Category Archives for "Intraday Analysis"

AM: What selloff

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:44 EDT

AM Update

MARKET BEHAVIOR
Stocks pushed toward 1620, recovering two-thirds of the Tapering selloff.  The market is just shy of the 50dma, which could act as overhead resistance for this three-day old rebound.

MARKET SENTIMENT
Buying opportunity, dead cat bounce, or sideways chop?  That’s the million dollar question.

The irrational, panic-driven selling ended when we bounced off 1560 Monday morning.  Since then we rallied 60-points on the back of dip-buying, short-covering, and seller exhaustion.  Talking heads attribute this strength to comments out of random Fed members and Japanese policy makers, but they overlook the simple fact market prices respond to nothing more than supply and demand.  It makes no difference what some policy maker says or doesn’t say, markets bounce when we don’t have enough supply to meet demand.  If markets reacted in logical and predictable ways to fundamental news, this stock market game would so much easier and we all know that’s not the case.

No one can accuse the market of discrimination because it is clearly an equal opportunity humiliator.  Last week bulls got whacked, this week it’s bears turn.  Anyone trying to make a directional bet in this chop is giving money away.  The best strategy in volatile periods is avoiding allegiances and biases.  Be an opportunist, not a bull or bear.

TRADING OPPORTUNITIES
Expected Outcome:
The market is stalling just shy of the 50dma.  Are we hitting our head or simply pausing while bears use this obvious resistance level to short the market?  We will know the answer soon enough.  Without a doubt some traders are selling this level, expecting another leg down, but the key is how the market responds to this challenge.  If it swallows all this selling as nothing more than a speed bump, that shows there is plenty of resilience left in this bounce.  If buying dries up and selling takes over, we are running out of dip-buyers.  No one has a crystal ball, but we can gain insights into trader’s views and positioning by how the market responds to these key levels.

Alternate Outcome:
As we just witnessed, the market likes to disguise its true intentions.  What looks like a bounce, ends up breaking down.  Something else appears like a crash, but it bounces back.  We trade moves through support and resistance, but we must be prepared to deal with the inevitable head fake.  This is a volatile and emotional market and it will send of plenty of false signals before revealing its true intentions.  Discipline is the only tool we have to get out of these head fakes in a timely manner.

Trading Plan:
The challenge putting on a trade here is we are in “everyman’s land”.  There is a solid case for the bull, bear, and swing-trader.  Bears can short the rebound to resistance.  Bulls can buy retaking major support at 1600.  And nimble-swing traders can lock in profits, look to add position if we break resistance, and short stalling at the 50dma.

There is really no wrong trade here as long as we follow our plan and honor our stops.  Bulls can buy/hold with a stop under 1600.  Bears can short with a stop above 1620.  And swing-traders can lock in profits and wait to trade the breakout/breakdown from the test of resistance.  We remain in a volatile market, so keep taking profits early and often.  And perhaps the easiest trade is taking the summer off.  Most traders give all their hard-earned profits back by forcing trades in emotional and volatile markets.

TSLA daily at 2:44 EDT

INDIVIDUAL STOCKS
Institutional investors are not coming AAPL‘s rescue here.  Cash horde, dividend yield, absurdly low P/E, brand equity, ecosystem, pipeline, etc, none of it matters as the greatest buy of the decade keeps getting cheaper.  AAPL’s problem isn’t that no one believes in it, paradoxically it struggles because everyone believes in it.  Everyone loves the company and its products, but that also means they already own the stock and there is no one left to buy.  Stock prices are not driven by fundamentals, technicals, opinion, or any of that other stuff the talking heads obsess about.  They trade on supply and demand.  When everyone who wants some already has some, we run out of new demand and there is nowhere to go but down.

The same logic explains why GLD struggles here.  “Everyone needs some gold in their portfolio”  or at least that’s what some people say.  And that is great when gold is going up, but I’ve never been a fan of broad diversification in a trading account.  Does it make any sense to offset our winners with losers?  Own it when it works and dump it when it doesn’t and clearly gold is not working here.

TSLA is putting the hurt on bears again.  There is no logical reason to own this stock here, but it is suicidal to short this stock.  Between the astronomical short-interest and the all the shares tied up by management and loyal investors, this stock will not act rationally.  It will come down at some point, but not before it defeats and bankrupts all those bears.

Plan your trade; trade your plan 

AM: The squeeze is on

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:31 EDT

AM Update

MARKET BEHAVIOR
Markets are up for a second day following Monday’s plunge.

MARKET SENTIMENT
Panic driven selling is taking a break, giving holders and prospective buyers the opportunity to think rationally and act deliberately.  Stability and sanity is supportive of markets and hopefully we reached a place where cooler heads prevail.  That doesn’t eliminate the possibility of further declines, but it greatly mitigates the probability of an out of control crash.

The market hates uncertainty and things it doesn’t fully understand.  There are times when we only see the tip of the iceberg, like the period building up to the 2008 Financial Crisis.  The market was oblivious to the underlying risks, leading to a large and painful selloff.  Right now the market is fretting over the timing of Tapering, but it is hard to claim that is an iceberg.  In fact, failing to taper will likely lead to greater risks of bubbles and inflation.  While some will argue we already passed that point, that is a different debate.  Even thought exact timing of Tapering is up in the air, we know it will happen at some point over the next few quarters and it will be a gradual implementation.  There are plenty of icebergs out there, but this is not one of them.

TRADING OPPORTUNITY
Expected Outcome:
The plunge trade is over as we recover 1600.  No one knows how high or long this bounce will last, so the best approach remains buying weakness, selling strength, and locking in profits.  Don’t chase market moves and take profits early and often.  In volatile periods, never feel bad about selling early and only capturing 20-points of a 50-point move.  Those that hold on too long will see all their profits evaporate days later.

It is easy to make money in the markets, the hard part is keeping it.  Traders reacting to these volatile swing are giving back months of profits.  Even if we sell early, I guarantee you locking in a 20-point gain is better than most who are riding the yo-yo of buying high and selling low.

Alternate Outcome:
This bounce could be nothing more than a bull trap on the way lower.  The market saw a nearly non-stop rally from 1350 and the recent selling is just scratching the surface of what could be a normal and healthy pullback.  The biggest challenge to the rally is hitting its head on 50dma resistance.  No one knows for sure what the future holds, the best we can do is identify opportunities and uses stops to protect us in case we are wrong.

Trading Plan:
The recent bounce is putting the squeeze on late shorts and recovering 1600 will keep the pressure on.  Look for resistance at 1620, consider locking in profits, and even go short if we run into a wall.  If the market breaks above the 50dma, look for a continuation to the middle of the 1600/1700 range.  Stay nimble, trade proactively, and take profits.

GLD daily at 2:30 EDT

INDIVIDUAL STOCKS
AAPL‘s struggles continues as it doesn’t enjoy today’s broad market strength.  We are under $400 and any dip buyers need to be extremely careful here.  On the other side shorts can press their luck with a stop above $400.  Many of the expected catalysts came and went without pumping life back into the stock.  Anyone who believes in this story is already fully invested and there are few prospective buyers left to bid up the stock price.  The biggest hope was placed on the dividend increase, but even that could not attract buyers willing to pay premium prices.

