dynamics, yet most people mistakenly associate it with technical analysis.  Technical traders have momentum and overbought/oversold indicators, but these are based entirely on chart patterns.  Contrarian trading is going against the crowd and has nothing to do with charts.  It focuses on what other traders think and how they are positioned, nothing more, nothing less.

Many traders wrongly think of themselves as a contrarian when they short a stock that’s “gone too far”.  But more often than not, the right contrarian trade is betting on a continuation of “too far” when the crowd remains suspicious of a move.  NFLX, LNKD, AMZN are all examples of expensive stocks that keep getting more expensive.  The contrarian investor goes against the crowd, not the price.  When everyone loves something the contrarian shorts it.  When the crowd don’t trust the market, the contrarian buys it. It doesn’t matter what the chart is doing. This market is up 300-points in half a year because no one trusts this market.  Anyone who went against the trend missed easy profits.  The contrarian who went against the cynical crowd made easy money.

Source: Yahoo Finance 5/9/2013

The distrust of this rally remains extremely high.  For all the talk of how overly bullish this market is, it is darn hard to find any of these bulls in the flesh.  Here is another Yahoo Finance poll that shows just how suspicious traders are of these levels.  People make the mistake of assuming everyone is bullish in a rising market, but that is clearly not the case with this market.  All these cynics are underweight the market, meaning most of the selling pressure is behind us.  The only thing these cynics can do is change their mind and chase this market higher.  These two reasons are why this Teflon rally keeps going.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  Markets move two-steps forward, one-back, and a little consolidation after recent gains is normal and healthy.  As long as traders remain suspicious of this rally, the uptrend will continue.

Alternate Outcome:
What goes up must come down.  Watch for cracks in this rally in the form of lower-highs, lower-lows, and breaking key support.  Until then stick with the trend.

Trading Plan:
Swing traders can take some profits off the table after the recent three-week run.  Those out of the market should resist the urge to chase and wait for a pullback or consolidation.  The only traders who can short this market are the extremely nimble day-traders and they need to take profits early and often.  Until something changes, expect every dip to bounce.  Former resistance at 1600 should now act as support and as long as we remain above this level, the rally is intact and healthy.

AMZN daily at 1:23 EDT

INDIVIDUAL STOCKS
AAPL is consolidating gains near $460.  Seeing buyers step up and continue buying at these levels is encouraging.  AAPL’s growth story remains uncertain, but the company generates a lot of money and increasing its dividend makes the stock attractive to income investors.  But if income investors are coming to the rescue, don’t expect prices to take off because these investors are very price and yield sensitive.  They don’t chase the next big thing the way growth investors do and is why popular income stocks like MSFT and WMT have been unexciting even though revenues and earnings continue growing at both companies.

AMZN is making a break for the 50dma.  We are allowed to have opinions in stocks like this, but we must always trade with discipline.  Keep position sizes small and use hard stops to get us out when we are wrong.  Bears should continue watching this stock for further signs of weakness, but wait for weakness to develop and don’t short anything simply because it is too expensive. Bulls should wait until we break above this consolidation on volume.  This will keep both sides out of this unproductive slop between the 50dma and 200dma.

Plan your trade; trade your plan

AM: Still going

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:26 EDT

AM Update

MARKET BEHAVIOR
The streak of up-days continues into its sixth session, making it twelve out of the last fourteen.

MARKET SENTIMENT
Three-weeks ago the market was on the verge of collapsing into the widely expected correction,  yet here we stand nearly 100-points higher.  Many of the smartest minds said we were due for a pullback after such a strong first quarter.  That is a perfect example of how far brains will get us in the market.  This is a game where the smartest people in the world are trying to take money from each other.  We cannot beat the market by out-thinking it, but we can succeed by changing our perception.

Everyone looks at fundamentals, headlines, and technical levels.  There is money to be made with these tools, but is it enough to be worthwhile?  Lets imagine there is a $20 bill lying on the street and I am the only one who sees it.  That’s twenty dollars for me.  If we are together and both see it, we split it in half.  If there are four of us, we each get five dollars.  Taking it to the extreme,  if there are 2,000 of us, then we each get one cent.  At that point our windfall is hardly worth the effort.  This is exactly what happens in the markets when too many people trade-off the same information.  These profit opportunities quickly evaporate as it is divided among so many like-minded traders it is hardly worth the effort.

We are not smarter than the brainiacs on Wall Street, we don’t have an army of analysts, CEOs of major companies won’t return our phone calls, and we are not part of the good old boy network.  There is no way we can compete with the big boys at their game, so we need to come up with our own.  “Think Different” is a famous Apple ad campaign, but it fits perfectly what we are trying to do.  To succeed in the markets we need to see the things everyone else misses.

Sustainable success for the average investor does not come from predicting the news, but understanding what everyone else thinks, how they are positioned, and what moves the crowd can make.  As complex as people want to make this with fundamental and technical analysis, it is really simple.  When people are excited to buy prices, go up; when they are excited to sell, they go down.  To win at this game all we need to figure out when people will buy and when they will sell.

When everyone expected the market to collapse back in mid-April, they sold ahead of time.  Who is going to keep holding stocks if they are convinced the market is headed lower?  If all the pessimists were out, it means little selling pressure remained in the market.  And more than just that, when everyone is bearish and already out of the market, there is just one option left to them, buy stocks.  When everyone is bearish, we have this huge pool of potential buyers ready to bid prices up when they change their mind buy back in.  And this is why we jumped 100-points instead of crashing 100.  It is not because the world is a better place, but because everyone sold in April and there was nowhere left to go but higher.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  Recent breakouts stalled shortly after making new highs, but this one keeps marching higher.  I’m sure we will see a modest dip, but don’t let 20-points of selling spook us.  This is a decent place to move our stop-loss up to protect recent gains.  What was resistance at 1600 should act as support.  We should leave ourselves a little buffer so we don’t get shaken out in a temporary dip under support.  Something between 1595 and 1575 is a decent place to put a stop depending on our risk tolerance and belief in this rally.

Alternate Outcome:
The higher they climb, the harder they fall.  Almost all the pessimists are right, just a little early, but in a game where timing is everything, early is the same thing as wrong.  While we stick with the trend, we need to watch for signs buying is drying up.  Every rally comes to an end and so will this one.  Stay vigilant when everyone else becomes complacent.

Trading Plan:
Move our stops up and stick with is rally as long as we keep making higher-highs, higher lows, and hold above the 50dma.

INDIVIDUAL STOCKS
AAPL is still hanging in there and just a few dollars shy of its first higher-high in over half a year.  Stick with what is working, but expect a pullback to the 50dma over the next couple weeks when dip-buying slows down.  As long as big money steps in and accumulates shares near $440, the stock will find support.  But if big money is no longer interested in being overweight AAPL, the stocks will break this widely followed level and likely trigger a wave of stop-loss selling and shorting.

Plan your trade; trade your plan

AM: Buyers keep buying

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:29 EDT

AM Update

MARKET BEHAVIOR
Another modestly higher day following Friday’s breakout.

MARKET SENTIMENT
Holding these levels supports the bull case because it shows owners are comfortable holding these levels.  The little profit taking and shorting is easily matched and outpaced by willing buyers.  Two-days of buying is not enough to qualify as solid support, but it is encouraging.  Staying above 1615 through Wednesday shows big money is buying this breakout and we might avoid the typical stalling seen after recent highs.  If that is the case, look for the creep higher to resume after March and April’s rejuvenating consolidation.

No matter what people say about this market, we trade price and the price is clearly moving higher.  The widespread pessimism is already factored into current prices and the market keeps climbing as reality is less bad than feared.  Cyprus was a non-issue.  Status quo in Italy.  I can’t remember the last time I saw Greece in the news.  The Euro is holding together.  Impact of the Sequester is minimal.  Inflation contained.  Economy continues adding jobs.  Consumers keep buying.  Commodity prices are falling.  And the Fed is committed to their money printing policies.  So far all the paranoia is unjustified.  The market will stumble at some point, but as long as traders obsess over what is wrong, it will be easy for the market to continue exceeding expectations.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  We might or might not pullback to support at 1600, but as long as we hold above 1580, everything still looks good.  A conservative trader could move his trailing-stop up to 1600, but it often helps to give the market a little more slack to avoid getting shaken out unnecessarily during a minor and temporary penetration of support.

