Category Archives for "Free Content"

Which Side I’m On

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

On Thursday the S&P500 ended down a modest 0.1% following Wednesday’s gigantic reversal. Thursday started weak, but we quickly found support at 2,080, effectively extinguishing the emotional trade that dominated Wednesday. If the market was vulnerable to a collapse, sellers would have piled on this morning’s weakness and the downward spiral of emotional selling would have resumed. Instead, supply dried up and we traded sideways the rest of the day.

It’s cliché to say “don’t fight the tape”, but fighting this market has practically become a national pastime. Sentiment remains in the toilet by almost every measure. Stocktwits $SPY sentiment had bears outnumbering bulls by 2-to-1. The historically bullish AAII sentiment survey also shows bears beating bulls by a healthy margin. Identical trends are evident in put/call ratios and short interest. And anecdotally it is hard to get away from the bearish hecklers in my blog’s comments and Twitter feed. Everyone loves hating on this “overvalued” market, yet here we stand less than three-percent from all-time highs. When the crowd and the market don’t agree, my money is always on the market.

Jani

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A Day to Remember

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

This was a day traders won’t soon forget. Contagious overseas selling dragged the S&P500 down nearly 1.5% before lunchtime. By itself this was a striking move, but the day was only half over and the second act was even more impressive as we rebounded to close in the green! We’ve grown accustomed to daily moves that measure a quarter of percent in this dull and slow market. We haven’t even moved outside a 5% range all year-long, but somehow we managed to slide across 3% in one day! Amazing.

Unfortunately for many traders this wasn’t the good kind of amazing because it convinced them to trade reactively, a.k.a. sell-low and buy-high. And honestly I cannot fault anyone who was fooled by these dramatic moves. Sometimes the market gets the better of us and this was easily one of those days.

After this move made both bulls and bears look foolish, we are left wondering what comes next. Clearly the selling could have spiraled out of control because nothing shatters confidence like screens filled with red. But supply dried up near 2,050 support and we bounced. This rewarded those that held the dip and Pavlov would tell us they are even less likely to sell the next one. This was yet another example of a market that simply refuses to breakdown. While the obvious interpretation of today’s bullish reversal is, well bullish, nothing in the market is ever that clear-cut.

A breakout above all-time highs is extremely likely given this market’s refusal to breakdown, but emotion is sky-high and chances are this will be anything but a smooth ride. While confident owners are keeping supply tight, it will take a bit of time before recent sellers warm back up to this market. Whether is it lingering fear, or a refusal to admit making a mistake, many of these sellers will stay in cash until prices climb so high they stop fearing a correction and start fearing being left behind. Often we see prices snap back aggressively from extreme oversold levels, but it is hard to claim a 2.5% dip from all-time highs qualifies as extremely oversold. Today’s rebound tells us the path of least resistance is higher, but it will probably continue to be a bumpy ride.

Jani

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Finally New News

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

Tuesday was a tough day for the S&P500 as it gave back most of Monday’s gains. We fell back under the 50dma and 2,100 support, but managed to hold the 200dma. Volume was slightly above average, but relatively constrained given the size of the decline.

The Chinese government surprised everyone with an unprecedented yuan devaluation. This sent investors the world over scrambling for cover. While there is a direct impact from a weaker yuan and stronger dollar, that pales in comparison to the inflamed fears of a slowing Chinese economy.

The market can quantify and digest currency moves in a day or two. This is a negative for export dependent economies like Germany, but a weaker yuan actually helps net importers like the United States since it lower input costs for many of our companies. That’s why stocks like WMT were higher when everything else was down.

Reacting to the currency move alone, the response in US markets seemed overblown. But it wasn’t the currency move that spooked traders. They feared the reasons the Chinese government felt compelled to act so brashly. Between slowing Chinese growth, a crashing Chinese stock market, and now this, traders are starting to fear worse than expected weakness in the world’s second largest economy.

This situation leaves the market in a precarious position. Prices defied countless bearish headlines this year from Grexit to rate hikes, but those were largely recycled stories that we’ve lived with for years. China weakness on the other hand is something new and unexpected. Investors that weren’t bothered by a Grexit or 0.25% rate hike are rightfully concerned by these Chinese headlines. While there is a good chance this is just another blip on our way higher, this is the most serious situation we faced all year.

Things are too uncertain at the moment to predict which direction the market will go next, but I’m confident whatever happens, it will be dramatic. Maybe this is what finally breaks the camel’s back and triggers the long-awaited correction. However, if a crumbling Chinese economy cannot bring down this market, then nothing will and all we can do is hang on and enjoy the ride. The next couple of days will give us good insight into the market’s psyche. Either selling intensifies and we plunge to levels not seen in years. Or the emotional selling exhausts itself and we rebound to new highs like we have so many other times.

Jani

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The Sky is Falling

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 sliced through 2,100 support and fell all the way to the 200dma before mounting a feeble bounce into the close. Traders clearly took notice as volume surged to the highest level in over a month.