GLD fell out of bed again this morning.  This is an ugly trade for anyone who bought the bounce above $140 a couple of months ago.    Much like AAPL, Gold was an over owned asset.  Everyone who wants gold already has all they can hold, meaning there is no one left to buy.  Normally something falling so far creates a buying opportunity, but there is no reason to rush in and buy because there is still room for more panic driven selling.

Plan your trade; trade your plan

AM: Volatility continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:50 EDT

AM Update

MARKET BEHAVIOR
Stocks recovered most of yesterday morning’s plunge and are just shy of 1590.  Obviously the market is volatile and that trend will likely continue.

MARKET SENTIMENT
The market hates being predictable.  The obvious bounce off 1600 fizzled and collapsed another 40-points, but not long after the obvious breakdown bounced right back.  The market has no allegiances will and humiliate both bulls and bears any chance it gets.    This behavior isn’t vindictive, simply a function of supply and demand.

When everyone anticipates the bounce off support, they keep holding, knowing it would be foolish to sell just before the market rebounds.  When it doesn’t, they rush for the exits at the same time as their stop-losses under support are triggered.  This wave of selling sends the market sharply lower.  But just when everything looks the most hopeless, the market bounces back because everyone already sold ahead of the expected market crash.  Once that wave of impulsive selling passes, there are few sellers left and the market bounces back.

Volatility will continue for a while as those paralyzed by fear and indecision during the previous plunge sell every bounce as the market recovers to levels they wish they sold at on the way down.  This entire process goes back and forth over a period of weeks with the amplitude diminishing with each whipsaw until stability and sanity returns and we continue the prior trend.

We might still see lower lows, but holding in this area for another day greatly mitigates the probability of a market crash.  The end of emotional selling and coming to terms with Tapering is what will let this market settle down, building the base for the next leg higher on improving economic news.

TRADING OPPORTUNITIES
Expected Outcome:
Holding 1560 through Wednesday is an encouraging sign the wave of selling is abating.  While the coast is never clear and there is no such thing as a safe time to invest, it shows much of the emotional selling is behind us.  Tomorrow could bring something new, but stability here shows the market is coming to terms with Tapering.

Buying the dip with a stop under yesterday’s low is not a bad trade if someone has an itchy trigger finger, but for the average person, trading the sideways chop is an exercise in futility.  Stay in cash, but if you have to trade, take profits quickly.

Alternate Outcome:
While the market might be coming to terms with Tapering, volatility in Asia is waiting to take us down.  No matter what we think, we initiate all new trades with defense in mind.  We cannot get it right every time and stop-losses are what keep us out of trouble.

AAPL daily at 1:50 EDT

Trading Plan:
Volatility will persist and we must lock in profits when we have them because they will likely be gone days, even hours later.  Yesterday’s 30-point dip didn’t even last 24 hours before most of it was reclaimed.  This applies to both bulls and bears.  Buy weakness and sell strength with stops just on the other side of support/resistance.  We must trade this market proactively, anyone reacting to the whips is going to give money away.

A dip under 1560 over the next two days likely means this market is pushing toward the 200dma, but barring that, assume the market put in a bottom.

INDIVIDUAL STOCKS
AAPL is not enjoying the broad market’s rebound and is just a few cents above $400.  This level is a major psychological milestone and expect many of the recent dip buyers to call it quits if drop much further.  The optimistic swing trader could trade the bounce off of $400 with a tight stop, but this is just a trade.  The stock is acting like the selloff is not done and look for a dip to $350 before all the hopefully are finally driven out of this name.

Plan your trade; trade your plan

PM: Still looking for a bottom

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks fell over one percent, continuing the recent selloff.  The silver lining is the midday bounce from much lower levels, but a loss is still a loss.  Volume was well above average as traders dump shares by the truckload.  There is modest support back near 1540 from March and April, but the next major level is the 200dma just above 1500.

MARKET SENTIMENT
Huge trading volumes over the last three-days as the market is anything but complacent.  The alleged rumor is Ben Bernanke yelled fire and everyone rushed for the exits.  Of course no one personally heard him say fire and is panicked simply because everyone else is.

The Fed is still has their foot on the gas and is pumping $85 billion of liquidity into the markets and will continue buying bonds well into next year, but never let the truth get in the way of a good story.  As we’ve long discussed on this blog, markets don’t trade fundamentals, they trade investor perceptions.  Right now investors are acting like three-year olds, throwing a tantrum because Uncle Ben won’t promise easy money for ever and ever.  Without a doubt the market is overreacting, but doesn’t mean the selling will stop and we could easily see another couple of legs lower before this is all said and done.

TRADING OPPORTUNITIES
Expected Outcome:
The high volume selling is flushing out many previously confident holders, creating the next pool of buyers to push this market higher in the future.  But that is still a ways out.  The real savior of this market will be the deep pocketed value investor who sold out when values got too rich last month and is eager to buy back in at these discounted levels.  The biggest question is if these levels are too attractive to resist yet.  Once their buying puts in a bottom, the panic selling will subside.

Given the huge flush in volume, I’d say we are getting close to the capitulation point where most of the weak hands sold impulsively to far more confident value investors willing hold through some uncertainty.  Of course the bottom will remain volatile and we should continue buying weakness and selling strength.

Alternate Outcome:
The market can continue selling and there is nothing more unnerving than seeing our accounts meltdown before our eyes.  Everyone has their breaking point and even the most resolute holder will cave if we keep falling.  The only thing that protects us is our stop-losses and hopefully no one has ridden this down all the way from the peak.

Trading Plan:
The aggressive can continue buying the dip with a tight stop under recent lows, but for the rest of us, the safer play is waiting for the market to bottom.  Wherever this ends, we will likely consolidate sideways and there will be plenty of time to buy back in over coming weeks and months.  In the meantime, both bull and bear should take profits early and often as the volatility will continue for the remainder of the summer.

Plan your trade; trade your plan

AM: Continued weakness

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:30 EDT

AM Update

MARKET BEHAVIOR
Stocks sold off hard, continuing last week’s slide to 1560, but found a bottom and reclaimed 1580 by late afternoon.

MARKET SENTIMENT
There was no obvious news catalyst for today’s selloff and it is simply a continuation of the pain trade as previously confident holders are running for cover.  Markets overreact on both the high and low side.  This selloff is the snap back from recent gains and will likely overshoot to the downside before bottoming.  What level qualifies as overshooting is up to interpretation and where all the money is made.  Maybe we are already oversold and ready to bottom, or only in the middle of this selloff.  That is the sport and challenge of trading.

TRADING OPPORTUNITIES
Expected Outcome:
The recent selloff is a great example of how valuable trailing stops and stop-losses are.  The market retreated to levels first seen in early April and anyone who failed to lock-in gains took a round-trip.  We’re in this to make money and the only way to do that is selling our winners when we least want to.  On the other side, shorts who stubbornly fought this market were vindicated by recent weakness but at what cost?  In the market early is the same thing as wrong.  We all come to the markets with opinions and ideas, but we must trade the market we are given and often that means admitting mistakes and taking small and calculated losses. Successful traders are not bulls or bears, but opportunists.

I was looking for a bounce near 1600 and clearly that didn’t happen, but that is the nature of this beast.  We take our licks, cover for a modest loss, and keep looking for the next trade.  No one is right on every trade and why planning our exit is the most important part of any new position.  The aggressive trader can try the dip again with a stop under recent lows, but most are better off waiting for the market to prove itself.

