Category Archives for "Free Content"

Where’s the fear

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks pushed ahead to new highs following Janet Yellen’s confirmation hearing.  We are just a few points from 1800, something that was unthinkable only a month ago.

MARKET SENTIMENT
It feels like there are only two opinions in the market, that stocks will keep going to the moon or we are in a bubble about to burst.  Where is the middle ground?  The people who say we need to take a breather and digest recent gains before marching higher?  Where are the nuanced opinions that say we need to pullback to the 50dma or traders should lock-in profits?  All I hear are these two polar extremes of buy, buy, buy and sell, sell, sell.  Maybe, just maybe, the truth lies between these two emotionally charged opinions.

I find it interesting how many people blindly attribute this market’s success to QE.  This year’s strength can’t possibly be because we shook off all the major risk factors people were worried about.  When is the last time you heard Contagion?  How about Cyprus?  Sequester?  Double-Dip?  More recently we put Shutdown and Default in the rear view mirror.  Who needs money printing when the market keeps removing all the uncertainty people were hiding from?

And here is why this is important.  If everyone believes QE is inflating this market and Yellen will continue the easy money policy, they will forecast higher prices for as far as the eye can see.  But what if it wasn’t easy money propping up this market, but overcoming fear and uncertainty?  My theory is this market rallied on overblown fears turning into non-events.  If that is what really drove us to all-time highs, we need fear, not QE to continue going up.  But this is the first time in at least a year and a half where the market is not obsessing over some impending catastrophe.  Without fear, this rally might be running out of gas regardless of what the Fed plans on doing.

TRADING OPPORTUNITIES
Expected Outcome:
For the record, I am long-term bullish and think we are only a fraction of the way through a secular bull market.  When everyone says buy and hold is dead is the best time to buy and hold.  This is exactly what I am doing with my retirement account because I don’t need those funds for decades.  But in the near-term, I swing-trade extremes in sentiment with my trading account and it sure feels like the bearish views from earlier in the year are quickly being overtaken by boundless optimism.  The time to be excited about this market was in January, February, and March, not after a 25% runup.  Anyone just warming up to this market is a day late and a dollar short.  Buy when we are afraid, not when we feel safe.

Alternate Outcome:
These things go so much further than anyone expects.  That is what makes picking tops so perilous.  We might know exactly what will happen, but if we are early, in the market that is the same thing as wrong.  Everyone knows this rally will eventually stall, we are only debating the timing.

Trading Plan:
The market is most dangerous when it feels the safest.  Between endless QE and no material risks on the horizon, it sure feels like a safe time to hold stocks.  While I easily could be early, I feel the risks are growing with every leg higher.  If you don’t want to sell, at least use a trailing stop to protect recent profits.  Making money in the markets is easy, the hard part is keeping it.

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA cannot get out of its own way.  Markets are making all-time highs, yet the auto maker is stuck near five-month lows.  There is a crisis in confidence and that is never a good thing in a stock that ran up more than 400% in half a year.  It will eventually recover, but let it prove itself first by reclaiming $150 and the 50dma.  For current owners, hope is not a strategy and we always need an exit strategy.  If the broad market stumbles, that weakness will hit high-fliers especially hard.

FB recovered the 50dma, but volume was anemic and didn’t signal a valid buy-point.  Keep waiting for that strong volume bounce off the 50dma.  If we don’t see that, don’t jump in because we could slip back under this widely followed moving average, especially is the broad market stalls in coming weeks.

Plan your trade; trade your plan

Buy the breakout?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks turned early weakness into all-time highs as this market keeps defying the skeptics.  The one-way rebound from the morning lows reeks of shorts tripping over each other trying to get out.  While not as strong as last Friday’s reversal, it ranks among the best gains we’ve seen over the last couple of months.  We continue trading near the upper end of a trading channel that dates back to spring and are well above the 50dma.

MARKET SENTIMENT
I’m contrarian by nature and today’s short-squeeze makes me suspicious.  We’ve come a long way, there are few worries to be found, and the market pops on “unexpected” news Yellen wants to continue Ben’s policies.  No doubt I’m late to the skeptic party, but that is by design.