Today’s selloff clearly rattled nerves and has many fearing worse things to come. Money managers, gurus, and journalists all smell blood in the water. And they’re not the only ones. The Stocktwits $SPY sentiment gauge swelled to 63% bearish. Bullishness on AAII’s sentiment survey is hovering near five-year lows. The CBOE Put/Call ratio spiked today to levels only seen a few times in the last five-years. And Investor Intelligence reports 58% of investment advisors are bearish. It seems everyone lost confidence in this market.

Given how bearish these indicators are, you’d think we are in the middle of a long and deep correction. The funny thing is we are only 2.4% from all-time highs. The most plausible explanation is a highly insightful crowd and savvy pundits see the storm clouds brewing and are getting out ahead of the long-awaited correction. That is of course if you think pundits and the crowd are good at identifying important turning points.

As a devout contrarian, if the crowd get this right, I’ll eat my hat. I really don’t want to eat my hat because I really like it, but I don’t have anything to worry about. It’s not because the crowd and gurus are stupid. Intelligence has nothing to do with it. Supply and demand drives market pricing and by rule the majority’s opinion is already priced in. Common sense tells us that anyone anticipating a correction would sell their stocks ahead of time. From this we can infer the large majority of people with bearish outlooks are at the very least underweight stocks. If that’s the case, then most of the selling is already behind us and this is the safest time to buy and hold stocks in quite some time. No one said being a contrarian was easy, but to make money we have to make the hard trades.

The headline event everyone is looking forward to is the monthly jobs report due before Friday’s open. While the media hypes this up every month, it’s been years since this report made a lasting impact on prices. This Friday will be no different. Expect early volatility, but the numbers will be forgotten by the close.

Jani

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What to Expect from Rate Hikes.

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 failed to reclaim 2,100 support after falling under this widely followed level Monday morning. Volume was light again as few traders chose to adjust their portfolios based on anything they saw or heard Tuesday.

Greece and China are ancient history as Puerto Rico, AAPL, July employment, and rate hikes dominate headlines. While the stories have changed, the results are the same; bearish headlines and resilient prices. The market is down eight of the last eleven trading sessions, but we remain within two-percent of all-time highs. Bears have plenty of reasons to criticize this market, but owners don’t care. When they don’t sell, supply is tight and prices strong.

Even though the broad market is holding up, AAPL sliced through its 200dma Monday and continued plunging Tuesday to the lowest level the stock’s been since January. This drop leaves many AAPL bulls perplexed because there isn’t a fundamental driver worthy of a 15% selloff, but that is how markets work. Prices go up and they go down, even when there isn’t an obvious reason. But there is always a reason, even when we don’t see it. Lately everyone’s been on the AAPL bandwagon as iPhone 6 sales knocked the ball out of the park, but recent developments in China lead many to question if the China growth will still be there. That was enough to weaken prices and from there the selling snowballed. Today’s look looks like capitulation and there is a good chance the stock will rebound to the 200dma. How it responds to this level will let us know if this is a false bottom on our way lower, or just another great buying opportunity on our way higher.

The other major story traders are worried about is the Fed’s first rate hike, but paradoxically raising interest rates will actually be a bullish catalyst. We saw this phenomena last year with the start of the dreaded Taper. Everyone expected the end of quantitative easing would depress prices because it meant the end of easy money used to bid up stocks. In reality we saw the opposite. The start of Taper spawned a great year for stocks because a reasonable and predictable Taper replaced the uncertainty that preceded it. Expect this market to follow a similar pattern once the Fed’s rate hike plan is formally announced.

While it is always nice to watch my account swell in value, I’d actually be more concerned about the sustainability of these levels if prices were wedging higher. That is when the last of the buyers are coming to market and we are on the verge of exhausting of demand. Selling like we’ve seen in recent days chases off the weak owners and clears the way for a sustainable move higher. The harder part is figuring out the exact timing of the breakout. It could happen tomorrow. Or we could slip a little further and retest the 200dma before launching the next move higher. While I cannot predict the exact timing of the next move, I’m confident it will be higher. When market is given every excuse to breakdown, but it stubbornly holds near the highs, that tells us the path of least resistance is higher, not lower.

Jani

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Testing Support

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 tested the resilience of 2,100 support for a fourth day. We sliced through this key level early in the day, but recovered most of those losses before the close. Volume was average for these typically slow summer months, but well short of the elevated levels seen in recent weeks.

Summer markets are often choppy when institutional investors are on vacation. Without big money’s steady hand, smaller and more emotional traders drive these erratic price swings. But these smaller traders don’t have the account size required to push sustainable moves and is why prices jump around, but ultimately don’t go anywhere. This phenomena perfectly describes the trade we’ve seen in recent weeks; dramatic, but unproductive.

Much to their detriment, these smaller traders pile in and out of the market following every gyrations. They reactively buy when prices go up, and reflexively sell when they go down. While everyone knows it is foolish to buy high and sell low, that is exactly what most of these small traders do. There are times to buy breakouts and sell breakdowns, but sideways markets is definitely not one of them.