Alternate Outcome:
 The higher we go, the harder we fall.  Occasional selloffs are a core component of sustainable rallies.  The more stretched we are, the less stable the market becomes.  This market will correct at some point, the longer we put it off the more it will hurt.  But that is then and this is now.  Everything shows this market wants to continue higher and until we see real cracks, assume the uptrend remains in tact.

Trading Plan:
If the market holds 1615 through Wednesday, a pullback to support becomes less likely and buyers can step in.  Temporary buying from short-covering and breakout buying exhausts itself quickly, so multiple days at these levels shows a wider pool of buyers is supporting the market.  Assume every dip is buyable until we break key support and establish a trend of lower-highs and lower-lows.

INDIVIDUAL STOCKS
AAPL is down modestly following its strong run up to $465.  We all know stocks can not put up 10% moves week after week, so a consolidation, sideways trade, or pullback is expected.  How the stock responds to this consolidation will tell us if there is more upside left in this move.  Previous bounces failed quickly.  Anyone lucky enough to hold gains here should consider locking in profits and buy the stock back after it demonstrates big money is finally supporting this stock again.  Holding $450 into next week will be that signal.  Assume the prior downtrend remains intact until proven otherwise.  The stock needs to hold these levels and end the streak of lower-highs and lower-lows before we can proclaim the correction is over.

TSLA daily at 1:29 EDT

GLD retreated to $140 as the buyers are taking a break.  $140 has been support over the last couple weeks and holding this level is bullish, but failing it could set off another wave of selling.  Any trader needs to have a plan that includes a hard sell stop.  Stick to your plan.

AMZN is still trading sideways between the 50dma and 200dma.  Traders are buying the dip to the 200dma, but is this big money with deep pockets, or swing-traders with limited firepower?  If the stock cannot hold the recent bounce we’ll have our answer.

LNKD is bouncing off the 50dma and setting up an interesting entry point.  Use a stop-loss under $170 to protect against another leg lower.

TSLA is increasingly volatile.  I have no idea how this is going to end, but it will likely burn both bulls and bears before it is done.  Trades like this are better left to experienced day-traders who lock-in profits early and often.

Plan your trade; trade your plan

AM: What bullishness?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

MARKET BEHAVIOR
Stocks traded modestly higher following Friday’s record close.  Over the last few months the markets established a pattern of consolidating new gains and restrained trade here is normal and expected.

MARKET SENTIMENT
No one knows what to make of this market.  Everyone thinks it should go down, but it keeps heading higher instead.  Even bulls expected modest weakness following the powerful first quarter.  This shows how much everyone knows; if this were easy, everyone would be rich.

The reason the market keeps heading higher is the widespread skepticism and reluctance to buy and hold.  If everyone already sold, who is left to sell?  When supply dries up, there is nowhere to go but higher.  Obviously I’m exaggerating when I use labels like “everyone” and “no one”, but you get the idea.  Traders are wary of this market and most of the proactive and defensive selling already occurred.  I attached another unscientific survey from Yahoo Finance  and it shows bearishness is far more pervasive than bullishness.   It appears the crowds of bulls are simply a figment of bear’s imagination.

Source: Yahoo Finance 5/6/2013

The reason contrarian investing works so well is the crowd’s opinion is already fully expressed in market prices.  Any news that simply reinforces these beliefs will not move the market because it doesn’t change anyone’s mind.  Further, the reason the market often moves the opposite direction is once something is fully priced in, the only move left is the crowd changing its mind.  This market makes perfect sense when looked at from a supply and demand vantage.  Cynics can no longer push the market lower because they are already out.  The only thing they can do is move it higher by changing their mind and buying back in.  When the group expects one thing, we often get the opposite.

TRADING OPPORTUNITIES
Expected Outcome:
The market often consolidates gains because big money doesn’t like buying new highs and prefers waiting for a modest pullback to add to their positions.  This leads to the wavy trading range of stalling near highs, but solid support after modest selling.  A pullback to 1590 fits this behavior and is supportive of the recent breakout.  At this time there are no signs buying is slowing down and the smart trade is sticking with the trend.

Alternate Outcome:
Every correction begins with a new high.  Without a doubt Friday’s high could be that day, but going against this market here is picking a top and the smart trade is waiting for signs of weakening support.  Until we set a trend of lower-highs, lower-lows, and break key support, assume the uptrend remains intact.

Trading Plan:
Modest weakness following Friday’s new high is expected and should not be feared.  It is tough to buy these new highs since often see better prices in coming days.  A day-trader could short intraday weakness, but look for support above 1595 and another buyable dip as big money floods in.  As long as the market holds recent support at 1580, everything looks great.  Breaking 1580 means another test of the 50dma.  Failing the 50dma and 1540 will likely lead to larger selling and a test of the 200dma.

Plan your trade; trade your plan

WR: A Great Week

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Weekly Review

MARKET BEHAVIOR
Stocks had another great week, up 2% and finishing near the highs.  We smashed resistance at 1600 on Friday and set new all-time highs.  Weekly volume was a little above average and capped a very respectable week for the market.

MARKET SENTIMENT
This is the rally that just won’t quit.  I turned cautious back in early March, figuring the market needed to cool off, but repeatedly failing to breakdown invalidated my original thesis.  When things don’t work out as expected, we have to adapt.  The decisive rebound starting on April 18th is what finally convinced me I was wrong.  Everything pointed to the market going lower, yet it bounced hard and weak markets don’t hold up the way this one has.

The reason this rally keeps going is everyone else also saw what I was seeing, but the obvious trade is rarely the right trade.  These cautious investors locked in profits and waited for the widely expected pullback.  These waves of profit-taking and shorting are what forced the market into sideways trade for most of March and April.  I heard plenty of people talk about how overly bullish the market was, but the conspicuously absent voice was from the alleged masses of raging bulls.  When all we hear from are the skeptics, that means the skeptics the majority.

The biggest mistake traders make is assuming price and sentiment are the same thing.  A rising market is “obviously” bullish, so a market that’s risen for months on end is clearly overly bullish.  The truth is this market was overly bearish and that is what lead to this six-month rally off the November lows.  We were so buried in bearishness, pessimism, and cynicism that we are still digging ourselves out.  What appears like overly bullish is really less bearish.

TRADING OPPORTUNITIES
Expected Outcome:
Friday’s breakout could be the last gasps of this rally, signal the start of the widely expected selloff, and be the fourth consecutive “sell in May”, but until it shows real signs of breaking down we must stick with the rally.  The rally that defies logic and common sense will likely continue infuriating skeptics.  I have no idea how high or long this rally will go, but fighting it is the wrong trade.  The sheer amount of skepticism and caution  leads me to believe this rally can carry us through summer.  If the easy trade is sell in May, then the right trade is buy in May.  This market is clearly oblivious to headlines risks and it is naive to think it will wake up tomorrow and suddenly worry about some obscure data point when it ignored so many major ones.  When in doubt, stick with the trend and that is clearly the best trade here.

Alternate Outcome:
This rally will end at some point, most likely when everyone expects it to continue higher.  We are closer to that point than yesterday, but the widespread disbelief means we are not there yet.  No matter what we think, we must remain vigilant.  The best way to spot a selloff is to look for selloff.  As obvious as that sounds, don’t doubt this market until we start making lower-highs, lower-lows, and break key support levels.

Trading Plan:
Traders have been reluctant to chase new highs over the last few months and prefer waiting for a modest pullback before accumulating shares.  We will likely see the same thing here so anyone out of the market is better served waiting a couple of days for a pullback to 1600 or 1590.  If you miss the trade because the market takes off here, remember it is always better to be out of the market wishing you were in, than in the market wishing you were out.  Failing to hold 1580 shows big money is not buying the near-term dip and we need to look for support at the 50dma.  Slicing through the 50dma and continuing past 1540 means the widely expected selloff is finally taking hold.

AAPL weekly at end of week

INDIVIDUAL STOCKS
Much to the delight of bulls AAPL is holding above the 50dma and leading many to believe this is the rebound everyone’s been patiently waiting for.  As long as the market holds above the 50dma, the stock is holdable.  I remain a skeptic, but this stock will eventually find a bottom and this very well could be it.  Every trading plan starts with a stop-loss and pulling the ripcord if the stock falls under the 50dma will prevent us from sitting through another leg lower.