It was a painful day to be short and many of the buyers were bears forced to cover their losing positions.  While bulls cheered the reversal and all-time highs, the red flag is seeing powerful trade from an already extended market.  Often we embrace powerful moves as signals of strength, but that only applies when there is a huge weight holding the market back.  That is the source of the coiled spring poised to explode higher.  We don’t have that setup here because worries are few and far between.  When we see unjustified strength, we must suspect looming exhaustion.

TRADING OPPORTUNITIES
Expected Outcome:
Now that most shorts have covered, who is left to buy?  That is a really good question.  One I cannot answer.  I don’t have a crystal ball and cannot call tops, but I do trade odds and right now the market feels extended.  While we can easily continue higher, without widespread fear as fuel, the chances of a big move are limited and at best this will grind higher.  On the other hand, if we run out of buyers, there is nowhere to go but down and we have well over 100-points of clear air between us and the 50dma.  While I’ve been a big proponent of this market because confident owners keep supply tight, if we run out of buyers, it doesn’t matters how tight supply is.

Now don’t get me wrong, I’m not expecting a market crash or anything of the sort.  It just feels like it is time for a step-back before resuming our climb higher.  We trade probabilities and risk/reward.  Right now the risks are large and rewards are small.

Alternate Outcome:
These things go so much further than anyone expects.  While we’ve come a long way, there is no reason we cannot continue higher as underweight money managers keep chasing this market into year-end.

Trading Plan:
We are in this to make money and when the potential upside is limited and the downside large, it is wise to take money off the table.  Since May the trade has been buying weakness and selling strength.  Right now we are at new highs and risk is greatest when we have no fear.

MSFT daily at end of day

INDIVIDUAL STOCKS
TSLA was left out of the broad market’s party as it continues struggling with $140.  The euphoric, one-way buying is taking a break and it needs to reclaim $150 and the 50dma for the stock to get its mojo back.  TSLA departed trading fundamentals a long time ago and bulls cannot use them to justify buying and holding here.  This is a momentum name and until it regains it, we are best suited staying away.

AAPL also failed to enjoy the market’s good fortune.  All of this year’s good news is behind us and it will be months before there is another upside catalyst.  The stock is holdable as long as it stays above $510, but things could get ugly if it slips under $500 and the 50dma.

Surprise, surprise, MSFT is the newest momentum stock.  Only after something is ridiculed and left for dead does it present an interesting buying opportunity.  While everyone obsesses over AAPL and what a great value it represents, MSFT is the far better stock to own because it is going up and that is the only thing that matters.

Plan your trade; trade your plan

Bridge For Sale

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
On Veterans Day, Stocks did a lot of nothing on extremely light volume.  We continue holding near all-time highs following Friday’s powerful rebound on stronger than expected employment numbers.

MARKET SENTIMENT
The front page of Monday’s WSJ was dominated by articles claiming the market is poised for a correction.  If anyone thinks journalists can call market tops, I have a bridge for you.

Sir John Templeton is famously quoted for saying “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”  It feels like this market is somewhere between skepticism and optimism.  No one believed the market could rally this year, but that is exactly what it did.  There was Obama’s reelection, Default part I, Sequester, Europe/Cyprus, Obamacare, Sell in May, Syria, Taper, Rising Interest Rates, Sept/Oct market crashes, Shutdowns, Default part II, and countless other excuses people used to stay away.  This is the rally no one trusts, yet it does nothing but march higher.  That sure sounds like skepticism to me.

Now we find ourselves in clear air for the first time in a while.  The market is no longer obsessing over headlines and the strongest criticism the cynics can come up  is “over bullishness”.  As the WSJ articles pointed out, many of the 2008/2009 sellers are slowly warming up to stocks again.  While journalists and bears would have us believe retail investors starting to come around signals a top, it isn’t early retail investors that signal a top, but the last of the holdouts. It isn’t when a couple of neighbors start talking about stocks at backyard BBQs again, but when everyone is bragging about their stocks.  While we are clearly progressing through the life-cycle of a bull market, we are still a long way from having the masses speculating in stocks again.