While it is tough to be brave when prices fall and cautious when they go up, that is exactly what we need to do. There is no reason to be afraid of today’s weakness and break of support. We didn’t collapse when headlines were shouting Greek Contagion and Chinese Bubbles, so why should we all of a sudden be afraid they are going to fall on us now? Markets have been given every opportunity to implode this year. If that is what they really wanted to do, it would have happened already.

Jani

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Gut Check

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 extended Tuesday’s rebound and reclaimed 2,100 support. Volume was above average for the sixth consecutive day and shows there is far more participation in this market than the typical, dull summer sessions.

Chinese and European fears are fading fast. We passed the halfway point in earnings season without major problems. And the Fed is sticking to their script. In all, things are becoming boring, but given where we came from, boring is good and that is showing up in stock prices.

No matter how many reasons people have for not liking this market, prices are within two-percent of all time highs. When forced to choose between the crowd and the market, I always go with the market. It isn’t that the crowd is stupid, only that their opinion is already reflected in stock prices and there is nothing to be gained by trading with the crowd.

Contrary to popular opinion, prices don’t have to go down to price in bad news. Another way is by not going up. We’ve been in a tremendous bull market since the 2009 lows, but 2015 has been a dud as we’ve done nothing but drift sideways. Few would argue with me if I said this market would be significantly higher if we had been showered with good news. While we haven’t seen the 10% or 20% correction everyone is predicting, the difference between where we are now and where we would be if the news was better, is our “correction”.

This market has been given every opportunity to breakdown. If it was poised to go lower, it would have happened already. When the prices refuses to go down, no matter what our analysis or gut tells us, stick with the market.

Jani

Calm and Orderly Selling

By Jani Ziedins | Intraday Analysis

End of Day Update:

The S&P500 slipped modestly following disappointing earnings from AAPL and MSFT, but it wasn’t all bad. Even though these titans of tech shed billions in market cap, the selling didn’t spread much further than the tech sector. If the market was overbought, this was more than enough of an excuse to breakdown. How contained the selling was shows owners remain confident and are supporting these prices. This resulting tight supply makes it easier for the rebound to continue to new highs.

It is no surprise that we pulled back following a 89-point run from 2,044 to 2,133. There is nothing concerning about this move because it is normal and healthy. Finding support at 2,100 and the 50dma is the obvious level, but chances are we won’t make it that far given how benign today’s selling was.

Jani

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The Pause that Refreshes

By Jani Ziedins | End of Day Analysis

S&p500 daily

End of Day Update:

The S&P500 produced minor gains for a second consecutive day following the impressive, 90-point rebound from the 200dma. We closed just under all-time highs as European and Chinese fears fade from memory.

This calm tells us both sides are happy with their positions and not many participants are changing their mind. Those with stock continue holding for higher prices while those with cash are not interested in chasing a “straight-up” move. That means we trade quietly until one side gives in.

The “end” of the Euro and China crises lead to a sharp recovery that humiliated bears. Their short-covering provided a material portion of the demand that pushed us back to all-time highs. But in recent days the dip buying and short-covering has slowed materially.

Powerful breakouts are built on a surge of traders climbing over each other to avoid being left behind, but that isn’t the case as we approach old highs. Even huge moves in NFLX, AAPL, and GOOGL failed to excite the broad market. Rather than accelerate, gains are slowing even though the news keeps giving us reasons to buy. This tells us demand is falling off. By itself, this is not a reason to be bearish, but it shows there is less upside pop left to this move.

Constructive price-action through Wednesday shows solid support behind these prices, but it wouldn’t be a surprise to see us dip back to 2,100 support and the 50dma. Institutional money hates buying after big moves and feel better if they can get even a modest discount. In a self-fulfilling prophecy, their lack of buying often leads to a dip. But no matter what happens in coming days, the market is poised to breakout into uncharted territory in coming weeks.

Jani

Should We Worry About China?

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500 traded in a tight range as Greek politicians debated the merits of an oppressive bailout and Janet Yellen testified in front of Congress. Given the magnitude the issues being discussed, it was a fairly benign day for the markets. The calm shows us most of the nervous and emotional selling already happened. The current crop of owners demonstrated a willingness to hold volatility and uncertain headlines over the last several weeks. This confidence keeps supply tight and props up prices.

While rate hikes and Grexits are old news, the situation in China is entirely different. Greece is tiny and most financial institutions long ago insulated themselves against a Greek default. And for the Fed’s rate hikes, going from 0% to 0.25% is trivial in comparison to the 3% historical average.

Problems in China, that is something our market is definitely not prepared to deal with. A recession in the world’s second largest economy would leave a gigantic hole in global growth. That is why traders fretted last week when the Chinese stock market plunged 40% from its recent highs. Luckily their stocks bounced sharply in recent days and this crisis fell off our front pages. That relief allowed our 60-point rebound.