I still think this selloff is an overreaction to the inevitability of Tapering, but this weakness is therapeutic and taking the QE risk off the table in a sell the rumor, buy the news setup.  The market is always looking ahead and will already be looking past Tapering by the time it actually happens.

Alternate Outcome:
The market is clearly weak here and we must remain defensive.  If the market doesn’t find support quickly, the 200dma is the next level to challenge.  Selling begets selling and no matter what common sense or fundamentals show, crowds rush for the exit at the same time and the resulting selloffs are often breathtaking.

Trading Opportunity:
Obviously this is a volatile market and the best trade remains locking in profits before they evaporate.  A cocky bull or bear will get steamrolled, so use your ego as a guide.  Take profits when you feel most confident.

A dip-buyer can try again with a stop under 1560.  It is a little late to jumping on the short bandwagon and existing shorts should move down their trailing stop to make sure they don’t give back these well deserved profits in a bounce.

AAPL daily at 2:30 EDT

INDIVIDUAL STOCKS
AAPL‘s weakness persists as it broke $400 this morning.  The value buy of the decade struggles to regain upward momentum and is likely a victim of its own success.  When everyone loves a company, they already own it, leaving few new buyers to continue pushing the stock up.  It is a great company, but the stock was too popular for its own good.  If we cannot hold $400, the next level to watch is $350 and would be a 50% selloff from recent highs.  Any AAPL bull should have bailed when the stock failed to hold the 50dma.  Support at $400 is an interesting place for a dip-buyer to swing-trade a bounce with a stop under $400.

TSLA is still holding strong and any short should run for cover.  Climax tops collapse quickly and this stock doesn’t look ready to collapse.  With so many traders short this stock and a large percentage of the float in the hands of management and loyal investors, another short squeeze seems far more likely than a collapse.

GLD is holding up in the face of market weakness as last week’s plunge sucked out most of the downside in a single move.  Look for further consolidation, but the trend is still lower and it is better to bet on a continuation than a reversal.

Plan your trade; trade your plan

AM: Support or bull trap?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

AM Update

MARKET BEHAVIOR
Stocks jumped around following yesterday’s plunge, showing early gains, slipping into the red by midday, and recovering losses by early afternoon.  Given yesterday’s 2.5% slide, this morning’s 0.5% dip was relatively benign.

MARKET SENTIMENT
Buy the dip or short the weakness?  That’s the question on everyone’s mind.

Markets pullback and this one is no exception.  They also rebound after every selloff and so will this one.  And to think some people claim it is impossible to predict the market!  All joking aside, the hard part is figuring out the timing of these “obvious” moves and is where all the money is made and lost.  Plenty of bears are beating their chest, proclaiming to the world how right they are.  Of course they forget to mention they’ve waited months for this pullback and missed the majority of the recent rally, and those are the lucky pessimists, many actually lost money shorting this bull.  But they’ve waited this long, so lets give them their moment in the spotlight.

People trade the market for many different reasons.  Some do it for the gambler’s rush, other need to be right, and a few are simply here to make money.  While it is impossible to leave our ego at the door, I’m in this to make money.  That means I am flexible in my analysis and quick to switch views when presented with new information.  It’s okay to be wrong, but it is fatal to stay wrong.  I did this following April’s bounce off the 50dma when I was bearish and expecting a breakdown.  That was the perfect setup to selloff and when it didn’t happen as expected, my analysis was obviously flawed and I quickly changed sides to the bull camp.  But that was then and this is now.  Given the recent weakness, what do we do here?

MARKET BEHAVIOR
Expected Outcome:
If any think this prelude means I am changing sides, they will be disappointed.  I remain flexible and open-minded about this market, but in late May I shifted gears from rally mode to sideways chop.  So far everything I see fits within that model and until further notice, I will continue buying weakness and selling strength.

Trading chop is the most difficult way to make money in the market.  There is no set-it-and-forget-it.  The key to surveying periods like this is taking profits early and often because a few days later they will evaporate. And of course the most conservative approach to this market is to sit in cash and wait for the next directional trade.

Alternate Outcome:
Without a doubt bears could be right here.  Every rally ends at some point and this one is no exception.  While we can buy weakness, always trade with defense in mind and keep a stop under recent lows.  Aggressive bears can press their shorts, but move your trailing stop down and don’t let those hard-earned profits evaporate.

Trading Plan:
Game plan is buying the dip.  This morning’s rebound gives an interesting entry point with a stop under this morning’s lows.  10-points of risk for a potential 50-point gain if we recover the “Tapering” selloff.  For bears, a lot of selling is behind us and today’s stability shows many who wanted to sell are already out.  No doubt we could continue selling off, but if we assume the market will remain volatile, taking profits early is the best way to stay ahead of the market.

AAPL daily at 1:51 EDT

INDIVIDUAL STOCKS
AAPL’s out-performance yesterday is offset by today’s underperformance.  The stock lost support at the 50dma and keeps pushing toward $400.  The recent low was $385 and breaking this will like result in another leg down to $350.  Stocks that cannot go any lower usually do, but this shouldn’t be an issue for the disciplined bull who sold the break of the 50dma.

GLD is trading sideways following yesterday’s plunge.  A couple of days ago I said we could short a break of $130, but that was if the commodity rolled over.  The gap lower took a big chunk of the short profit with it and we should expect sideways chop in the $120s.  Clearly the trend remains lower and anyone buying the dip is trying to catch a falling knife.

Plan your trade; trade your plan

PM: Hope, fear, and opportunity

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks crashed spectacularly in the largest selloff of the year.  Volume was off the charts as we undercut all the stop-losses clustered under the 50dma, 1600, and 1598.

MARKET SENTIMENT
As sick as the market feels, we are still within 6% of all-time highs.  For bears that means plenty of downside remains.  For bulls this is just another routine dip on the way higher.  And who knows, both could be right if we selloff a bit more before rebounding to new highs this fall.

Markets often reverse on a capitulation bottom.  This is the largest decline and highest volume of the entire selloff; the classic pain trade.   Many previously confident traders are persuaded into selling because the market hit their stop-loss, or alternately they just can’t take the pain of seeing their account fall any further.  But the thing to remember is markets only go down on new selling.  If the recent plunge triggered a majority of the stop-losses and shook out a large chunk of holders sitting on the fence, the supply of available sellers might be drying up.

I very well could be the biggest idiot in the room for seeing opportunity in this slide, but that comes with the territory of being a contrarian.  I will be the first to admit I can be wrong, but that’s what stops are for.

TRADING OPPORTUNITIES
Expected Outcome:
Any disciplined bull should be out of the market, either because they sold recent strength, or they were stopped out on the way down.  The advantage of being in cash at times like this is it gives us the clarity to see the next trade.  Anyone still holding is jumping between hope and fear and that is clearly a poor way to trade the market.

I still think we are closer to the end of this selloff, but we can wait to buy the rebound above 1600 and there is no reason to force a trade in this volatile, sideways market.  Sitting on cash is a legitimate position.  Remember, it is easy to make money in the markets, the hard part is keeping it.  Don’t do anything stupid.

Alternate Outcome:
We sliced through support on our way to 1588.  This is finally a legitimate place to put on a short trade with a stop above recent support.