Volatility is picking up in LNKD and buying a speculative stock like this should come with a bottle of Tums.  If the stock holds and bounces decisively off the 50dma, keep holding, otherwise this is a decent place to lock in profits.  Bulls make money, bears make money, and pigs get slaughtered.  When a stock is up 50 or 60% over a couple of months we must consider locking in profits.

AMZN continues frustrating both bulls and bears.  Between the 200dma and 50dma it is in no-man’s land.  It is fun to speculate in names like this, but don’t mistake this for an investing opportunity.  Keep position sizes small so it doesn’t hurt much when we are wrong.

Plan your trade; trade your plan

PM: Bears run for cover

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks decisively broke resistance at 1600 and closed near 1615 after better than expected employment numbers.  Volume was average, but better than the lethargic levels over the last couple months.

MARKET SENTIMENT
This market continues surprising bulls and bears alike, but that is what makes it work.  Obviously bears are feeling the heat, but even bulls expecting near-term weakness are getting left behind.  Anyone thinking this market’s come a long way and is due for a rest took profits and is regretting this decision.  These are the new buyers chasing this market higher.

Fundamentals and technicals don’t matter, only supply and demand.  Understanding what people think and how they are positioned is the only way to make sense of this market.  Bears and cautious profit-takers sold during the two-months of sideways trade.  But even with all this selling weighing on the market, we held up.  That alone is bullish, but all those sellers are the next buyers, fueling this rally to new heights.  It doesn’t matter what the fundamentals are, just how other traders are positioned.  With most of the weak hands already out the market, there is nowhere to go but higher.  And that is exactly what we’ve done.  The irrational market makes a lot more sense when we understand how other traders are positioned.

TRADING OPPORTUNITIES
Expected Outcome:
While we broke out to new highs, I’m reluctant to chase the market.  Over the last couple of months, buying dried up near the highs as big money waits for the dip.  Much of today’s buying was short-squeeze driven, but expect a 15-20 point pullback in coming days where big money will buy in.  This doesn’t have to happen, but it fits the current market’s personality of notching new highs and then consolidating those gains.  Everything looks great as long as we stay above support at 1580 and stick with what is working.

Alternate Outcome:
This upside breakout caught a lot of people off guard and could trigger a flurry of chasing.  If we witness a series of accelerating gains, this could be the last of the buyers rushing in before the market exhausts demand and noses over.  Slow and steady gains are sustainable, racing ahead is not.  As for the widely expected pullback, don’t doubt this rally until we break 1580 and fail to hold the 50dma.  This market will top like everyone before it, but look for a series of lower-highs and lower-lows signaling buying is drying up.  Don’t get in front of this market simply because it’s gone too-far, too-fast.

INDIVIDUAL STOCKS
AAPL held the 50dma for the fourth consecutive day, something we haven’t seen in over seven months.  Apple is a great company with popular, high-margin products.  The viability of the company was never in question so  obviously the stock will find a bottom at some point.  Many are hoping this is the bottom and a $90 point rally over a couple of weeks is a leading contender for that bounce.  But any bull needs to be careful because we’ve seen six similar bounces that failed to stop the slide.  This could be the real one, but set a hard stop-loss to keep you from riding another leg lower.  A simple stop-loss could have saved a lot of people  a mountain of money through this slide.  What is cheap often gets cheaper.

Plan your trade; trade your plan

AM: Bulls do it again

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

AM Update

MARKET BEHAVIOR
Stocks smashed through resistance at 1600 following a better than expected employment report.

Source: Yahoo Finance 5/2/2013

MARKET SENTIMENT
These jobs numbers hit the sweet spot between good enough to show economic progress, but not so strong to threaten easy money.  A big chunk of today’s buying is coming from short-covering bears expecting a lousy headline.  Will a wider group of buyers follow this move or will we see the more typical stalling after making a new high?

Obviously the expected breakdown is further delayed.  Cynics keep losing the argument and the market continues marching higher without them.  Their core argument is this market is overly bullish and bound to fail.  But lets not make the common mistake of confusing price with sentiment.  Here are two surveys from Yahoo Finance and these non-scientific polls show a gigantically bearish skew.  There are nearly three times as many pessimists as bulls responding to these polls.

Source: Yahoo Finance 5/3/2013

Everyone is bearish for the same old reasons; weak economy, Europe, Sequester, etc.  These negative themes were thrown about for months, even years without much success, why will it be different now?  Everyone knows about them, yet the market doesn’t care.  Prices move on unexpected news, not the stuff baristas at Starbucks are talking about.  We had too-far, too-fast for a while and just added Sell-in-May to the list.  The market isn’t listening to this noise and neither should we.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  We made new highs on a surge of short covering.  It is hard to buy the market here since we often stall after making new highs, but the widely expected correction is much delayed.  The smart trade remains buying dips as long as we keep making higher-lows and higher-highs.

Alternate Outcome:
Today’s pop brings us one day closer to the end of this run.  Obviously it is foolish to short this market, but we must remain vigilant because tops happen when least expected.  It is too easy to doubt this market and is why we keep going higher, but once this market is easy to hold is when we need to become more careful.

Trading Plan:
We broke through another level of resistance and can move our trailing stops up to 1580 or 1590.  I have no idea how much further or longer this rally will last, but when in doubt stick with the trend.  The rally is in great shape as long as we stay above 1590.  This market is immune to negative headlines, so anything short of ending easy money can be ignored.  Sign buying is drying up is lower-highs and lower-lows and breaking the 50dma, until we see either of those stick with what is working.

INDIVIDUAL STOCKS
AAPL is holding the 50dma for the fourth day and trading higher along with the market.  Any holder should expect a near-term retest of the 50dma and how the stock responds will tell us a lot.  Slicing through the 50dma shows this bounce was just bottom-pickers.  Holding these levels through next week shows real buying from an audience far larger than just dip buyers.  Given how cocky the AAPL bulls are, I am still suspicious of the longer-term sustainability of this bounce, but as long as we hold the 50dma, keep doing what is working.

LNKD daily at 1:15 EDT

AMZN surged higher and is proving more resilient than many, including myself, expected.  Trading speculative names like this is always risky and usually we either strike out or hit home runs.  Succeeding in this style of trade is keeping the frequent losses small while waiting for a big score.  Right now AMZN is in no-man’s land between the 50dma and 200dma.   Another break of the 200dma is still shortable.

LNKD slid to the 50dma and a high-volume bounce off this level is a decent entry point, but we’ve come a good way and anyone with large profits should consider taking some off the table.  We cannot make all the money and it is foolish to try.  A trailing stop just under the 50dma is another way to hold for more upside, but make sure to protect profits.

Plan your trade; trade your plan

AM: Obvious top isn’t so obvious

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:52 EDT

AM Update

MARKET BEHAVIOR
Stockes recovered all of yesterday’s selloff.

MARKET SENTIMENT
We were down yesterday on news and up today on news.  What gives with this bi-polar behavior?  The market has a reputation for being irrational, but stocks always move for a reason and it only appears irrational when we don’t understand the underlying drivers.  The most important concept to grasp is prices only move on supply and demand.  Nothing more, nothing less.  People are confused when the market reacts the ‘wrong’ way to a headline and complain the market is being irrational.  The reason the market didn’t react ‘logically’ is the headline didn’t change anyone’s mind.  Either the news was already expected, or it simply reinforced what people already thought.  When people don’t change their mind, there is no new buying and selling, thus no reaction in the markets.  When we look at what people think and how they are already positioned, the lack of a move makes perfect sense.

Applying this to the current market, big money managers are reluctant to buy new highs, but they want to get in this market and are buying every dip.  When the market makes new highs buying stalls.  After pulling back a few points buyers rush in and support the market.  This has absolutely nothing to do with recent headlines and is simply the accumulation strategies employed by large money managers.  Anyone trading the news is having a bad time because the market is not responding to the news.

TRADING OPPORTUNITIES
Expected Outcome:
The yesterday’s obvious selloff is less obvious today as buyers continue supporting this market.  Buying typically dries up quickly around tops and the way we are holding up demonstrates buyers are alive and well.