NASDAQ historical chart

Should we worry about China? Should we ignore it? What should we do? Let history be our guide. Assume for a moment that China’s stock market is in the later stages of a NASDAQ, dot-com style bubble. If that’s the case, China’s selloff has a long way to go to match the NASDAQ’s 80% plunge. Clearly we should be panicked and sell everything, right?

Not so fast. Markets hate being predictable. When everyone claims the bubble is bursting, what is the market going to do? You guessed it, rally sharply. While it seemed like the dot-com bubble imploded overnight, the NASDAQ actually took three years to find a bottom. That collapse is many things, but fast is not one of them.

More interesting for us is how the NASDAQ plunged nearly 40% from the highs over a couple of weeks. That sounds eerily similar to China’s recent meltdown. So what happened next in the NASDAQ? It rallied 40% and held those early lows for another seven months! Just when everyone knew the bubble was bursting, the market found a bottom. If history were to repeat itself, then at least over the near-term, China found a bottom and we don’t need to worry about it…..for now. Six months from now is when we need to reevaluate, but in the meantime enjoy China’s reprieve.

Jani

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Pausing or Stalling?

By Jani Ziedins | End of Day Analysis

End of Day Update:

It was a good day for the S&P500 as it broke above the two-week old, 2,050 – 2,080 consolidation. It seems reality in Greece and China is less bad than was feared last week. This move leaves us just shy of 2,100 resistance and a declining 50dma.

Our stock market has been flat through the first half of the year. Depending on who you ask, this is either pausing and refreshing, or stalling before rolling over. Technicals are little use in settling this debate because pausing and stalling look the same on a chart. The answer lies in sentiment and supply and demand. More specifically, understanding why the market is flat.

Are we failing to make new highs on good news? This is the classic “overly bullish” top and signals stalling because we are running out of new buyers. Or is our market failing to selloff on bad news? That points to refreshing because bearish headlines flush out weak hands and replaces them with confident owners who keep supply tight.

Everything is debatable on the internet, but for the objective crowd it is hard to claim the market has been showered with bullish headlines. Greece, China, rate hikes, lowered earnings estimates, and all the others. Bears have been feasting on almost universally bad news. If we were not allowed to look at charts and only went by headlines and sentiment, it would be easy to assume we are in the middle of a bear market. Short interest is the highest it’s been since the financial crisis and AAII bullishness is 10-points under historic averages. But yet here we are, two-percent from all-time-highs. What gives?

We could argue headlines and fundamentals don’t support these valuations and the market is on the verge of a collapse. The problem is that is arguing with the market. Right or wrong, the market is far larger than we are and will always win every single argument. In my opinion, it is quite clear. When the market doesn’t sell off on bad news, that is bullish. End of story. No doubt the we will eventually fall into a correction, it might even happen soon, but it won’t happen for all the reasons people are talking about.

Jani

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Do Over

By Jani Ziedins | End of Day Analysis

End of Day Update:

It was another frustrating day for the S&P500 as early strength faded into the close. We opened 1% higher following a monstrous rebound in the Chinese stock market. But rather than embrace the strength, nervous and regretful owners quickly jumped on the opportunity to sell higher prices. While we didn’t dip under Wednesday’s lows, we came darn close.

Shortly after our markets closed, all of Thursday’s price-action became irrelevant when Greece finally produced a palatable proposal that includes most of the austerity measures European leaders demanded. By itself that was enough to push index futures up three-quarters of a percent. But then the news got even better as China kicked off Friday’s trade with another gangbusters open. That nudged our futures above one percent.

Futures are often misleading and plenty of glitches can occur in China and Greece while the Western Hemisphere sleeps. But for the moment, the situation in China and Europe are looking less bad than was feared in recent days. This is a great example of why we should trade against the herd. Sell when people are confident like they were two weeks ago, and buy when they are fearful like they were today. It is against our natural instinct to go against the crowd, but there is a big difference between the skills that allowed us to thrive in the wild and what it takes to be successful in the markets.

Barring an overnight calamity in the Eastern Hemisphere, we should have another nice open Friday morning. Hopefully it sticks this time. But if sellers take over again, that is not a good sign and it tells us the bottom is not in yet. That doesn’t mean we need to join the panicked selling, but at least be prepared for a little more volatility.

Jani

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Where Did All the Sellers Go?

By Jani Ziedins | End of Day Analysis

S&P500 daily

End of Day Update:

It was another dramatic day for the S&P500. A brutal morning plunge undercut recent lows, the 200dma, and 2,050. This weakness sliced through most technical stop-losses, triggering a wave of defensive selling. But not long after those waves of autopilot liquidation ran through the market, supply vanished and we launched higher, ultimately closing nearly 2% above those fear-induced intraday lows.

Pundits claim the weakness was driven by this headline and the rebound motivated by that one. But the truth is far simpler than that. The market was acting in a predictable and typical way given sentiment, technicals, and supply & demand. Figuring out what was going to happen wasn’t that hard if we were looking at the right pieces of information.