This steady conversion of risk averse into stock buyers is what will support the market for months, even years to come.  Between all the money hiding out in bonds and cynical hedge funds underperforming the bull market, there are plenty of buyers still available to push this bull market well beyond what anyone expects.  We don’t top when the cynics are calling for a top, we top when they give up.  As the WSJ articles and endless stream of critics show, we still are not there yet.

TRADING OPPORTUNITIES
Expected Outcome:
While there is still upside left in this bull market, markets move two-steps forward, one-step back.  Bull markets refreshes themselves one of two ways, a sharp pullback, or a long period of trading sideways.  With this many people calling for a top, it won’t take much of a dip to dramatically swing investor sentiment.  The potential dip will fall further than bulls are prepared for, but not as far as bears are hoping.  Between those two opinions, we will find a bottom.  Or alternately, this market could refresh by boring everyone to death with relentless sideways trade, forcing both bulls and bears give up in frustration.  Either way we need to cool off a little bit.

Alternate Outcome:
There is no reason stocks cannot ramp up another 10% before year-end, collapse under the 200dma by the same deadline, or do both.  Markets surprise us far more often than they do what we expect.  Of course between the bulls expecting further gains and bears calling for corrections, the least expected outcome might be a whole lot of nothing.

Trading Plan:
Until further notice, continue buying weakness and selling strength.  We are at the upper end of the recent consolidation and it would not surprise me to see the market surge into new ground on short-covering.  How the market behaves following those new highs will go a long way toward tellings us if we should sell the strength or buy the breakout.

Plan your trade; trade your plan

If you want more tactical trading analysis of this market, consider subscribing to the Real-Time Trading Alerts.

Wild ride

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of week

MARKET BEHAVIOR
Stocks had a wild close to the week as we dipped 23 points on Thursday, but then recovered all of those losses on Friday.  As dramatic as the ride’s been, we are still holding within the 1750 – 1775 consolidation following October’s strong rebound.  While the daily chart shows a wild ride, taking a step back reveals a fairly benign weekly chart.

MARKET SENTIMENT
There are always two sides to every market and price is the perfect balance point between these two views.  Recent volatility chased out anyone that lacked the conviction to sit through Thursday’s sell off.  These sellers were replaced by far more confident owners willing to buy the weakness.  That confidence ended the selloff on Friday and turned it into a powerful short-squeeze that quickly turned the tables on the cocky bears gloating about the impending collapse only a day before.  But in the Bear’s defense, changes in trend are often accompanied by increases in volatility as the long dominant party starts losing its grip on power.  This shift evens the fight and allows the minority to start flexing its muscle.   It is too early to say which scenario is playing out and we need to uncover more clues in coming trade.

TRADING OPPORTUNITIES
Expected Outcome:
When in doubt, stick with the trend; it continues countless times, but reverses only once.  It’s been a good year and the rally that just won’t quit is unlikely to give the cynics what they’ve been looking for all year.  We’re coming to the end of the year and many of the last holdouts are conceding defeat and going with the flow.  While this is often part of the topping process, these shifts take time and the trend often continues farther than anyone expects.

S&P500 weekly at end of week

Alternate Outcome:
Recent volatility has people  concerned and paying attention.  String together a couple down-days and confidence will quickly devolve into uncertainty and fear.  While it often takes a catalyst to send us lower, running out of buyers and topping on good news will signal a bigger pullback than the news-driven ones we’ve seen in recent years.

Trading Plan:
Continue watching for trading opportunities.  We remain stuck in a consolidation and until further notice, buy weakness and sell strength.  Since neither Thursday nor Friday’s moves materially breached recent highs and lows, look for a wave of stop-loss trading to accelerate a move out of this region, but if the a wider pool of traders does not embrace this breakout/breakdown, expect it to fade back into the consolidation.

Plan your trade; trade your plan

Where’s the Beef?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Dramatic reversal in fortunes as the market opened strong on interest rate news out of Europe, but then collapsed nearly 30-points intraday.  This slide pushed us through 1750 and undercut last week’s lows.