Trading Plan:
A bear can put on a short with a stop above 1600.  Anyone already sitting on short profits should consider locking in some of those gains or at least move their stop down to 1600.  We are in this to make money and the only way we can do that is by selling our winners.

Bulls should wait to buy the bounce above 1600.  Our plan this summer is selling strength and buying weakness.  This certainly qualifies as weakness, we just need to wait for the right opportunity.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL continued its slide under the 50dma, but its loss was less than the broad market as it actually out performed on a relative basis.  While encouraging, that is not a valid reason to buy or hold this weakness.  Any disciplined bull should be out of this stock and waiting for the rebound back above the 50dma.  On the other side, a bear can short with a stop above the 50dma.

Gold’s 7% selloff would normally be one for the history books, but unfortunately for gold-bugs it is simply par for the course this spring.  The last few years gold was bought to protect against a weak economy, a strong economy, inflation, and deflation.  Now it is a sell for all the same reasons.  Obviously gold was nothing more than a momentum trade and that momentum has turned.  I’m not sure if there is enough downside to justify shorting GLD here, but those hoping for a rebound to previous levels will be waiting a long time.

Plan your trade; trade your plan

AM: The start, or the end?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:29 EDT

AM Update:

MARKET BEHAVIOR
Stocks continued sliding this morning, but found support just above 1600 in midday trade.

MARKET SENTIMENT
Is Chicken Little finally right?  Every other prediction of doom and gloom this year was met with a powerful rebound, will this time be any different?  This is the “overly-bullish” market everyone loves to hate; but if the crowd hates it, can it really be overly-bullish?

Weeks ago we identified the 1600-1700 trading range and so far this “plunge” is still within the expected range.  Everyone is tempted to sell the least surprising Fed statement that QE continues at full speed but tapering is in the future.  If that caught anyone by surprise, clearly they are not paying attention.  No doubt some of the disappointment stems from hope Bernanke would be more supportive of QE and dispel rumors of tapering later this year, but should a few months here or there radically change our investment thesis?  Some people seem to think so, but aren’t these the pessimists already out of the market and actively short it?  Should we really trust what they have to say?

We can safely ignore people promoting their existing biases because they already placed their trades and are simply along for the ride.  The only traders controlling the market are the ones changing their minds.  Maybe they are rationally evaluating new information and acting on it, or maybe they are impulsively reacting to market moves, but either way, only people actively buying and selling are driving prices.

Every dip this year ended in a bounce when we ran out of sellers.  When everyone expects a market top, they sell ahead of it, taking excess supply with them.  By the time the expected event rolls around, there is no one left to sell, keeping supply tight and we have nowhere to go but higher.  Will it be different this time?  The market obsessed over “tapering” for more than a month and the recent 5% slide flushed out many weak holders.  Given that setup, I have a hard time identifying where the next incremental seller comes from.  The only thing left is an irrational rush for the exits, but so far the majority of holders demonstrated a willingness to own stocks in the face of recent weakness.  There are no guarantees in the market, but calm and confident holders make the rebound far more likely than a collapse.

TRADING OPPORTUNITIES
Expected Outcome:
Everyone wants a strong market to pullback so they can buy more, but every time the market pulls back, they get scared and chicken out.  Anyone following our game-plan of taking profits early and often in this volatile trading range can use today’s dip as a great entry with a tight stop under support.  This will be a choppy summer and if we fail to capture profits when we have them, they will likely evaporate days later.

Alternate Outcome:
This market will breakdown at some point because every market does.  While markets rarely collapse when everyone expects it, we need to play defense so close to major support.  Everyone is watching 1600 and many have stop-losses under this key level.  Breaking it could trigger an avalanche of stop-loss orders sending us sharply lower.

GLD daily at 2:29 EDT

Trading Plan:
The dip is buyable until the market tells us otherwise.  A lot of selling happened over the last couple of days and weeks, meaning there are fewer nervous holders left to flood the market.  We might dip under 1600 in one last flush before bouncing back into the trading range, but the dip is buyable with a tight stop under 1595.  Only short the market if we accelerate through 1595 and no one is buying the dip.

INDIVIDUAL STOCKS
GLD  was hammered today.  The safety trade is leading the plunge and demonstrates why we don’t try to catch falling knives.  There are a lot of owners still hanging on and hoping for the bounce, meaning there are plenty of sellers left.

AAPL is down, but less than the broad market.  Failing to hold recent support is troubling and any disciplined long is already of out this stock.  If it bounces, we can easily jump back in, but there is no excuse to rid this stock lower.

Plan your trade; trade your plan

PM: Sell the hype?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks sold off on average volume and finished under 1630 following the Fed’s policy statement and Bernanke’s comments.

MARKET SENTIMENT
The Fed shocked everyone when it announced it would eventually unwind QE.  Okay, all sarcasm aside, the market was disappointed Ben didn’t do more to appease it by promising easy money as far as the eye could see.  The funny thing is many of the people who last year claimed another round of QE wouldn’t work because of diminishing returns and inflation are the same ones saying this market will implode as soon as the QE punch bowl is taken away.  Last year QE didn’t matter, now it is the only thing that matters.  Once a pessimist, always a pessimist.

As we discussed earlier, this gradual ramp of expectations into the inevitable tapering is good for market stability   All the talk of QE ending is already pricing it in and the actual event will be a non-issue, but that is then and this is now.  What should we expect in coming days and weeks?  Is the bubble finally deflating, or is this just another bump in the road?

Average volume showed not many were rushing for the exits.  Markets only move when people change their minds and trade their new outlook. If we expect a directional move here, we need to identify who is changing their mind.  Was the Fed’s policy statement and Bernanke’s comments so out of line from expectations that a large wave of traders are changing from bullish to bearish, or bearish to bullish?  That is a hard argument to make since the Fed’s statement was nearly a word-for-word carbon copy of past statements.  The only notable change is positive comments about the economy.   Talk about a bizarro world we live in when traders are afraid of good economic news.

If bulls and bears are not changing their minds on these headlines, today’s selloff was simply event traders pushing around the market.  Without follow-on selling from a larger pool of holders, look for the selloff to stall and bounce back into the trading range.

TRADING OPPORTUNITIES
Expected Outcome:
Volatility was expected and pulling back after recent gains shouldn’t surprise anyone.  We anticipated a summer trading range and so far this market is following the plan.  Look for it to bounce somewhere between here and support at 1600.  The more anxious the crowd gets over the selloff, the quicker it will end.

Alternate Outcome:
While a bounce seems likely since this news changes few minds, we must be prepared for the inevitable selloff.  At some point we will run out of buyers and without demand, nothing else matters.

Trading Plan:
We might see further downside, but look to buy the weakness with a tight stop under support.  We could temporarily dip under the 50dma and the rebound back above it is the buy signal.  Anyone short this market should cover and lock in gains.  Profits are fleeting for both bulls and bears in this sideways chop, so take them early and often before they evaporate.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL broke recent support and anyone trading the bounce off the 50dma should be long gone by now.  The inability to stage a comeback after holding the 50dma for nearly two-months shows few are interested in buying the dip.  Further weakness will likely trigger more stop-loss selling and a test of support at $400 is the next stop.

GLD tanked on hints of the end of easy money.  Runaway inflation is a core tenet of the gold-bug’s investment thesis.  Without monetary instability  there are few reasons to own a useless metal brick.  Violating recent lows could trigger another wave of selling, but if the market fails to collapse after making new lows, it shows we are running out of sellers and the dip is buyable.  In this case, let the price action be our guide.