There is nothing wrong with feeling uncomfortable with and sitting this one out, but it is extremely risky to short this market.  Either stick with the trend or sit out until we have more concrete evidence the rally is stalling.

Alternate Outcome:
Every rally ends and so will this one.  While the trend is higher, we need to remain vigilant and watch for cracks in the foundation.  Pullbacks like yesterday are normal and expected.  Resist the temptation to jump on the short bandwagon prematurely, wait for real signs of slacking demand.  Most likely this will show up as lower-lows and lower- highs.  With all the bearish headlines this market’s brushed off, don’t expect a bad headline to take it down. We are looking for stalling demand.

Trading Plan:
Keep doing what is working and this market is buyable until we break 1570.  A stop-loss/trailing-stop at 1570 is a decent level that sits a little under previous support in the mid-1570s.  Even if our stop gets taken out, we need to watch for another rebound and buy back in.  Just because we sell doesn’t mean we have to stay out.  The 50dma is climbing higher and near 1560 and is another key level of support to watch.  The last line of support for the rally is 1540, after that the expected correction is taking hold.

AAPL daily at 1:24 EDT

INDIVIDUAL STOCKS
AAPL recovered all of yesterday’s dip and is just shy of $450.  To maintain these levels bulls need a wider group of buyers to come in and support the stock.  This is the seventh bounce in this extended downtrend.  Every previous time the dip buying fizzled and the selling resumed.  The stock will eventually find a bottom, the question is if this is the real one or just another head fake?    AAPL cheerleaders are out of hibernation, showing there is still a lot of hope left in this stock.  Buyers can hold it here, but keep it on a short leash and don’t keep holing if it breaks under the 50dma.

Yesterday everyone was talking about the bond offering and it was a great business decision on their part, but I am dumbfounded by the people willing to lend AAPL billions of dollars for 30-years at near Treasury rates.  Boy do people have short memories.  How many tech companies lasted this long?  Back in the 80’s Apple was one of the hottest and most innovative tech companies between its Apple ][ and Macintosh computers.    Yet the company was on the verge of bankruptcy ten years later and needed Bill Gates and MSFT to throw it a lifeline.  Like I said, good for AAPL for taking the easy money, but these debt buyers need to have their head examined.

Plan your trade; trade your plan

AM: Step back

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:25 EDT

AM Update

MARKET BEHAVIOR
Buyers took a break after the 60-point rebound from the 50dma.  We are currently finding support above 1590 and so far the market is not signaling anything other than a normal pause after a strong run.  We traded within a range over the last two-months and are at the upper end.  Either we stay in the trading range, or breakout to the upside. The market could breakdown, but we need to retreat to the lower end of the range before that becomes a consideration.

MARKET SENTIMENT
Traders have been reluctant to buy highs and sell lows, leaving us range bound, albeit with an upward bias.  Stalling shy  of 1600 shows a continued reluctance to buy highs.  Of course there are two ways to look at this, one is reluctance, the other is inability.  Reluctance means there is still money ready to buy the dip, inability means bulls are out of money and there is nowhere to go but down.  So far every dip finding a bid signals reluctance, not inability, but bulls will eventually run out of money and that is what we are watching for.

We all know the market cannot go up every day, but it is tempting for a bear to label every dip the top.  That is letting our biases cloud our view of the market.  A five-point selloff is hardly anything to worry about and we need a lot more evidence before writing off this bull.

Many traders sold preemptively in anticipation of a summer pullback and are having second thoughts.  The inevitable selloff is not happening and many sellers are buying back in.  This is the floor under the market and why the Teflon rally keeps marching higher.

TRADING OPPORTUNITIES
Expected Outcome:
There is nothing in today’s modest pullback that should worry us.  We are still well above support at 1570 and even ten or fifteen points of selling won’t put the rally in jeopardy.  Two-steps forward, one back.  That is all this is unless we see something unusual.

Alternate Outcome:
This rally is long in the tooth and living on borrowed time.  We often see summer weakness and need to be alert for a continuation of this pattern.  The trend is clearly higher driven by an abundant supply of buyers, but we always need to watch for cracks and be prepared for the eventual top.  Stick with what is working but don’t become complacent.

Trading Plan:
The market is still above our trailing stop-loss at 1570 and we don’t need to do anything here.  Someone out of the market could use this weakness to get in while using 1570 as a stop.  If we break 1570, the trading range continues, but the rally is not at risk unless dip buyers cannot stop us from breaking the 50dma and 1540.

INDIVIDUAL STOCKS
AAPL is down with the market, but holding the 50dma.  It is okay to hold the stock here, but keep it on a short leash.  Failing to hold the 50dma shows a wider audience is unwilling to buy the rebound and the stock will likely stall again.  Defense is the most important part of sustainable trading and no matter what you think about AAPL, stay disciplined and stick to your trading plan.  That includes using a rigid stop.

AMZN’s bounce above the 200dma was short-lived and we are already back under.  Sometimes we get chased out of a position soon after placing it, but that doesn’t mean we should give up.  Risk management is what lets us survive our mistakes, but sometimes we are not wrong, just early.  Keep following a good idea and wait for the next entry point.  When a deeper pool of dip buyers failed to show up and support AMZN, it shows there is more downside left.  Don’t get greedy because this stock will move lower in waves.  Take short profits periodically and re-short the inevitable bounce.

FB daily at 1:25 EDT

Reader Request:  FB  is posting earnings after the close.  This stock gave investors a wild ride since the IPO.  One of the most widely anticipated IPOs was the biggest flop, but here we are nearly a year later and much of the hype has been wrung out of the stock and the irrational perma-bulls bailed out a long time ago.  At this point traders are no longer willing to buy the potential and are waiting for performance.  There are a lot of reports of FB user fatigue in the developed world and young people don’t want to be on the same social network as their parents, but FB tapped into the innate urge for humans to connect and the international potential is huge.  A lot of upside remains for the company  the challenge is if the stock will follow.  It already has a high valuation, but exceeding expectations tonight will go a long way getting traders excited about this stock again.  A strong surge tomorrow is buyable, but if FB disappoints stay away from it.

Leave other stock requests in the comments.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:18 EDT

AM Update

MARKET BEHAVIOR
Stocks are modestly higher after recovering from earlier weakness.

MARKET SENTIMENT
The market barely has time to selloff before the next wave of buyers rushes in and props it up.  No matter what common sense tells us, we trade the market and as long as holders keep holding and buyers keep buying, we continue going higher.

The most challenging part of becoming a true contrarian trader is seeing the difference between price and the crowd.  Most people wrongly assume contrarian is going against the trend, but far more often the contrarian trade is going with the trend.  When everyone is saying too-far, too-fast, the contrarian trade is sticking with the rally.  That is exactly what is going on here.  There are a million reasons to sell this market, but it keeps going higher because the crowd is already out of the market.

TRADING OPPORTUNITIES
Expected Outcome:
Stock continue defying expectations and are just under 1600.  When in doubt, stick with the trend and that has never been truer than this market.  I have no idea how much further this can go, but buyers snap up every dip and keep a solid floor under this market.  The new buzz is “Sell in May……”, but if that is what everyone expects, look for a strong summer.  Of course the longer this holds up, the more we need to fear the inevitable correction.  But that is then and this is now, so stick with the trend until the market tells us otherwise.

Alternate Outcome:
The market defies skeptics and the pool of cynics grows smaller with each bounce.  Without a doubt this market will selloff at some point, the only questions are when and how much.  We are looking for a double-top above 1597 and a resulting selloff under 1570 to signal buying is finally drying up.

Trading Plan:
Stick with what is working.  We could see a step back in coming days after such a strong bounce off the 50dma, but holding above 1570 shows buyers continue supporting this market.  A dip under 1570 likely means a test of the 50dma and a break of this level is when bears finally get their day.

AAPL daily at 1:18 EDT

INDIVIDUAL STOCKS
AAPL is surging above the 50dma.  The question is if this is the rebound everyone’s been waiting for.  The stock decisively reclaimed prior support at $42o, but needs to break $470 before it ends the streak of lower-highs.  Without a doubt this could be the end of the selloff, but every other bounce over the last eight-months was a selling opportunity.  Why will this time be any different?  That’s a question any bull needs to answer.  We should know pretty quick if this is just another bump on the way lower or if there is real buying behind this move.  $430 is a decent trailing stop for any holders and will allow unlimited upside, but protect capital from another selloff.