MARKET SENTIMENT
There was no clear headline catalyst for today’s selloff and it appeared to be mostly herd induced selling.  Without any real meat to the story behind this slide, it is less likely to stick.  Complacent owners have been trained to ignore weakness since every other dip this year was a buying opportunity and anyone who sold headline fear-mongering came to regret that decision.  What are the chances these same owners will impulsively sell weakness that doesn’t even have a compelling story behind it?  Fear of selling prematurely, again, will keep most owners sitting on their positions this time.  Bears will criticize that complacency, but that resolve by owners to continue holding keeps supply tight and makes it far easier for the market to find a bottom.

Q:  If complacent owners were not selling, who was?
A:  All the active traders trying to outsmart the system.

Near-term volatility is driven by opinionated bulls and bears who insist on buying strength and shorting weakness.  Unfortunately, sideways consolidations are the exact wrong time to make these directional bets.  Bears shorted weakness last week, but were forced to cover during this week’s strength.  Then bulls bought the last few days of strength, only to get chased out by todays collapse.  And so the up and down cycle continues.  The thing to remember is active traders don’t have deep pockets and explains why these volatile moves fizzle so quickly.  Without bigger money jumping on this selloff, it will stall this time too.  Since most holders are increasingly comfortable with their positions, I don’t expect many to rush for the exits any time soon.  That resolve puts a floor under this market.

TRADING OPPORTUNITIES
Expected Outcome:
As discussed in recent weeks, we expected the market to consolidate and trade sideways following the 130-point rebound from the October lows. It shouldn’t surprise any of us these breakdowns and breakouts over the last two weeks stalled.  Now we are left pondering the latest selloff.  Another round of selling will likely push us down to 1740, but that could be where short-term selling exhausts itself and we bounce on tight supply.  But rather than try to catch the falling knife, wait for support.  This selloff could easily take us back to the 50dma or even 1,700.  While I expect a bounce sooner than that, the swing-trader in me would like to see a bigger selloff simply because that gives us bigger profit opportunities on the rebound.

Alternate Outcome:
While there is no story behind this move, it is hard to deny the strength of the herd.  When we see other people selling en masse, it shakes our confidence and conviction.  Drop far enough and the most resolute bull turns into a sacred bear.  While it is more likely this market will find a bottom in the near-term, we must defend against a larger selloff that takes us further than even the bears expect.

Trading Plan:
Sideways chop is only suitable for day-traders and longer-viewed investors who ignore the volatility.  Intermediate time frame traders are best suited to sit this one out since these failed breakouts and breakdowns cause us to chase our tail and lose money in the process.  If anyone must trade, buy weakness and sell strength.

TSLA daily at end of day

INDIVIDUAL STOCKS
TWTR splashed on to the scene with an impressive 73% first day pop.  Since few got the IPO price, the rest of us are left deciding if TWTR is worth more than $20 billion.  At this stage earnings and valuations are meaningless.  This is a momentum stock and will trade according to the whims of the greater fool theory.  For the more practical trader, these IPOs will settle down over the first few weeks and give the bull the opportunity to get in on a valid buy point as it clears the initial IPO consolidation.  Until then, let the gamblers pay in this name.

AAPL had a bad day in sympathy with the broad market and is just above $510.  We will probably dip closer to $500 before finding support.  While support creates a nice entry for the bull, be wary of a dip under $500 and the 50dma.  We only date stocks because invariably they all let us down if we fall in love with them.

TSLA slipped for a second day following earnings and news reports of a 3rd car fire.  The euphoria quickly shifted to concern with the stock down nearly 30% in less than two-months.  The higher they rise, the harder they fall.  If the stock can consolidate around these levels for a couple of weeks, it will likely bounce, but keep this a trade with clearly defined sell points.

Plan your trade; trade your plan

Buy complacency, don’t fear it

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks climbed modestly and closed within two-points of the record close.

MARKET SENTIMENT
As extended as people claim this market is, it continues hanging in there.  Yesterday morning’s sharp dip to 1755 no doubt seduced bears into shorting the plunge they’ve long been waiting for.  Unfortunately for them, most of those new shorts were forced to cover the rebound and provided a good chunk of the buying that pushed us right back to record levels.