Plan your trade; trade your plan

AM: How to trade the Fed

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:31 EDT

AM Update

MARKET BEHAVIOR
Stocks are doing a lot of nothing leading up to the Fed’s 2pm Eastern policy statement.  We are in the middle of the recent range between 1600 and 1690 and there is plenty of room for the market to react without leaving the trading range.

MARKET SENTIMENT
Will the market really be surprised by anything the Fed has to say?  The Fed will most likely continue QE for the time being, but is looking for opportunities to scale back the program when the time is right.  Everyone knows and expects that statement, but it will obsess over every noun, verb, adjective, and preposition in the statement trying to sniff out any kind of clue indicating the tapering will occur sooner than previously expected.

But lets not make the mistake of assuming news drives the market.  This headline is simply an excuse for people to trade their dispositions and outlook.  If they fear QE ending, they are already out.  If they are indifferent to QE ending, they are committed to holding in spite of what the Fed has to say.  Some news based traders will try to get ahead of the next big move and will push the market one way or the other, but invariably the market will snap back because everyone is already positioned for their current outlook.  Once the news driven guys blow their load, there will be little follow on buying/selling to continue that move and it will stall.  At least that is the way it played out every other time over the last six-months.

The one exception is if the Fed is more decisive this time, either committing to massive QE through 2014, or alternately signaling tapering before the year is up.  These unexpected revelations are more likely to generate a directional and sustained move because it will change traders’ outlook on the future, leading them to adjust their portfolio to match their new view of the future.

TRADING OPPORTUNITIES
Expected Outcome:
Expect volatility to continue.  I would be tempted to fade the market’s initial reaction to the Fed.  If it is spooked, look for a bounce off of the 50dma or 1600.  If we surge, look for stalling around 1690.

Alternate Outcome:
If the Fed rocks the boat and startles the market with an unexpectedly bold policy statement, look for a lot of buying or selling by those on the wrong side of the trade.  It seems unlikely the Fed will be so brash given how measured they have been in the past, but we must expect the unexpected.

Trading Plan:
If the market’s initial reaction is making a big deal over nuance, fade the move when it approaches support or resistance.  If everyone is floored by the Fed’s comments, trade the ensuing stampede where people are changing their portfolio to match their new outlook on the future.  Markets only make sustained moves when people change their mind, so only make a directional trade if the news is converting bears or bulls to the other side.

Plan your trade; trade your plan

AM: More pain for bears

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:18 EDT

AM Update

MARKET BEHAVIOR
Stocks surged in morning trade, but leveled off near 1650 by midday.

MARKET SENTIMENT
Bears are flabbergasted by recent strength. All their analysis and insights say this market is overly-bullish, extended, and ready to breakdown, but they need to ask themselves why it is not acting like it should.  The biggest mistake these investors make is assuming the market will behave like everyone expects.

Markets are the greatest discounting mechanism ever conceived.  Anything widely known and expected is already priced in.  All of the traders predicting a market implosion sold out long ago.  When too many people predict doom and gloom, they take all that supply out of the market in a “sell the rumor” phenomena.  By the time the expected event rolls around, there is no selling left and the widely expected collapse never happens simply because everyone sold ahead of time.

Then comes the “buy the news” phase where the actual event is less bad than feared.  Once the event happens, all risk and uncertainty evaporate, add to this the tight supply because all the selling occurred earlier, and that is the perfect recipe for a bounce.  The market is far less irrational when we understand what really makes it move.

TRADING OPPORTUNITIES
Expected Outcome:
The recent bounce diffused any and all downside momentum.  Selloffs happen quickly and this market had every opportunity to crack wide open, but it held firm instead.  That shows there are few left to sell weakness and most holders are in this for the long-term in spite of near-term volatility.

Alternate Outcome:
Buying the dip is a tired trade and what becomes too obvious stops working.  While we might not be there yet, the day is coming when dip won’t bounce.  Failing to hold support will be our signal the market’s personality is changing.

AAPL daily at 2:18 EDT

Trading Plan:
We are now in the middle of the recent trading range.  If we climb to 1660, move our trailing stops up to 1650 to ensure we keep recent gains.  When the market moves up to 1670-1680, start thinking about locking in profits ahead of the dip back into the heart of the trading range.  At this point move stops up to our buy point and don’t allow this winning trade to turn into a loss.

INDIVIDUAL STOCKS
AAPL is stuck just under the 50dma and not enjoying the broad market’s strength.  Most still believe in the earnings power and brand equity in this name, meaning the stock is fully valued and those waiting for a return to the easy buy-and-hold days will be frustrated by the anemic trade.  Clearly this stock does not want to go higher, the only question is if it is done selling off.  I still think a dip to $350 is required to finally flush out the hopeful still hanging on.

Plan your trade; trade your plan

PM: Do we need the Fed?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks recovered Friday’s selloff and finished near recent resistance at 1640.  Volume was higher than Friday, but below average.  Technical support is back at the 50dma and 1600 while near-term overhead resistance is 1640 and 1649.

MARKET SENTIMENT
Everyone is waiting on the Fed.  Will Ben restate his unwavering commitment to easy money, or drop hints at the eventual unwinding of QE.  Personally I don’t think it matters.  Recent selloffs in our equities and bonds as well as the implosion going on in Japan shows central banks really don’t have as much control over the markets as people give them credit for.  The only reason Ben has been successful at keeping rates low and inflating equity prices is because investors are willing to go along.  An analogy would be a four-year-old walking a huge dog.  As long as the dog is listening to the little girl, everything works great, but as soon as that dog spots a rabbit, there is nothing the girl can do to stop him.

Now many will use this argument to say the markets will spiral out of control, but I’ll take the other side and say the markets are at these levels not because of the Fed, but because they want to be here.  Fed or no Fed, the market likes these levels.  This is even more true with the recent pricing in of the eventual end of QE.  Everyone who fears an imploding market upon the withdrawal of QE is already out.  Everyone left is far less worried about it simply by the fact they continued holding through recent volatility and uncertainty.

Without a doubt an unexpected and abrupt end to QE would shock the system and trigger a huge wave of panic selling, but Ben and the rest of the Fed members know this.  These subtle hints from the Fed are one way to help the markets begin the transition by letting us gradually price it in.

TRADING OPPORTUNITIES
Expected Outcome:
It would be surprising if Ben or the Fed came out with something that spooked the market.  Between the recent equity and bond selloff, they will be walking on eggshells because they don’t want to let a stray comment undo all the progress we made over the last year.  The Fed’s mandate is unemployment, but they understand the relationship between the markets and business leader’s confidence about the future.

Alternate Outcome:
The only reason stops exist is to protect us when we are wrong.  No matter what we think, we must have a good defense.  A swift selloff under the 50dma and 1600 moves us to a highly defensive posture.  No matter what happens, it is better to be out of the market wishing we were in, than in the market wishing we were out.  I don’t mind seeing the market bounce after a defensive sell because I fully appreciate all the times it saved me.

Trading Plan:
Expect volatility to continue, but most of the selling is already behind us.  The market remains holdable until we approach the upper end of the trading range.  Use the 50dma as a trailing stop.