If you want me to write about a stock, post it in the comments and I’ll pick a few when I see something interesting.  Obviously I cannot provide insight into every stock out there, but I’ll try to include a couple new stocks here and there.  I had a request for TSLA and will get to that one tonight.

Plan your trade; trade your plan

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:20 EDT

AM Update

MARKET BEHAVIOR
Stocks found a bid and are above 1590 in early trade.  The market is only a few points from the highs as buyers continue supporting these levels.

MARKET SENTIMENT
The inevitable selloff eludes bears and sustained buying defies common sense, but that is how the market works.  What is expected is already priced in, making the unexpected more likely.  Traders lightened up ahead of the expected pullback, meaning most of that selling already happened.  More than just reduce supply, this preemptive selling also created a new pool of buyers ready to chase the market higher.

There is no free lunch in the markets and the longer we put off a pullback, the bigger it will be, but so far the market seems content rallying higher.  With all the expectations of “sell in May and go away”, a contrarian should look for summer strength this year.

I was one of those cautious bears until the market refused to break down a couple of weeks ago.  It is impossible to always know what the market is going to do, that is why we need to remain flexible and willing to reevaluate our views when key parts of our original thesis are invalidated.  It is okay to be wrong, it is fatal to stay wrong.

TRADING OPPORTUNITIES
Expected Outcome:
We are challenging recent highs at 1597 and will likely break thought this level, but what comes after that?  Over the last couple months buying stalled near the highs and could easily happen again as big money investors prefer buying weakness.

As it stands, there are no fatal flaws in this market and the economy continues heading in the right direction, albeit slower than most would like.  We need to stick with what is working until we see real signs of a breakdown, most likely in the form of lower highs.

Alternate Outcome:
Another material selloff and breaking recent support will demonstrate how fragile this rally is.  Markets can only bounce so many times before they exhaust the supply of dip-buyers.  Use trailing stops to protect long profits and watch key support levels for short entries.  Summer is traditionally a weak period and we need to be cautious of the “sell in May…..”.

Trading Plan:
As long as the market holds 1570, the rebound is alive and well.  We might surge higher on a break of 1600, but a step-back to 1575 would be normal and expected because big money is reluctant to buy the breakouts.  Failing to hold 1570 signals a potential retest of 1540.  Falling under 1540 means the inevitable correction is upon us and more selling is likely.

INDIVIDUAL STOCKS
AAPL is challenging the 50dma on a strong surge higher.  It received good press and that excited buyers, but I cannot think of a time over the last six-months when the press and analysts have been anything but positive on AAPL.  Journalists and analysts opinions don’t change the fundamental story and this is probably one more bounce before the last flush out lower.  Falling to $350 will finally demoralize hopeful bulls and give value investors the opportunity to buy a decent dividend.  Unfortunately for the growth investor still hanging on, don’t expect value investors to bid up the stock to old highs.

GOOG daily at 1:20 EDT

AMZN slipped to the 200dma, but is still holding this level.  Look for selling to pick up when we break it, but take short profits quickly because any move lower will be a series of waves.  Lock-in profits when you are most confident and cocky and re-sell the stock short again on the next bounce. We could still see a bounce off the 200dma and the short entry would then be a retest of this level when the bounce falters.  If we don’t see a bounce, short a move through the 200.

GOOG is having a good day as it bounces off the 50dma.  The current logic says AAPL’s loss is GOOG’s gains.  In the market reality doesn’t matter, only perception.  If people think GOOG is the next big winner, then it will be.  I still think the stealth play is MSFT.  While everyone is focused on mobile operating systems, mobile processors, and mobile applications, MSFT and INTC are the only ones trying to make full powered devices in compact packages.  In a few years will the consumer want a neutered tablet that only runs mobile applications and doesn’t give them access to their files, or will they want a full powered tablet that works seamlessly with their work computer?

Plan your trade; trade your plan

AM: A step back

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:16 EDT

AM Update

MARKET BEHAVIOR
Stocks are down in early trade on the heels of a decent US economic growth number, but it fell short of expectations.

MARKET SENTIMENT
It is almost comical how the market is indifferent to lousy employment numbers, yet disappointed by encouraging economic growth.  It appears far more concerned about continued money printing than real economic progress.  The market is officially an easy money junkie and suffers from the same irrational behavior as an addict.  It makes us wonder what will happen when the easing finally ends.  I originally thought it would be a non-issue because a vibrant economic recovery would provide a smooth handoff, but if the market gets too wrapped up in easy money, it could be a shock to the system regardless of what the economy is doing.  It is a bit premature to trade this, but something to keep an eye on.

Various traders are expecting a breakout, a breakdown, or more sideways trade.  Over the last two-months swing-trading was the right call, but we will eventually move out of this range.  We have to decide if that will be higher or lower.  Everyone knows we cannot continue higher indefinitely, yet the market stubbornly refuses to breakdown like everyone expects.  We survived selling off in April and the next hurdle is “Sell in May…..”.  But if everyone expects it, can it still happen?

When traders anticipate something, they trade ahead of it.  They are either taking profits or selling short in front of the expected selloff.  Even bulls are holding back purchases until they see better prices.  When the market holds up in the face of this restrained buying and proactive selling, it makes us wonder what will happen when it flips around and goes the other way?  Continuing higher defies logic, but that is how the market typically operates.

TRADING OPPORTUNITIES
Expected Outcome:
A little selling after five-consecutive up-days is normal and expected.  The question is if this is simply one-step back after two-steps forward.  As long as the market holds prior resistance at 1570, the rebound is still going strong and we will eventually break this logjam to the upside.

Alternate Outcome:
The market is a patient beast and it often wears us down before revealing the next move.  It has a notorious habit of convincing us we are wrong just before proving us right.  I gave up waiting for the correction and that makes me nervous.

Trading Plan:
March’s overhead resistance at 1570 will provide support for a modest step-back and is a buying opportunity for the next move higher.  Breaking 1570 means a retreat back into the trading range and expect more sideways trade.  Testing and violating 1540 signals the selloff is finally taking hold.

AMZN daily at 1:16 EDT

INDIVIDUAL STOCKS
AAPL is modestly higher and finding some breathing room above $400, but well under previous support at $420.  Until people have a reason to buy this stock, expect the slide to continue.  The next negative catalyst will be the launch of a warmed over iPhone5s with some extra gimmicks no one cares about.

AMZN is down huge after earnings and just a hair above the 200dma.  A short looks real interesting if it falls another couple of dollars, but watch for a bounce off the 200dma.  An alternate entry is waiting for the bounce to fail and short it as it retreats through the 200.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:58 EDT

AM Update

MARKET BEHAVIOR
Stocks continue the rebound as we approach recent highs.  Will the series of ups and downs continue, or is the market finally ready to march higher?

MARKET SENTIMENT
The expected pullback remains elusive.  Even bulls are cautious near all-time highs and that wariness on both sides is what keeps propping up this market.  No doubt there are chasers running in, but the majority is reluctant to fully embrace these highs because common sense tells us we’ve come too-far, too-fast.

People often look down on dumb money that impulsively rushes in and out, but many times smart money over analyzes the situation and misses the trade.  Smart money is taking profits here after such a long run, but we keep marching higher, what gives?  To figure this out we need to understand what other people think and how they are positioned.

Those that expect near-term weakness are taking profits and holding back on new purchases, but the market is unfazed by this selling and reduced demand.  Without a doubt the market will pullback at some point, but we have to acknowledge the strength in this face of this selling is impressive.  Cautious smart money will eventually be right, but making money in the market is all about timing and no matter how smart we are, if we get the timing wrong we lose money.

Many traders are light this market ahead of the expected pullback.  If they already sold, that selling pressure is removed from markets and makes it easier to head higher.  Big money is bullish on this market but hates buying new highs.  They often wait for the dips to stock up and that is why every dip finds a floor.  Swing-traders and dip-buyers do not have the resources to keep supporting this market for this long, meaning real money is standing behind this move.

TRADING OPPORTUNITIES
Expected Outcome:
We can trade our opinions or we can trade the market and this market simply refuses to breakdown.  Without a doubt this market will selloff at some point, but it is not giving any signals the breakdown is imminent.  In fact it is far more resilient than most expected and that is extremely bullish in of itself.