There is a lot of talk about how dangerous the recent wave of complacency is.  But these pundits have it completely and totally backwards.  Complacency is extremely bullish!  Complacent owners are fat, dumb, and happy.  They haven’t a care in the world and zero interest in selling.  Without sellers, supply tightens up, making it extremely easy for prices to rally.

Don’t fear complacency, fear running out of buyers.  This rally will die when people stop buying and not a second sooner.  Quit worrying about how complacent owners are, instead focus on the people stuck outside this rally, looking in.  That is the group that determines the fate of this bull market.  With the large number of traders that bailed during the summer’s Taper, Shutdown, and Default whipsaws, there is plenty of money watching from the sidelines in dumbfounded disbelief.  And this doesn’t even include the ocean of bond money that has been fleeing the jump in rates.  Complacent owners uninterested in selling and a huge pool of money left out of the rally create ideal conditions for a continuation.

TRADING OPPORTUNITIES
Expected Outcome:
The previous commentary is focused on the medium and long-term outlook, as traders we want to know what will happen in coming days and weeks.  I have little doubt there is a cluster of bearish stop-losses just above recent highs and breaching these levels will trigger another short-squeeze.  Since we have only been at these levels for a couple of weeks, don’t expect a huge wave of short-covering and we will see the buying quickly taper.  From there we will likely fall back into the recent trading range as the wider group of prospective investors grows more comfortable with buying the market near record highs.

Alternate Outcome:
The one catalyst that will destroy the growing complacency is a fearful headline that dramatically alters people’s’ expectations of an uneventful grind higher.  Watch for a new uncertainty with the potential to spread like wildfire.   As long as we see it early, we will be out before most realize they should be afraid.

Trading Plan:
The market remains within the recent range between 1740 and 1775.  We should expect market makers to push us above this level in coming days for no other reason than to trigger another wave of short-covering.  But rather than buy the breakout, expect the market to fall back into the trading range.  We covered 130-point over a few weeks and we still need a little more time to consolidate recent gains.  The best trade remains buying weakness and selling strength.

MSFT daily at end of day

INDIVIDUAL STOCKS
TWTR is the most talked about new issue since FB.  But FB’s debacle makes it far less likely we will see the same here.  The market was giddy for FB and we all know how that turned out.  This time the market is far more cautious, meaning the stock is unlikely to be overbought in the early days.  I still wouldn’t trade it in the first two weeks, but it will probably head higher over the medium-term.  But that is a trading call, not a fundamental analysis of the company’s future prospects and ability to grow into this outrageous valuation.  And of course we also need to see where it starts trading on Thursday before we can appreciate how much upside remains.

TSLA dipped into the $140s for the first time in nearly three months.  If the stock holds $140, it will likely close today’s gap.  From there it is anyone’s guess if the euphoria returns or reality sets in.  Anyone holding this name needs to have an exit plan because the days of easy buy-and-hold profits are out the window.  Without a clear plan, we are far more susceptible to emotional trading decisions and more often that not that leads to poor trading decisions.

MSFT popped on news of the CEO finalists.  F‘s Mulally is generating the largest amount of buzz.  While some criticize this choice because he is coming from a manufacturing background, that only shows they don’t understand how he turned F around.  He didn’t save F by improving its assembly lines, he saved F by making it cool.  He got rid of the vanilla fleet styling and encouraged designers to take chances.  That is how we ended up with the edgy designed Focus, Taurus, and Explorer.  If he takes over at MSFT, I expect he will instill that same passion as a user and steal a page from AAPL’s playbook, turning MSFT into a cool brand. MSFT has all the right pieces, it just needs a dash of cool to bring the customers back.

Plan your trade; trade your plan

Don’t be a pig

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks gave up a lot of ground in the first hour of trade, but recovered most of those losses by midday.  The market continues holding above 1750 as neither buyers nor sellers are showing up with enough force to move us out of this region.  Markets typically grind higher and fall swiftly.  Holding these levels for more than two weeks suggest this is more grind like since we are already moved beyond the window that qualifies as swift.