Plan your trade; trade your plan

AM: Support continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

AM Update

MARKET BEHAVIOR
Stocks are up, recovering all of Friday’s losses and then some.  Support at the 50dma continues holding as the market put in a floor following May’s selloff.

MARKET SENTIMENT
A tough day for shorts as the obvious selloff fails to arrive on schedule.  The market bumped its head on 1649 last week and no doubt many shorts are using that prior peak as a stop-loss.  If we break above it, look for another wave of short-covering to fuel the next leg higher.

Trading against the trend is always a tough game and unfortunately many bears failed to lock-in profits when we pulled back to 1600.  The best trade of 2013 is assuming every dip will bounce and for anyone betting on the breakdown, its been a rough year.  When trading with the trend, we can let our bets ride, but we must be far more nimble when trading against it.

One of the most fascinating aspects of the market is both bull and bear can be right at the exact same moment as long as they both sell right.  In a volatile market like this, that means locking-in profits when we get them.  Of course the other edge to that sword is both can be wrong if they time their sales poorly by holding too long.  The best trade remains taking profits when we are most confident and initiating trades when we are most fearful.  It doesn’t always work, but it does well enough that the profits easily offset the losses.

The financial press claims this bounce is due to hope the Fed will reassure markets following recent uncertainty about the future of QE.  It is not a bad way to spin things, but the truth is those that feared QE ending abandoned ship over the last few weeks, selling to buyers far less concerned about it.  That self-selection left us with an ownership base less concerned with QE and is the real reason behind recent strength.  The market is not a unified entity, but a crowd that is constantly turning over.  If we flush out the fearful, then all we are left with is the confident.  Confident owners equal tight supply and tight supply equals higher prices.

TRADING OPPORTUNITIES
Expected Outcome:
There is little downside momentum left in the market as the recent tests of support failed to trigger wider selling.  Clearly holders are not afraid of a little weakness and their confidence keeps supply tight.  The pressure is on bears and look for the market to rally in the face of their pessimism.

Alternate Outcome:
This market will rollover when we least expect it and is why we must continue discussing the risks and not become complacent just because the market is moving our way.  Recent bounces off the 50dma and 1600 add weight to these levels.  If everyone is following these obvious levels, expect the crowd to rush for the exits on the same technical signals.

Trading Plan:
Continue betting on the bounce with a stop under the 50dma, but expect volatility to continue and take profits in the upper half of the 1600s.

NFLX daily at 1:51 EDT

INDIVIDUAL STOCKS
Yet another short-squeeze in NFLX as the stock gaps higher on content related news.  Finding support at the 50dma and bouncing in high volume creates a valid entry point with a stop under recent lows.  What cannot go any higher keeps going higher.

Not to be left out, AMZN is also challenging the upper end of a six-month consolidation.  A high-volume breakout is buyable, stalling makes an interesting swing trade back into the consolidation.

On the other side, the buy of the decade remains dead money as AAPL cannot breakaway from the 50dma, but following the massive selloff, we cannot complain about sideways.  Anyone betting on the stock’s recovery better be patient.

Plan your trade; trade your plan

AM: Seesaw continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:48 EDT

AM Update

MARKET BEHAVIOR
Stocks gave up half of Thursday’s gains by midday as the volatile trade continues.  While this is the third down-day out of the last four, surprisingly we are still in the middle of the selling range because of Thursday’s powerful gains.

MARKET SENTIMENT
As bad as it feels, very little real damage occurred.  While everyone is freaked out about Japan and the Fed, we are only 3.5% from all-time highs.  There is a lot more bark to this selloff than bite.  This further reinforces the notion there are few potential sellers left in the market.  Everyone holding stock is in it for the long haul and not worried about near-term volatility or weakness.  This keeps supply tight and prices strong.  As much noise as bears are making, the price action simply doesn’t support their investment thesis.

TRADING OPPORTUNITIES
Expected Outcome:
Volatility is just a way of life this summer.  Bulls and bears betting on the breakout/breakdown will be chasing their tail all summer.  The obvious selloff resulted in an obvious rebound, which was followed by today’s decline.  In environments like this buy weakness, sell strength.  Don’t chase moves and lock in profits when we get them because they won’t last long.

Alternate Outcome:
We still need to keep a way eye on the 50dma and 1600.  The longer we hold near these levels, the larger the pile of stop-losses under this level becomes.  Obvious support is trouble for markets because it leads to everyone running for the exits at the same time and that surge of supply crushes prices, triggering even more selling.

Trading Plan:
Yesterday’s bounce shows supply is tight and it is okay to hold this market, but expect volatility to persist.  Take profits early and often because no one knows where the next zig or zag will happen.  A swing-trader with a slightly longer view can hold into the upper half of the 1600/1700 range before locking in profits.  Any violation of the 50dma will force us to get defensive and evaluate the potential for more weakness.

GOOG daily at 1:48 EDT

INDIVIDUAL STOCKS
AAPL cannot breakaway from the 50dma.  There is plenty of support for AAPL here as income investors buy up the recently increased dividend, but these buyers are extremely price sensitive and demand dries up quickly any time the stock ventures too high above current levels.  With this week’s developer conference, another bullish catalyst came and went without reinvigorating investors.  Like any other popular trade before it, favorite stocks come and go.  GOOG is the new cool kid on the block and has the best shot at break the quadruple-digit ceiling that everyone was predicting for AAPL last summer.  Success in the markets is about identifying the next winner, not stubbornly holding on to yesterday’s.

Plan your trade; trade your plan

AM: Choppiness continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:57 EDT

AM Update

MARKET BEHAVIOR
Stocks dipped to 1608 at the open, but rallied through mid-day.

MARKET SENTIMENT
Japanese markets are imploding, but not weighing on our markets too much.  Anyone afraid of QE ending and the Nikki meltdown is already out of the market.  After everyone jumps out the window, markets stop falling because there is no one left to sell.  Understanding the relationship between supply and demand is far more helpful when trading than anticipating market moves based on fundamentals.  Many claim the market is irrational when it doesn’t behave as expected, but the truth is markets are extremely logical when we understand what really drives price.

TRADING OPPORTUNITIES
Expected Outcome:
Expect the choppiness to continue while prospective buyers remain gun-shy and downside moves fizzle when they fail to shake existing holders out.  Market plunges are emotional and quick.  Holding 1600 for a couple of weeks broke any downside momentum and deflated much of the fear-based hype bears built up.  Look for the market to trade sideways for the remainder of the summer.  Currently we are at the lower end of that range and the market remains buyable.  But as we’ve seen over recent weeks, we need to capture profits early and often because they will likely evaporate days later.

Alternate Outcome:
Recent support at 1600 could be nothing more than a bull-trap.  Selling begets selling, so any major violation of support could shake the resolve of previously confident holders.  The best way to avoid all the emotional selling is using stops to get us out.  Continued trade near 1600 means we must remain defensive.

Trading Plan:
We continue holding support and are at the lower end of the range, making the market buyable.  Given this market’s propensity to bounce, shorting it before it breaks support cost late bears a lot of money.  Short the bounce or violation of support, but don’t short tests of support.    And like always, often the best trade is sitting this choppiness out.  There are better things to do than chase our tails all summer.