Sentiment is in the toilet following this weekend’s “No” vote. Most analysts put the probability of a Grexit at far greater than 50/50. Anyone expecting an orderly resolution to this crisis is clearly in the minority these days. But since a Greek departure is now the widely held view, we know most of the defensive selling already happened. It’s common sense that anyone predicting an imminent market collapse is already sitting in the safety of cash. That tells us any bout of fearful selling like we had this morning would be short-lived because there are so few people left to sell these “new” Euro headlines.

Most of today’s weakness was fueled by technical stop-losses that defensive traders place near key price-points and moving averages. Undercutting last week’s lows forced disciplined traders to exit their positions. That selling then pressured others with stop-losses located near the 50dma and 2,050 to bail out not long after. But once we violated all the popular stop-loss levels, we ran out of new supply because only defensive technical traders were selling this dip. Since those that feared the Grexit already left, by default that means anyone still holding doesn’t fear these headlines and was uninterested in joining the herd selling. That’s why supply vanished and we launched higher after undercutting the last stop-loss level.

While today’s outside bullish reversal suggests we are near the bottom of this move, the situation in Greece and China is far from over. We should expect near-term volatility to continue, but this is a better place to be buying weakness than selling the fear.

Jani

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Can we finally buy the dip?

By Jani Ziedins | End of Day Analysis

S&P500 daily

End of Day Update:

After a “No” vote over the weekend, Greece has never been closer to departing the Euro, yet the S&P500 dipped a modest 0.4% on average volume. Is our market being naive and irrational ahead of Greece’s financial collapse? Or is the Grexit already priced in because everyone who fears it sold a long time ago?

Today’s price-action was constructive. Overnight futures cratered more than 1.5%, but as the sun reached our shores, the panic subsided. While we opened near last week’s lows, almost immediately the selling dried up and we rallied. Supply and demand wise, that tells us it is increasingly difficult to find owners still willing to sell the Greece story. The headlines were as ugly as ever, but few were willing to bail out at steep discounts.

It would have been nice to see prices dip under last week’s lows, the 50dma, and 2,050 before bouncing. This would have flushed out the last of hope and triggered technical stop-loss selling, setting up a traditional double-bottom capitulation. We didn’t get that, but the market never behaves exactly like it is drawn up in the textbooks. Maybe this last leg lower will happen later this week, or maybe supply is so thoroughly exhausted that there isn’t enough left to form a traditional double-bottom. Anyone insisting perfect chart patterns will miss a lot of good trades and so we have to ask ourselves if this is good enough?

The market was hopeful Greece and Europe would kick the can down the road two-weeks ago when it rallied to 2,130. Now that we find ourselves nearly 80-points lower, we can assume the dire headlines have convinced most traders to expect a Grexit. If the worst is already priced in, then this becomes a compelling place to buy because the potential upside far outweighs the remaining downside. While there could easily be a little more left to this dip, this is a far better place to be buying than selling.

Jani

Is it Safe Yet?

By Jani Ziedins | End of Day Analysis

S&P500 daily

End of Day Update:

Monday’s one-way selloff took a break Tuesday as we bounced modestly off the 200dma. The S&P500 reclaimed 2,070 twice through the day but was unable to hold those gains and closed closer to 2,060. Volume was even higher than Monday’s selloff as waves of nervous owners sold to eager dip-buyers.

Greece continues to dominate headlines, but now some are claiming Puerto Rico is the bigger contagion threat. I don’t see it, but if the extra excuse helps people rationalize their emotional trading decisions, then good for them.

Technically we still find ourselves above 2,050 support and the 200dma. Both levels provided meaningful support since late last year and that was enough for buyers to rush in and buy the dip. The risk is emotional selloffs typically end when we run out of emotional sellers. Today’s modest gains on elevated volume show there is still a decent number of sellers bailing out of this market. More interesting would be a low-volume bounce since that tells us we finally exhausted the supply of available sellers. Conventional wisdom claims we want to see a high-volume rebound, but given all the headline uncertainty, don’t expect aggressive buying to save the day. The way Greek politicians are handling the situation, a rational person wouldn’t expect a compromise since inmates are running the asylum.

The most encouraging trade would be holding 2,070 support over the next couple of days. That period of calm allows traders to make more rational decisions. The risk is if we slip under 2,050 and the 200dma, triggering another wave of reactive selling. I’m not encouraged by today’s high-volume, weak trade and it seems like prices still want to go lower. But even at the risk of further weakness, this is still a better time to be buying than selling. Stay strong and resist the temptation to join the emotional herd of sellers.

Individual Stocks:

$AAPL – Apple struggles alongside the broad market and it will continue to trade weak until the entire market finds its footing. There is no reason to sell AAPL here, but not much reason to buy it either.

FEYE daily

$EBAY – Ebay showed resilience around $60 support and the strongly rising 50dma. While all stocks are vulnerable to widespread selling, Ebay’s strength today showed many owners still believe in this story and are not ready to give up on it.