MARKET SENTIMENT
Holders are content holding and prospective buyers are sitting on their hands.  This limits supply and keeps a lid on new demand.  The result is tight, sideways trade.  At some point we will either run out of buyers propping up these levels, or those sitting on the sidelines will grow tired waiting for a pullback and jump in at current levels.  Since most of the profit taking and cynical, new-high shorting happened last week, the advantage shifts to the bulls.  The market swallowed that supply without missing a beat and will likely rise as the number of available shares dries up.

TRADING OPPORTUNITY
Expected Outcome:
It feels like the market wants to hold these levels for the near-term.  That means we should expect several failed breakouts and breakdowns before this consolidation is over.  When the market trades sideways, the best move is buying weakness and selling strength.

Alternate Outcome:
The market is more relaxed than it has been at any other point this year.  While that doesn’t automatically mean we are on the verge of selling off, it does make us more vulnerable to a new and unexpected headline.  While rallies often go longer and further than anyone expects, eventually it will end and we need to be ready to jump out before everyone else.

Trading Plan:
In sideways markets, buy weakness and sell strength.  Be wary of the obvious breakouts and breakdowns because the market is likely to throw a few head fakes at us over the near term..  While we are ultimately setting up for a continuation higher, the market will likely continue trading sideways for a bit longer as it consolidates recent gains.

INDIVIDUAL STOCKS
TSLA was hammered after-hours as it beat official estimates, but fell short of what the market was secretly hoping for.  While the company continues its strong growth, it isn’t taking over the world as quickly as the most optimistic bulls were hoping for.  Is this a buyable dip, or the end of the drunken euphoria?  That is hard to say for sure.  The best trade is letting this play out for a few days.  If the stock quickly finds a bottom, then we can buy the dip next week.  But if paranoid owners start rushing for the exits, it could get ugly and it would be foolish to try and catch that knife.  We are in this to make money and the only way to do that is by selling our winners.  There is nothing wrong with taking some profits off the table because we all know what happens to the pigs.

Plan your trade; trade your plan

Expect the choppiness to continue

By Jani Ziedins | Intraday Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at 1:22 EDT

MARKET BEHAVIOR
Stocks slipped in early trade, but they found support at 1755 and recovered a large chunk of the losses by midday.  The market continues trading between 1750 to 1770 as it consolidates recent gains.

MARKET SENTIMENT
We are stuck in this range above 1750 since few are willing to sell their winning positions while others are afraid to buy near all-time highs.  This standoff will continue until we either run out of the modest number of buyers necessary to offset the normal churn in ownership, or we hold these levels long enough that prospective buyers feel more comfortable wading in.  Either way, expect the resulting sideways trade to remain choppy with failed breakouts and breakdowns as the market takes time to build critical mass for the next directional move.

TRADING OPPORTUNITIES
Expected Outcome:
This is a tough place to own stocks since these head-fakes higher and lower tempt us to act impulsively.  This price-action is better suited for day-traders that can respond to the intraday swings, or long-term traders that ride it out.  Swing-trading choppy markets is difficult because it gives off so many false signals.  Over the near-term, we are best suited buying weakness and selling strength over short periods of time.  Think of it like day-trading over 48 or 72 hours.

Over the next couple months, expect the market to drift higher into year-end barring any headline driven crisis.  Underweight money managers will need to stuff their portfolios with the right stocks before they close their books for the year.  That will keep a bid under the best performing stocks.

Alternate Outcome:
I am concerned about the lack of fear in the market.  While I don’t expect a bear market any time soon, we could see a swift move lower if the market starts obsessing about a new risk factor not already priced in.  The problem with unknown unknowns is we don’t know anything about them and it will catch most everyone off guard.  Hopefully by paying attention, we will respond before everyone else.

Trading Plan:
This market is best suited for day-traders or long-term investors.  The failed breakouts and breakdowns make it hard for intermediate traders.  If anyone must trade the market, trade the range by buying the dip and selling the rebound.

TSLA daily at 1:23 EDT

INDIVIDUAL STOCKS
A lot of volatility in TSLA ahead of its earnings.  Unless trading earnings is your thing, it is best to stay away from this for a day or two.  If Musk found the cure for cancer, then it is an easy buy after earnings.  Anything else and we will have a hard time pushing past $200.  Most, including Musk, recognize this stock is way ahead of itself.  While the “next greater fool” thing works great for a while, it always comes to an end and everyone in this name needs to have an exit plan so they don’t get left holding the bag.