I don’t feel comfortable with the rally, but the hardest trade is usually the right trade.  Without a doubt this rally is living on borrowed time and will breakdown at some point, but the trend remains higher and will likely continue for a while longer.

Alternate Outcome:
I’ve been bearish on this market for six-weeks and while its largely moved sideways in that period, the lack of a breakdown make the continuation more likely.  But “more likely” is not a guarantee and we need to continue watching for the inevitable selloff.  Markets have a habit of convincing us we are wrong just before proving us right.  Its taken me a while to come back around to the rally, and I very well could be changing my mind just the selloff begins.  But I’m okay with that because as a small trader I can reverse my position in a moments notice.  I don’t mind being wrong, but I can’t stand staying wrong.

Trading Plan:
The rally is intent on taking out 1,600 and that will continue the pattern of higher-highs.  It is possible buying stalls after new high as the up and down continues, but the rally is not in jeopardy until we break the 50dma at 1450.  I will be more cautious if the rebound stalls short of news highs at 1597.

AMZN daily at 12:58 EDT

INDIVIDUAL STOCKS
AAPL is up modestly following Tuesday’s earnings.  It appears some buyers are encouraged by they lack of a selloff and feel more comfortable with a potential negative catalyst removed from the stock.  But they are ignoring the trend and are bottom-picking, something that hasn’t worked well for many AAPL bulls.  A popular definition of insanity applies here, doing something over and over yet expecting a different result.

AMZN is higher ahead of earnings.  Even though the valuation is sky-high, Bezos knows how to play the market and I give him the benefit of the doubt when it comes to wooing shareholders.  If earnings disappoint,  there is a lot of air under this stock and plenty of time to get in on the short side with far less risk.

Plan your trade; trade your plan

AM: Buyers continue supporting this market

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:24 EDT

AM Update

MARKET BEHAVIOR
The rebound is taking a break as we trade sideways just shy of 1580.

MARKET SENTIMENT
Bears need the market to breakdown to validate their thesis we are over-bought and running out of buyers.  Bulls on the other hand need to prove buying won’t stall out again at the upper end of the trading range.  Finally swing-traders expect us to stay in the trading range and are preparing to take profits.  Right now that puts the swing-traders on the bear’s side, making it two-on-one.  If the rally can continue to new highs against bear shorting and swing-trader profit taking, it shows there is still a healthy supply of buyers willing to step in at these levels.  Many expected last week’s selloff to be the end of the rally and sold in anticipation.  Many of these sellers are buying back in after the market held up and are the ones pushing us higher.

TRADING OPPORTUNITIES
Expected Outcome:
Holding the bounce for a fourth day shows buyers are still willing to own this market and the recent rebound was more than just a flurry of dip buying.  If we see a material selloff over the next day or two all bets are off, but so far the market acts like it wants to go higher.  How much higher is up for debate.  Maybe we rally and bump our head on 1600 again before falling back into the trading range.  Maybe there has been enough consolidation to sustain an upside breakout.

While I still don’t feel comfortable with this market, it looks like it wants to go higher and we have to respect that even if we chose not to buy it.  The thing bulls have to be wary of is the higher we go, the harder we fall.  Every rally pulls back at some point and the longer we put off taking our medicine, the worse it will taste.

Alternate Outcome:
I’m still waiting for a market breakdown.  A weak close would breath life back into the bear thesis, but I have to admit continued strength is not what I expected and thus invalidates a large part of my bearish analysis.  This market will top at some point and we simply need to wait for it.  These things go further and longer than most expect so resist the temptation to jump in front of this rally.

Trading Plan: Closing above 1580 today shows bulls are still in control.  Failing to hold 1570 shows bears and swing-traders are weighing on this market, but the real selloff won’t begin in earnest until we set a material lower-low under 1540.

INDIVIDUAL STOCKS
AAPL is down modestly after earnings in an anticlimax ending to a widely anticipated event.  We heard a little for bulls with increased cash distributions, but bears can point to declining margins and earnings.  A clear lack of a win for bulls keeps bears in control and expect lower prices as one more catalyst came and went without bring the stock back to life.  Bulls finally got their cash hoard event and the stock is unmoved.  The only thing left is a radical new product and everything points to incremental updates to the iPhone5 and other existing products this year.  I expect the stock will print $350 over the next eight weeks as formerly hopeful holders become demoralized and abandon their once cherished AAPL.

NFLX is holding yesterday’s breakaway following blowout earnings. Few believe in this company, yet it keeps beating expectations and continues rallying on the backs of shorts.  We could see the stock retreat to $200 but this is a buyable dip and the direction remains higher.

Plan your trade; trade your plan

AM: 100,000 views!

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update
CrackedMarket crossed 100,000 views this morning and the enthusiastic response from readers far exceeded my wildest expectations.  Everything I know about the markets I owe to other traders’ generosity and willingness to share their insights and experiences.  I’m grateful and flattered I have the opportunity to give back to the community in my own small way.  Thanks!

MARKET BEHAVIOR
The range bound market continues the recent bounce and is challenging 1580 by midday.  (addendum: we just had a wild mini-flash crash as the market plunged nearly a percent and then right back up over a matter of minutes.  It seems AP’s twitter account was hacked and the hacker tweeted the White House was attacked and Obama was hurt.  All untrue.)

MARKET SENTIMENT
Either this is the last gasp of a dying market, or there are far more buyers at these levels than even the bulls expected.  Paradoxically everyone’s expectation of a brief pullback after such a long run is what keeps the rally alive.  Prospective buyers eager to get in this market buy any weakness and this type of dip-buying is sustainable because these are investors with longer time horizons.  The dip buying we are wary of is late followers jumping on an over-crowded bandwagon.

Sustainable buying is sustainable and unsustainable buying is unsustainable.  As silly and obvious as that sounds, it is extremely insightful.  The longer we hold these levels, the more likely the rally will continue.  Unsustainable buying dries up quickly and the market crumbles on the lack of demand.  Holding 1550 for a month and a half demonstrates ample supply of investors willing to buy at these levels and  easily overcomes all the pessimism and profit taking thrown at it.

TRADING OPPORTUNITIES
Expected Outcome:
Unsustainable bounces only last a few days before collapsing under their own weight.  Holding these levels through Wednesday is more than a few days and demonstrates ample demand and willingness of investors to buy these levels.  I’m still wary of this market and a breakdown over the next twenty-four hours is most likely the end of this run.

No one can predict the future and we must trade the market we are given.  There are plenty of reasons for this market to top here, but there are just as many for it to continue.  I’ve been bearish on this market for a month and the market keeps holding up.  I have to respect that.  It is okay to be wrong, it is fatal to stay wrong.

Retesting 1540 over the next few days is likely the end of this rally, but holding strong through Wednesday means new highs are likely.  But none of this changes the fact the spring is coiled to the downside and holders need to be disciplined in their use of stops to get them out ahead of trouble.

Alternate Outcome:
Markets refresh one of two ways, the most common and efficient is through a sharp pullback.  This shakes out weak holders and clears the way a move higher.  But the second way is a long sideways grind that bores traders out of their positions.  They achieve the same result, but in different ways and over different time frames.  The longer the sideways trade, the greater the upside potential.

INDIVIDUAL STOCKS
We are just a few hours away from AAPL’s earnings.  Will this finally be the fundamental catalyst that turns the stock around?  Will we get the buybacks and dividend increases everyone is hoping for?  Or will we finally see disappointing iPhone5 numbers that justify the selloff from September’s highs?  The market is better at predicting the news than the news is at predicting the market.   We will soon find out if the market was ahead of the news on this one.

NFLX daily at 1:28 EDT

One last selloff will make an interesting buying opportunity, but remember this is now a trading stock, not a long-term hold.  AAPL no longer has a monopoly on the personal device market, exploding sales, and eye-popping margins.  AAPL is competing in a completely different market than two years ago and no matter what anyone else says, AAPL’s entire fortune is tied to iPhone sales.  Without hardware sales, there is no iTines, App Store, or any other residual income.  These additional services are not diversification, but further reliance on hardware sales.

NFLX exploded this morning and continues humiliating bears.  These things go further and longer than anyone expects.  We trade stocks, not valuations so don’t get in the way of this freight train.