$FEYE – FireEye also found support at its 50dma, but the stock has a larger hill to climb since it finds itself more than 10% off of recent highs. The faster the rise, the harder they fall and clearly that was the case here. It is critical to avoid high-fliers during volatile periods because their drawdowns will be multiples of more conservative stocks, but the reward will be equally impressive once the stock reclaims $50.

$ALGN – Align continues trading well and is acting like it is immune to Greece all the other stories dominating headlines. This is definitely one worth keeping an eye on when the broad market regains its footing.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $ALGN

Is it too late to sell?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 plunged over 2% as Grexit fears launched into overdrive. We smashed through 2,070 support and closed a hair above the 200dma. Volume was elevated, but surprisingly low for such a dramatic move. No doubt the holiday-shortened week contributed to this slower than expected volume. Of course it would be more accurate to state it the other way; our slower than normal week contributed to this outsized volatility. When big money is on vacation, markets are often less stable, especially when spooky headlines get involved.

Two-weeks ago we traded near all-time highs when many investors assumed a Greek compromise was all but signed. This week we crashed to the lowest levels since winter as investors assume the Grexit is all but assured. This is a great example of why smart money trades against the herd. When everyone assumes the deal is done, then it is priced in and there is little upside remaining. That is the perfect opportunity to take profits and wait for the inevitable problems to arise. We’re in this to make money, not own stocks. The only way to beat this game is by taking profits when we are confident and don’t want to sell.

Lets get one thing straight, the Grexit is a non-issue for anyone not living and working in Greece. Our financial system had five years to manage, hedge, and otherwise reduce exposure to a Greek default. Most Greek debt is now held by European governments who can weather these losses. For them it isn’t a big deal because they didn’t enter into these positions expecting a profit, or even their money back. All they were doing is buying stability and time. And given that they delayed the inevitable Greek default by five years, they did a pretty good job. While a few politicians might lose their jobs and damage their legacy over this, the financial system will survive without Greece because of the time they bought us.

As for the markets, they are the most emotional when uncertainty is at its greatest. Many stock owners took a sell first, ask questions later approach to these headlines, offering their stock at a steep discount to anyone willing to take the risk. But as often the case, one person’s loss is another’s gain. The time to sell was two-weeks ago when we didn’t want to sell. Anyone with a longer-term view, today is the wrong time to sell. Resist the temptation to throw your trading plan out of the window and join the emotional herd rushing for the exits. For those lucky enough to be in cash, the best trades are the hardest to make. While we don’t want to recklessly buy every dip, we need to be prepared to jump in when everyone is convinced it will only get worse. That is the point where the last of the holdouts breakdown and hit the sell button. Once the last of the hopeful have given up, we run out of sellers and stop going down.

Individual Stocks:

Everything went down today because there is no safe harbor during an emotional dash for the exits. But once the anxiety passes, like it always does, the resulting price action will reveal which stocks are ready to lead the next leg higher. The stocks that fall the least and rebound the quickest show us who the true market darlings are because they’re stocks traders are most excited to own reluctant to sell. While it is a little early to be buying the dip, look for strong price-action and be ready to buy before everyone else does.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL

Grexit: Should We Care?

By Jani Ziedins | End of Day Analysis

End of Day Update:

The S&P500’s indecisiveness continues as last week’s rebound turns into this week’s selloff. The index slipped back under the 50dma and closed just two points above 2,100 support. Volume was average, but higher than recent lethargic, summer trade.

We received positive economic data and Obamacare news today, but Greece weighed on prices as another drop-dead date came and went without a resolution. The most noteworthy thing is for as fatal as Greek headlines have become, US stocks are proving incredibly resilient. The long feared Grexit has never been closer, yet we stubbornly remain within than two-percent of all-time highs. Hardly panic territory.

There are two ways to explain this complacency. Market participants have grown tired of Chicken Little’s false alarms and are ignoring this round of Grexit fear mongering. Everyone who sold the Grexit Part 1, 2, and 3 came to regret that decision as prices rebounded to new highs not long after. Many of those investors won’t be fooled a fourth time and are holding steady in the face of increasingly ominous headlines because they know a last-minute deal is right around the corner.

The other possibility is the market took a rational look at the risk posed by a Grexit and realized that with five-years of preparations, the fallout will have little impact outside of Greece itself. While I’ve written about the limited impact a Grexit for some time, I’m truly surprised the market is reacting so rational to this uncertainty.

The challenge for the speculator is figuring out which scenarios is driving this complacency because that determines the direction we go when Greece finally defaults. If the market assumes Greece won’t default, the default will trigger a panic selloff. But if prices are holding steady because rational investors realize Greece doesn’t matter, then a Greek default will be old news by lunchtime.

While don’t know what will happen next week, I know stocks are not being sold at a discount, meaning anyone buying this risk is not getting paid for it. As a trader I will happily hold risk for the right price. A few points from the highs is not a meaningful discount and is why I’m passing on this trade.

Individual Stocks:

$AAPL – Apple’s attempt to reclaim the 50dma failed for a second day as early strength faded into the close. There is no reason for long-term owners to abandon the stock, but it is hard to be excited about this price-action and the weakness will likely persist.