NFLX daily at 1:56 EDT

INDIVIDUAL STOCKS
AAPL closed under the 50dma for the first time in a few weeks.  So far it has not set off a cascade of stop-loss selling, which is encouraging, but it is also discouraging the stock cannot leverage this stability to entice dip buyers back into the stock.  At this point the best trade is buying the breakout or shorting the breakdown   Right now it is just dead money.

GLD remains between $130 and $140 following the recent plunge.  Just like AAPL, we are better off trading a breakout or breakdown.  Once the market gets past this uneasy period between QE and Japan, look for more selling in gold as the willingness to pay a safety premium dwindles.

NFLX is finding support at the 50dma, but for it to flash a legitimate buy signal, we need to see strong volume on the bounce, something absent today.

Plan your trade; trade your plan

AM: Weakness persists

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:51 EDT

AM Update

MARKET BEHAVIOR
Stocks struggled for a second day.  We opened higher, but slipped under 1620 by midday.  Failing support set off a brief wave of stop-loss selling, but the market quickly regained its footing at 1615.

MARKET SENTIMENT
Stocks had another invitation to breakdown as we dipped under previous support, but arresting the slide so quickly shows there is not a lot of sellers with tight stops at levels.  We are always looking for clues to what the market thinks and how it is positioned.  Bouncing at 1597 last week, 1622 yesterday, and 1615 today shows there is little excess fuel to propel a major breakdown.  Obviously any bull would like to see the market climb instead of consolidate, but recognizing the environment we are in makes it easier for us to identify the next high-probability trade.

An analogy is a prairie in the middle of fire season.  Sometimes the fire danger is extreme, other times low, it all depends on the environment.  At 1687 the fire danger was high because there were so many new buyers with weak resolve.  The resulting 90-point selloff swept through the market and burned most of the excess brush.  The ground is still smoking and we have dips like yesterday and today, but the fire danger is actually quite low simply because there is so little fuel left since most of it was consumed in the previous fire.  Today’s and yesterday’s flare ups didn’t go anywhere because there was nothing left to burn.

Obviously the market is more opaque than a prairie, so we are only guessing on how much fuel is remaining, but seeing perfect selling opportunities stall shows there is not a lot left to catch fire.  This doesn’t mean the risk is zero and we must always defend ourselves, but success in the markets comes from trading probabilities and right now a bounce is more likely than a continued selloff.

TRADING OPPORTUNITIES
Expected Outcome:
The rebound is struggling, but is not surprising given how nervous buyers are.  The encouraging thing is holders continue holding these dips under support and shows they are committed to their positions.  Continued selling seems unlikely and this is the safest place to own the market in over a month.  Keep buying dips and selling rips.

Alternate Outcome:
No matter how resolute a trader appears, everyone has their breaking point and nothing crushes a holder’s will like seeing the price move against him.  While current holders are comfortable with a 10 or 20-point selloff, anything bigger could unleash a new wave of selling.  As long as we stick to our stops we will avoid getting caught up in the ensuing panic.

Trading Plan:
There is no reason to sit through this summer’s chop, but if someone is compelled to trade, the better position is long this market.  The new low to watch is 1615 and major support is at 1600 and the 50dma.  We need to be increasingly defensive under 1620, but at this point the risk reward does not work for shorting.  Failure to hold support changes things and we will evaluate that situation if we get there.

Plan your trade; trade your plan

AM: Dragged down by Japan

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:56 EDT

AM Update

MARKET BEHAVIOR
Stocks opened weak following turmoil in Japanese markets, but US markets brushed off those worries and reclaimed a chunk of the early losses.

MARKET SENTIMENT
There are plenty of issues in Japan, but current volatility is largely driven by an over-crowded hedge fund trade going long the Nikki and short the Yen.  It was guaranteed easy money until it started falling apart a couple of weeks ago, no doubt execrated by margin calls on over-leveraged hedge funds.  But that is there and this is here.  We live in an interconnected world and some of that spills over, but remember the US markets are leaders, not followers.  Bearish traders trying to get a jump on the expected breakdown in our markets shorted US stock futures overnight, but much to their dismay, the US market bucked the trend bounced just minutes after the open.

From a supply and demand point of view, much of the selling in US markets took place last week, meaning there was little supply left to continue a breakdown.  Fundamentals or not, the market bounced because there was no one left to sell.

TRADING OPPORTUNITY
Expected Outcome:
Everyone wants a strong market to pullback so they can get in at lower prices, but every time they get what they asked for, they become paranoid and are afraid to buy the dip.  Last week’s selloff gave people a chance to get in at 1600, those that missed Friday’s strength had another chance this morning.  The market is entering a volatile range as we consolidate recent gains.  Don’t get greedy and lock in long and short profits early and often.  We can trade the breakout when it happens, but as long as we remain inside 1600-1700, swing-trade it.

Alternate Outcome:
Today’s weakness shows some buying restraint by those watching the bounce from the outside, but we are still well above the 50dma and 1600.  Falling back to this level so soon after testing them shows buyers are scarce and the breakdown is finally here.

Trading Plan:
Shorts that failed to cover last week can use this weakness to take profits.  Staying above 1622  means the bounce is still intact and buyable.  Falling under 1622 over the next couple days is a red flag and demonstrates lack of demand.  Outside of that, look for the market to trade up to 1670ish over the next couple weeks where we will take profits and short weakness.

Plan your trade; trade your plan

AM: No profit taking yet

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:49 EDT

AM Update

MARKET BEHAVIOR
The market is holding current levels following last week’s bounce off the 50dma.

MARKET SENTIMENT
Traders are not selling the rebound, showing renewed support following a nerve-wracking 5% pullback.  Most unsustainable bounces fail within a couple of days as the dip-buying dries up.  Trading flat is encouraging and holding here through Tuesday shows the runaway selling is over.

Much of the selloff was driven by predictions and anticipation of the widely expected selloff.  This flushed out many momentum based bulls, but after a certain point we run out of people willing to sell and that point was last Thursday.  If recent dip-buyers are optimistic, they will continue holding for higher gains instead of quickly flipping the stock and locking in profits.  Keeping supply tight is what will keep the rebound going.

TRADING OPPORTUNITY
Expected Outcome:
Holding these levels through Tuesday means anyone betting on a market crash is going to be disappointed.  We shouldn’t expect the rally to continue racing ahead and sideways consolidation is normal.  Buy weakness and sell strength.

Alternate Outcome:
Buying the dip is the most predictable and tired trade of the last six months.  One of these days it won’t work and the masses jumping in will get run over.  While the trend is our friend and we need to assume every dip is buyable until they are not, we cannot be nieve about it.  Be deliberate with our entry points and always use stops to protect us from the inevitable time when we get it wrong.

Trading Opportunities:
It is a little late to buy the dip, but continued support gives us the green light to continue holding.  We are likely falling into a range between 1600 and 1700, but trading it is far easier said than done.  At any point within this range the market can bounce or breakdown, making timing entries and exits difficult.  In situations like this buy weakness and sell strength, taking profits when we have them and look for the next entry.  Getting greedy and holding too long will likely lead to those profits evaporating.  An alternative for more sophisticated traders is selling time premium in the option market.

For the near-term we likely have more upside left in the bounce, but keep a hard stop-loss under 1600.  Failing to hold this level so soon after testing it means more selling is in store.  If we break 1650, that is a good place to move up a trailing stop.  If someone likes the gains they made over the last couple days, there is nothing wrong with cashing those in too.