Plan your trade; trade your plan

PM: Light volume saves the day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks continued the bounce on unusually light volume.  Over the last few weeks the biggest volume days have all been marred in red ink, while subsequent rebounds only attracted modest groups of buyers.

MARKET SENTIMENT
It is hard to get excited about this market.  Every dip and rebound simply ends in another dip and rebound.  At some point we will break out of this range, but it already dragged on longer than either bulls or bears expected and we are still stuck in the middle.  Bulls are happy to buy the dips, but back away when the market approaches the upper end of the range.  A similar but opposite reaction from Bears.

If only volume was as insightful as some people make it out to be.  I’d love it if all we had to do was follow the volume, but unfortunately it isn’t that easy.  The conventional view of our current situation is high-volume selling represents institutional money bailing out because they are the only ones with accounts large enough push volume this high.  If big money is getting out, we don’t want to stick around either.  But what if high-volume selling is actually bullish?  What if it represents the churn in ownership necessary to refresh the rally?  Capitulation bottoms always happen on huge volume because it is the last of the weak hands getting flushed out.  Could that be happening here?

Earlier in this rally low-volume buying lead to further price gains, but that was under that market’s personality and recent volatility and flat trade indicate this market’s personality is different.  Can we still assume light volume equals higher prices?

In reality volume is just one of many pieces to the puzzle and we have to look at the entire picture.

TRADING OPPORTUNITIES
Expected Outcome:
We ended the day above 1560 and holding this level into Wednesday shows there is still life left in this bull.  Markets roll over fairly quickly as they run out of new buyers.  Weakness on Tuesday or Wednesday will show that, but four-days of buying is more than the typical dip-buyers can muster and shows wider follow-on buying from a larger pool of investors.

Alternate Outcome:
I am still wary of this market and a fourth test of 1540 is unlikely to bounce, but we have to trade the market we are given and often that means admitting we are wrong and changing our view of the market when confronted with new information.  Finishing above 1560 on Wednesday shows there is still life in this bull and we will make a run for 1597.

MSFT daily at end of day

INDIVIDUAL STOCKS
Sometimes the stupidest ideas make for the best trades.  I was widely ridiculed a while back for suggesting MSFT was a better buy than AAPL.  Everyone knows MSFT is garbage and AAPL is a crown jewel.  But therein lies the problem.  MSFT was priced as garbage and AAPL a crown jewel.  Obviously AAPL was overvalued and MSFT undervalued and that is exactly how we make money in the markets.  Any ‘idiot’ who put this pairs-trade on at the start of year (buy one and short the other) made 8% on the MSFT long and 26% on the AAPL short.  So much for conventional wisdom.  Our goal isn’t to recognize what everyone already knows, but see what they don’t.  Obvious trades don’t work and counter intuitive ones do.

Speaking of counter intuitive, NFLX popped 25% in after-hours, smashing expectations and sending shorts running for cover.  The obvious short keeps going higher and confident bears are losing money by the truckload.  Chances are they will eventually be right, but we’ll have to put that on their tombstone because they won’t survive long enough to see it.  This game humbles everyone and we must always expect the unexpected because the expected is already priced in.

Plan your trade; trade your plan

AM: Stuck in the range

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update

MARKET BEHAVIOR
Stocks found support at 1550 after early weakness and are back above break-even by midday.  The market is not revealing its next move this morning, but maintaining these levels aids the bulls case.  Weakness typically develops quickly and if we don’t stumble over the next couple days, the next move is higher.

MARKET SENTIMENT
Indecision continues as bulls and bears are unable to push us out of this trading range.  Breakout buying and breakdown selling fizzles soon after we move outside the trading range.  Broadly speaking there are two groups in the market, fast money and slow money.   Fast money is small and nimble with short timeframes and high turnover.  Slow money is major institutional investors with huge piles of money and holding periods that stretch a year or longer.

There are only two things that move markets, buying and selling.  Holders and watchers don’t move prices until they decide to act.  How this affects the market is fast money has far more influence over the short-term because they are always trading, but slow money moves markets over longer-terms with their extraordinarily deep pockets.  We see a lot of volatility within our current range as fast money runs out of money and influence when they swing between all-in and all-out, but the directional moves fail because big money does not act on the breakout/breakdown.  Until big money figures out what it wants to do next we are stuck.

Does big money still have piles of money sitting around to throw at this market or are they are already fully invested.  One leads to a continuation, the other a selloff.  From what I gather, big money is optimistic about the market, even if they see a near-term dip in our future.  When it takes big money weeks to move in and out of positions, they are less concerned about minor fluctuations in prices.  Even if they foresee near-term weakness, they won’t adjust their buying and selling much and are still long this market.  If they are already in, how are we going to breakout to the upside?

TRADING OPPORTUNITIES
Expected Outcome:
The market remains stuck and directional traders are simply waiting for the next opportunity.  We had a breakout up to 1597 fizzle and retreat to 1536 a few days later.  The market bounced at the 50dma and we are left wondering if this is another buyable dip or the last chance to get out.

I still don’t trust this market and am watching for a retest and violation of support at 1540.  Our current bounce could carry us up to 1570, but dip-buying has become too obvious and is bound to fail at some point.  I can’t say for sure if this is the one, but it is coming soon enough that I want to stay out of the way.

Alternate Outcome:
Markets breakdown quickly and holding these levels for a few more days shows the market has the strength and support to continue higher.  If we don’t selloff by early Wednesday, the market’s next move is higher.

INDIVIDUAL STOCKS
AAPL is just biding time until tomorrow’s earnings release.  Even bulls concede growth in existing products is waning and are no longer hopeful for blowout numbers.  The fear is AAPL will miss the already lowered mark and give further disappointing guidance.  But with such low expectations, we could see the stock bounce if it turns out less bad than feared.  The stock still needs one last flush to crush the hopeful, a selloff after earnings will speed the revival.  A bounce on earnings simply prolongs the pain.

Plan your trade; trade your plan

PM: Dip buyers come to the rescue

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:26 EDT

AM Update

MARKET BEHAVIOR
Stocks bounced and recovered the 50dma by midday.

MARKET SENTIMENT
Bulls and longs are breathing a sigh of relief.  The rebound they knew was coming is finally here.  Meanwhile bears and shorts are left scratching their head because they thought for sure the market was breaking down.

Today’s bounce doesn’t mean the rally is back on just yet.  Head-and-shoulder patterns form a right shoulder with one last bounce at support before finally breaking down.  Trade up to 1570 would remain consistent with a head-and-shoulders reversal and it is premature at this point to confidently say the rally is continuing.  Habits are hard to break and many trades made a lot of money buying dips.  Today’s support is an example of this reflex, but are there enough buyers driving this move to reclaim recent highs?

It is easy to find both bulls and bears actively promoting their point of view, showing the sides are equally matched.  And this shows up in the sideways chop we’ve seen.  But this is a change from the previously negatively skewed commentary early in the rally.  Bulls are finally finding their voice and becoming more vocal and confident, a warning sign for any contrarian trader.  Markets rally in the face of fear and without a doubt participants are far less fearful than a couple of months ago.

MARKET BEHAVIOR
Expected Outcome:
Today’s bounce at support is fairly typical in a topping market as buyers keep going back to what worked so well for them.  But eventually dip buyers run out of money and the expected rebound fails to rebound.  Another violation of 1540 shows bulls no longer have the money necessary to prop up this market and the next move is lower.

This bounce could last for a couple more days, but it is a selling opportunity not a buying one.  Dip buying is well beyond obvious and bulls are better off sitting on their hands than chasing one last rebound.

Alternate Outcome:
The head-and-shoulders pattern theory loses credibility if we trade above 1570 and is dead if we make a new high.  Right shoulders are also typically short in duration, so holding support for an extended period invalidates the H&S patter.  If this market won’t breakdown, the we must assume the next move is higher.  My bias is for a pullback, but we must always look for clues to invalidate our current thesis so we don’t get stuck on the wrong side of the market.  It is okay to be wrong, it is suicidal to stay wrong.