$EBAY – Ebay continues to trade well following its break above $60. While not a big momentum name, the stock is showing constructive strength by moving to multi-year highs ahead of the PayPal spinoff.

$FEYE – FireEye is searching for support following this week’s 7% pullback from last week’s highs. $50 provided minor support in early June and is trying to do the same here. The risk is predatory traders pushing the stock under $50 to flush out all the defensive stops under this obvious stop-loss level. For those looking to get into FEYE, a break under $50 but then quickly reclaiming it could signal the capitulation bottom of this near-term pullback.

$NFLX – Netflix stumbled from all-time highs after Carl Icahn revealed he closed out of his epically profitable trade. Upgrades, downgrades, and gurus hyping and bashing a stock don’t change the fundamentals. These statements are nothing more than one person’s opinion and their impact on a stock’s price is fleeting at best. There are many reasons to avoid NFLX, but what Icahn did with his position is not one of them.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $NFLX

Did Something Change?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

End of Day Update:

The S&P500 ended in the green as traders anticipate an imminent Greek deal even though the two sides continue to wrangle. This half-full outlook is a material departure from recent crises. Previously the market would devolve into a downward spiral of emotional selling over any headline uncertainty. Greece part 1, 2, and 3. Fiscal Cliffs. Sequester. Taper. Etc. But not this time. Hindsight being 20/20, we know those emotional selloffs were great buying opportunities. It seems traders finally picked up on that trend and are no longer interested in selling the dip for Greece part 4. While that was the right call those other times, is it the right call here?

The reason those other dips were buyable is because the emotional selling priced in the worst-case outcome. When reality turned out less bad than feared, we rallied in relief. But that is clearly not happening here as we rest less than 10-points from all-time highs while the Greek posturing and grandstanding drags on. Clearly this is anything but pricing in the worst-case outcome. What happens if the market assumes a rosy outcome and things turn out less well than expected?

While the market will likely be right this time, sellers are not offering steep discounts to own this risk ahead of a signed deal. That means two things. First, if prices are not repressed, then there is less upside when things turn out okay. Second, what if the market gets this wrong? Limited upside and plenty of downside? Not a trade I want to make and it is best to let other people own this optimism. The more interesting trade will be if this turns into a buy-the-rumor, sell-the-news. Something to watch for in coming days.

Individual Stocks:

$AAPL – Apple continues to be fairly unimpressive. No reason to sell it, but no reason to buy it either. The big headline is management caved to Taylor Swift’s demand that they pay artists during the Apple Music’s free trial. While that will cut into earnings by some token amount, the free publicity this generates will more than make up for it. While this will build extra awareness for the streaming product, competing with Spotify is a much higher hurdle than Apple’s failed attempt to dethrone Pandora with Apple Radio. People didn’t change from Pandora and they won’t switch from Spotify. We can give Apple credit for trying, but this clearly isn’t the innovation shareholders are hoping for.

ALGN daily

$ALGN – Align continues to show strength following last week’s dramatic test of support. This is the fourth day the stock held well above $60 support and this is telling us buyers, not sellers are in control. Wednesday’s emotional selloff actually built a bullish setup because it chased off many of the timid owners with tight stops. Anyone still in this name demonstrated that their finger is not anywhere near the sell button.

$EBAY – Ebay is recovering nicely from its test of $60 support. What was previously resistance is now a buying level for larger investors that want to accumulate this stock ahead of the PayPal spinoff. Another example of patience and discipline paying off.

$FEYE – On the other side of the coin, FireEye touched $55 last week, but is down two-and-a-half dollars since then. Those that were riding the easy money wave higher hit a speed bump. There is nothing wrong with the stock or the story, but common sense tells us it is unreasonable to expect a stock to go up day after day. Last week I suggested we were approaching a good time to lock-in some profits and buy back in a little lower. We stalled at $55, now we get to see if the pullback slips under $50 support before bouncing. The great thing about those that locked in profits is it doesn’t matter to them if we find support or not since they are watching this weakness from the sidelines.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $ALGN $EBAY $FEYE

Another Meaningless Fed Day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

It was a volatile Fed day with strong intraday moves in both directions, but the S&P500 only managed to hang on to a four-point gain by the closing bell. Volume was the highest in a week, but still repressed by the typically slow summer season.

The Fed didn’t say anything that surprised us and is why we finished near where we started. It would have been foolish to expect anything else since every other Fed statement this year failed to break us out of this trading range. The policy remains accommodative, but expect a token rate increase before the end of the year. While many speculators are afraid of rate hikes, the far bigger shock to the system was ending the Fed’s bond buying program last year. Not only did we survive that, but the market is up more than 15% from when the Taper started. Going from 0% to 0.25% in short-term interest rates is trivial in comparison to ending a trillion-dollar money printing operation.