INDIVIDUAL STOCKS
This is AAPL‘s big developer conference key-note.  While the stock started higher, it’s been flat to slightly lower once it started, but channeling Job’s ghost, expect Cook to save the good stuff for the end.  Right now investors are looking for another home run and will likely leave disappointed with a base hit.  A music service is a sideshow, the real meat will be hints on a large screen phone and a cheap phone, two markets AAPL is currently giving away to Android.

Plan your trade; trade your plan

AM: Bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:12 EDT

AM Update

MARKET BEHAVIOR
The bounce continues for a second day as the market pushes back into the middle of the 1600/1700 range.

MARKET SENTIMENT
The headline event was the monthly employment report.  175k new jobs appears just right, not too hot to threaten QE and not too cool to signal economic weakness, or at least that is how the talking heads are spinning it.  Truth is we are up again because we ran out of sellers yesterday.  The market moves on nothing more than supply and demand.  Tight supply equals higher prices.

It is another painful day for aggressive and greedy shorts who failed to lock-in profits.  Many of the late shorts are forced to cover at a loss and their buying is a big part of today’s lift.  The flashing neon warning sign for bears was bouncing after breaking 1600 yesterday.  When the violation of support failed to trigger an avalanche of stop-loss selling, that was our signal we were running out of sellers.  If a bear’s investment thesis predicted a swift drop after breaking support, not seeing that move was a sign something was wrong and it was time to lock-in profits.

But that was then and this is now.  Where are the markets headed?  Is today’s bounce a bull-trap or a buying opportunity?  All the anxiety surrounding recent weakness flushed nervous holders out, replacing them with confident traders willing to buy the fear.  As anxious and paranoid as traders feel in the aftermath, a 5% pullback is very therapeutic and often all the market needs to refresh itself.

Source: Yahoo Finance 6/7/2013

The crowd remains bearish here, meaning the contrarian trade is still believing in this market.  This morning there was a Yahoo Finance poll prior to the jobs numbers showing only 24% believe the economy is getting better.  It shouldn’t surprise anyone the market bounced again.  When everyone is constantly talking about how “overly bullish” the market is, the crowd is bearish, not bullish, and the contrarian trade is sticking with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
The market can do one of three things; up, down, or sideways.  The pervasive bearishness and recent flush exhausted the supply of sellers and the bounce killed any downside momentum, meaning a crash is unlikely.  The market had a huge run in the first five months of this year and continuing that rate of gains seems unlikely.  The only thing left is trading sideways.  Recent trade likely set boundaries for the range between 1600 and 1700.  Sell strength and buy weakness.  Let profits grow to a worthwhile amount but don’t wait too long because they will likely disappear a few days later.

Alternate Outcome:
If we expect a trading range, the alternate is a directional move.  The outside limits of this range appear to be 1598 and 1687, but for simplicity’s sake lets call it 1600 to 1700.  The biggest threat is a near-term pullback to 1600 and likely means the rally is in trouble.  Breaking out to the upside means the rally is not done, but up-legs are slower and more deliberate than selloffs so we have plenty of time to jump on the rally bandwagon if that is the direction it goes.

Trading Plan:
Stay long until we get to the upper half of the trading range and then follow with a trailing stop.  Shorts should lock in any profits if they have some left.  Buy weakness and sell strength until we break out of the 1600/1700 range.  Swing trading a range is hard because we don’t know exactly what strength and weakness is.  Rather than get greedy trying to capture all of a move, build up some profits over a couple of days, lock them in, and look for the next trade.  More experienced investors can short or sell options.

TSLA daily at 2:14 EDT

INDIVIDUAL STOCKS
In addition to the exciting new square icons for iOS7, we can look forward to iRadio.  Lets hope it will drive new phone sales like Ping, iCloud, and Apple Maps.  No doubt iRadio will add some incremental revenue from existing users, but AAPL doesn’t have a revenue problem, they have a market share problem.   Without some new, must have feature, they will continue losing market share to Android.  People already have a Pandora account and all their friends are on Spotify, so I don’t see where iRadio fits in and it is nothing more than a late, platform dependent, me-too product.  I’m sure most don’t even remember Ping, but that was Apple’s attempt at a social network built into iTunes.  It was a gigantic flop because it was late and didn’t provide anything new for users.  Unless iRado offers something that blows away Pandora and Spotify users, expect another iFizzle.

GLD is down again as the volatility continues.  There is no reason to hold gold here until it breaks and holds $140.  It no longer provides safety and stability for a portfolio and the widely expected hyper-inflation just isn’t happening.

TSLA is sending shorts running for cover…again.  Shorting this stock is a suicidal game, but if someone can’t help themselves, at least take profits quickly because invariably it will bounce.   This is a nice swing-trading stock for nimble, fast, and courageous day-traders, but everyone else should watch with fascination from the sidelines.

Plan your trade; trade your plan

PM: What comes next?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Dramatic turn of events as the market briefly penetrated 1600 following a sharp, midday slide, but rebounded decisively and finished up  0.9% for the day.  Volume was average, but slightly less than the recent down days.

MARKET SENTIMENT
With the expected bounce is behind us, we need to figure out if this is simply a temporary reprieve before further selling, or just another bear-trap on the way higher.   The problem for us is it easily could be either.

The selloff was becoming obvious, a little too obvious, as both holders and shorters anticipated a larger correction and sold preemptively into the weakness.  This proactive selling took much of the supply out of the market and made this bounce inevitable as selling exhausted itself.

We violated widely followed support, but failed to trigger an avalanche of selling.  That is an extremely revealing piece of information when it comes to evaluating how other traders are positioned and what they think.  Breaking the 50dma and 1600 was the point where everyone should have rushed for the exit at the same time, yet they stayed in their seats, leading to the bounce higher.  This shows most holders are not spooked by the dip and their resolve (or stubbornness) caused today’s bounce.

The interesting thing about this bounce is blunted all the momentum bears built up over the last two weeks and now puts bears on the defensive.  As far as sentiment goes, this is potentially a game changer.  It brings confidence back to nervous bulls and makes bears doubt themselves.

Friday we have the monthly employment report that will be good for some early volatility, but after a couple of hours it will be long forgotten and we will resume trading the supply and demand skew that lead to the recent selloff and today’s rebound.

TRADING OPPORTUNITIES
Expected Outcome:
The ball is in the bull’s court following today’s bounce.  Expect the rebound to continue for a couple more days as we squeeze shorts that overstayed their welcome.  From there it will be a a coin-toss if we continue to the upper end of the range or retest the lows.  Either way we are likely heading into a range bound market for the remainder of the summer and the best trade is buying weakness and selling strength.

Alternate Outcome:
Once the short-squeeze runs its course, the market could collapse due to a lack of demand if buyers continue avoiding this market.  It makes no difference what the fundamentals or technicals say, if we cannot find new buyers, the market falls under its own weight.

Trading Plan:
Buy the bounce with a stop under today’s low.  Shorts should lock-in profits before they evaporate.  We are moving into a choppy market and if we don’t capture profits early and often, they will likely disappear.  1600 is still the line in the sand.  Retreating under it over the next couple days shows buyers cannot support this market and we are likely headed lower.  But if we hold 1600, look for a move to the upper end of the range.  Until this market breaks-out/breaks-down, buy weakness and sell strength.

Plan your trade; trade your plan