GLD daily at 1:26 EDT

INDIVIDUAL STOCKS
AAPL tried to reclaim $400 but bumped its head and is back in the $390s.  It’s been a long time since AAPL traded in the $300s and shows buyers are not interested in this stock no matter how cheap it gets.  The biggest problem for AAPL is they don’t have a “moat” protecting their core products from competition.  Every technology company is tinkering in the smart phone and tablet space.  While most don’t have the cool factor, the thing to remember is anything that is cool eventually becomes uncool.  Just ask anyone who bought bell bottom pants, avocado colored appliances, and red shag carpeting.  The more stylish something is, the more out of style it becomes when the crowd moves on to the next cool thing.  Without a doubt AAPL remains popular with upper-middle class suburban soccer moms, but is that user group large enough to justify a half-trillion dollar market cap?

GLD is up for the fourth day in a row, but this is a better selling opportunity than buying one.  The recent plunge eliminated gold from consideration as a safe place to park wealth and now it is simply a playground for speculators.  If you must trade this, sell strength and buy weakness.  Look for a retest of $130 in coming weeks as dip buyers are flushed out when the price pulls back.  This will be a volatile trade for a while and value investors should wait a bit longer.  Remember, buy after the blood in the street has dried, not while it is still flowing.

Plan your trade; trade your plan

AM: Tap dancing in a minefield

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:27 EDT

AM Update

MARKET BEHAVIOR
Stocks are tap dancing a few feet from the minefield below 1540.  Technical traders view a violation of this level as a confirmation the correction is finally taking hold.  It will be the first material lower-low since this rally began five-months ago and many traders put their stop-losses under this widely followed support level.  Once the selling hits, expect it to accelerate as it takes out more and more stop-losses.  How far it goes depends on the volume of stop-losses triggered and how quickly value buyers jump on discounted shares.  But value investors are more disciplined than most and often wait for the dust to settle before acting, so don’t expect them to rush to the market’s aide.  Of course we need to fall into this area before the autopilot selling starts.  Rebounding and holding 1570 shows bulls are still in control and bears’ inability to push the market down these last few points will be a major defeat.

MARKET SENTIMENT
It is comical to see the financial press rationalize each of these whipsaw moves.  One day they are promoting great data, 24-hours later everything is bad news.  We go back and forth, day after day.  If the market was up huge today, I have little doubt they would find a reason.  But they are journalists and that is their job.  We are traders and our job is seeing through all the BS and understanding why markets are really moving.  It always comes back to supply and demand.  We are stuck in a fierce battle between bulls and bears.  The first couple of months bulls had the clear upper hand as we marched higher every week.  But since March bears have evened the fight, leading to this choppy sideways trade.  The market works in cycles and after a period of up, it is inevitable we will run into a bout of down.

TRADING OPPORTUNITIES
Expected Outcome:
Dip buyers are supporting the market at 1540.  The question is if they have enough money to keep us from sliding into all the automatic stop-losses just a few points away.  Every dip this year was buyable and many are sticking with this game plan, and to this point it’s been the smart trade.  But all good things must come to an end and eventually we will run across a dip that doesn’t bounce.

I cannot say conclusively this is the start of the selloff and the Teflon market could throw in another bounce, but given the age of the rally the and gains we’ve seen, the risk of an explosive downside move far outweighs the potential gains from another tired bounce.  An interesting trade here is shoring a break of 1540 with a stop around 1545.  Look for a slide to at least 1400.

Alternate Outcome:
Everyone is watching this market, waiting for it to breakdown.  Most of the cautious traders are already out, taking their profits weeks ago.  This preemptive selling took a lot of supply out of the market.  If we bounce and hold 1570 for a few days, the rally is back on and no matter what our biases are, we have to respect the market’s resilience.

AAPL daily at 1:27 EDT

INDIVIDUAL STOCKS
The stock that cannot go lower keeps going lower.  AAPL sunk to $395 and it is harder to find people promoting the buying opportunity at these new levels.  Formerly enthusiastic bulls are now confused and uncertain.  They are the ones selling at these levels as they finally give up on their favorite stock.  Earnings next week will is a coin-flip, but it wouldn’t surprise me to see one last flush lower.  $350 would be a 50% selloff and makes for a nice round number.  Of course many top stocks decline an average of 72% after their peak, meaning there is still a lot of downside risk left if the stock falls to $196.  While shocking, this level is not unreasonable if AAPL continues losing market share, doesn’t come up with a new innovative product, and margins decline due to price competition.

Bottom fishers are buying GLD at $135 figuring it cannot go any lower, but we probably haven’t seen the last of the selling.  And even if we have, there are a lot of horrified GLD  holders looking to get out of their positions on any strength.  The thing to realize is many buyers at these levels are opportunistic knife catchers.  They will dump their shares at the first signs of weakness, triggering another leg lower.

Plan your trade; trade your plan

AM: The yo-yo

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:29 EDT

AM Update

MARKET BEHAVIOR
The yo-yo continues as we dropped into the 1540s this morning.  The key level of support is 1540 and expect a wave of selling to hit the market if we break this widely followed price.  If we test 1540, this would be the third time in a month and technical analysis books rarely mention tripple-bottoms because third-tests are less likely to hold.

MARKET SENTIMENT
No one is winning this maddening market and both sides are humiliated with equal malice.  Anyone with an opinion is at risk of being duped into buying high and selling low, or selling low and buying high for the bears.  There are three traders surviving this, the extremely nimble day-trader catching each wave, the longer viewed trader with conviction in their position, and the guy who admits he has no clue and is sitting it out.  Anyone else forcing trades and reacting to the market is getting destroyed.

Bulls are humble, bears are humble, and we need to figure out what comes next.  These sharp dips are shaking the confidence of previously resolute bulls.  A large part of the recent rally was driven on light volume as holders were unwilling to sell and the resulting tight supply drove prices higher.  Every dip bounced back and holders became complacent toward negative headlines and market weakness.  It worked because every dip was on such light volume it was easy for the remaining dip buyers to prop up the market.  But volume returned last week and selling swamped dip buyers, triggering selloffs not seen since the rally began.

Volatility is often a characteristic of market tops and we have that in spades.  The question is at what point will the market break the confidence of complacent holders.  If supply remains tight, it will be far easier for dip buyers to keep the rally alive.  But if the flood gates open, there is a lot of air between us and the 200dma.

TRADING OPPORTUNITIES
Expected Outcome:
One day it feels like the market is breaking down, the next the rally is back on.  What is a trader to do?  I remain cautious of this market because I see too many warning signs between the age of the rally, indifference toward negative headlines, and the perception every dip is a buying opportunity.  While I might be proven wrong, that doesn’t mean I need to participate in this rally.    If we don’t understand something or feel comfortable with it, the best thing to do is sit it out.

Yesterdays bounce was impressive, but bulls could not add to it today and we undercut Monday’s lows.  It feels like bulls are losing this battle and selling will accelerate if we slip through all the stop-losses under 1540.  Between the market’s weakness, Gold’s plunge, and AAPL’s dip to $400, it is harder to remain an obliviously confident bull.  Expect supply to continue hitting the market as bulls lose their nerve.

Alternate Outcome:
It is easy to hate this market here, a little too easy.  Yahoo Finance had a poll on their homepage and almost 60% of the responders expected the market to go down.  Of course this was after Monday’s plunge and that obviously skewed the results, but the widespread pessimism is bullish.  This volatile, sideways trade is flushing out a lot of traders and creating a new pool of buyers for the next rally leg.  The market bounced back from several attempted breakdowns and another rebound shows bears cannot get it done.  Breakdowns happen quickly and regaining 1570 yet again shows there is more fight left in this bull.

AAPL daily at 1:29 EDT

INDIVIDUAL STOCKS
AAPL finally broke $419 and stop-loss selling put sent it in free-fall to $400.  This selloff actually benefits AAPL bulls because it further lower expectations and makes an earnings beat next week more likely.  Of course the big risk is if AAPL fails to reach the already extremely low expectations.  Option spreads are the safest way to trade earnings, but the better trade is waiting until after earnings.  An earnings surprise will send the stock back above $450 over several days.  A miss will push it to $350, but this will likely be the last selloff and the stock will finally be buyable after everyone gives it up for dead.

GLD is treading water as margin calls abate, but few are willing to buy the dip.  Given the level of damage Gold did to traders’ psyches and portfolios, expect it to stay in the dog house for a while.

Plan your trade; trade your plan