The game of chicken in Greece continues as their politicians refuse to compromise and European leaders are reluctant to call their bluff. Some analysts claim the probability of a Grexit is now up to 50%. This is weighing on European markets, but the S&P500 is less than 2% from all-time highs. Similar headlines five-years ago sent shockwaves through the market, but this time the risk is far less since the financial system has had plenty of time to manage and hedge the risk posed by a Greek default. While we should expect some near-term volatility, the market holding near the highs tells us these problems in Greece are already priced in.

Individual Stocks:

$AAPL – Apple continues to underperform the broad market, closing in the red on a day where the indexes finished in the green. It seems some of the anticipation built up ahead of the Apple Watch’s release and the developer’s conference is slowly leaking out. The stock slipped under its 50dma and is more than 5% off of its 52-week highs. While there are no signs of an impending collapse, the stock might be settling into a sideways trading range.

ALGN daily

$ALGN – It was a dramatic day for Align as some of their patents came under threat. This dropped the stock $5 from the opening highs. While I’m not in the industry, I suspect ALGN’s branding and relationships with orthodontists are more of a moat than its technical patents. Long-term this won’t be a big deal and healthy competition is always good for business. But in the short-term, anything is possible as traders react emotionally. It is nice to see the price rebound and finish well off the lows. Three more closes above $60 and the storm will have passed, with the added benefit of scaring off the weak and emotional owners. Shakeouts like this improve the upside potential. But until then, treat this stock with extreme suspicion. There is a good chance today’s afternoon rebound will fizzle in coming days and we retest that $60 support.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $ALGN

The Greek Rally

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

End of Day Update:

It was an interesting day as the S&P500 rebounded from yesterday’s selloff. The chart doesn’t suggest this bounce is any different from all the others that failed. The gains were modest, we closed under 2,100 resistance, volume was below average, and we continue making lower-highs. The notable exception is the situation in Greece deteriorated materially, yet the market rallied.

We easily could have crashed a couple dozen points as Greece’s politicians refused to negotiate with European leaders. That’s what common sense says should have happened, so why didn’t it? The thing many speculators fail to understand is headlines, fundamentals, and technicals don’t move markets. Only people changing their outlook and making adjustments to their portfolio drives price. It doesn’t get any more simple than that. Shifting expectations and the resulting buying and selling move prices, period, end of story.

Puting today’s move in context, stock owners read the Greek headlines, shrugged and went about their business. The reason we didn’t see the “common sense” selloff is every owner who fears the Grexit is already out of the market. When there is no one left to sell the news, it no longer matters.

Today’s price-action is telling us Greece isn’t a big deal anymore. Without a doubt these headlines will continue to drive volatility, we could remain range-bound, and will likely see a kneejerk selloff when Greece finally defaults and gets the boot, but today’s trade tells us this will be a short-lived move since most of the Grexit sellers are long gone. The way to trade the volatility is to continue buying the dip. While this market will eventually crash, it won’t be because of something everyone is talking about. Remember, people don’t get hit by the bus they see coming.

Individual Stocks:

$AAPL – Apple is mirroring the indexes and it’s fate rests with the rest of the market. Last week’s developer conference came and went without a major catalyst and it will be a while before we have another one. There is no reason to sell the stock, but there isn’t much to get excited about either.

$EBAY – Fairly dramatic move today. The day started with a bang as the stock popped a dollar and a half at the open, but the move quickly fizzled and we finished with a much more modest fifty cent gain. While I’d prefer to see more constructive price-action than this intraday reversal, we remain above support and today’s pop shows the explosive potential remains to the upside. We are close to the breakout point and we need to watch this one closely, but it isn’t time to pull the ripcord yet. Failing to hold $59 and we will be forced to reconsider.

$ORCL daily

$FEYE – FireEye continues to ramp up. While it is exciting to see these gains pile up day after day, owners should be shifting to a more defensive posture. We’re close to a 20% gain from the breakout point and it wouldn’t be a surprise to see the stock pause near $55. While it could easily continue racing higher, only a fool would be disappointed by locking in a 20% gain over a few weeks. A more aggressive stance is moving up a trailing stop and letting it ride. We have modest support near $50, but there is a good chance a near-term pullback will under cut $50 for no other reason than chasing off all the owners with a stop under $50. The proactive trader that locks in profits near $55 could reenter following the $50 undercut and bounce.

$ALGN – Align is marching ahead and pennies away from eclipsing January’s intraday highs. At that point virtually everyone in the stock will be sitting on profits and excited to see them continue growing. Confident owners keep supply tight and prop up prices. An Ebay style pullback to $60 is possible so it is riskier to chase if someone isn’t involved yet.

$ORCL – In the big-cap space, Oracle is getting interesting. Today’s 2% gain on 60% above average volume makes this worth a look. We’re on the verge of breaking through the upper end of the $45 trading congestion. After that, the only thing holding us back is last December’s $46 highs. Clear this and we’ll be making multi-year highs. While not as exciting and fast-moving as some of the smaller growth stories, profits are profits and some slow money offsets the volatility from more speculative holdings.

Jani

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Tags: $S&P500 $SPY $SPX $AAPL $EBAY $FEYE $ALGN $ORCL