BBRY is a dead man walking.  It really feels like the company could not find a buyer at any price.  That doesn’t bode well for anyone holding the stock in anticipation of an acquisition.   With MSFT taking NOK, it is hard to see another natural fit for someone else in the tech space looking to break into this market.  Unfortunately for many optimists, BBRY still looks like a long-term short.  In the near-term, a gambler could play for a bounce back up to $7.50.

GLD struggles to find a home as fears of contagion, inflation, and all the other justifications for stockpiling gold evaporate.  Over the next couple years it will probably slip into triple digits.  While some claim everyone should hold some gold in their portfolio, I’m far more partial to things that increase in value.

Plan your trade, trade your plan

Overly bullish

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks made a small move higher, reclaiming some of last week’s equally minor selloff.  We are 0.4% from all-time highs and closed above 1740 for the 10th consecutive session.  Markets that roll over tend to do it fairly quickly.  Holding near the highs this long suggest we still have upside ahead of us.

MARKET SENTIMENT
While it is hard to throw a stone without hitting someone who claims this market is overly bullish, I have a hard time finding all these bulls everyone else keeps talking about.  There was another Yahoo Finance poll over the weekend.  While Bullish easily beat Bearish and Neutral, can we really say 42% is overly bullish?  Does the average guy on the street think stocks are a safe and easy way to make a fortune?  Has everyone already forgotten about the 2008/2009 market crash?

The one thing that makes me confident we are not near the end of this bull market is just how many times a day I hear people say we are at the top.  People still don’t trust this market and these all-time highs terrify them.  Many traders have PTSD and all they see in every chart is another market correction.  Every dip over the last four-and-a-half years has been buyable, yet they still cannot bring themselves to trust a market that goes from the lower left to the upper right.  But that is the secular story, as traders we want to know what will happen next week and next month.

Source: Yahoo Finance 11-04-2013

TRADING OPPORTUNITIES
Expected Outcome:
Profit takers and short-sellers already leaned into the market over the last two-weeks.  They sold what they were going to sell and the market barely flinched.  That bodes well for a continuation, especially as the newly laid shorts get squeezed as we set yet another new high.  There are no guarantees in the market, but holding above 1740 for two-weeks shows this market is not running out of buyers willing to pay these prices.

Alternate Outcome:
Call a top for long enough and eventually you will be right.  Bears will inevitably be right and they will be right when we least expect it.  Its been a good year in spite of Debt Ceiling I and II, Sequester, Cyprus,  Taper, Shutdowns, and all the other stuff I already forgot about.  But here’s the thing, markets rally in the face of fear and right now we are running short of the stuff.  About the best the critics can come up with is that we are “too high”.  The lack of a meaningful worry means the market is vulnerable to a new obsession sweeping over traders, causing them to hit the panic button.  It might not come next week or next month, but it is coming and we need to be prepared for it.

Trading Plan:
Holding recent gains makes it more likely that the next move is higher.  But at the same time, without a lot of fear left in the market, that means we don’t have much of upside potential either.  At best we have a slow grind higher, at worst we stumble into year-end.  A high probability of modest gains or a low probability of large losses.  Given what a strong year its been, now might be a nice time to lock in gains and coast into year-end.  For those trying to eek out the last few dollars of profit, stay alert and remain nimble.

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA and NFLX roared back after slipping in recent days.  Fear of an imminent broad market top leads many traders to cut their exposure to the highest beta stocks first, and there are few stocks with higher beta than TSLA and NFLX.  Both of these names also suffered a recent bout of CEO’s talking down the stock.  As a momentum investor, I have no idea of such comments will let the air out of these bubbles, but as a fundamental investor, it is really hard to argue with the CEO and founder of both these companies.  If they are concerned, then we might take a hint.  Remember, the goal of this game is to make money, not sell at the top.  The most successful investors often claim the secret to their success is selling too early.  If we want to be more like them, maybe we should take the hint.

TSLA has earnings tomorrow and it is increasingly difficult for the company to surprise bulls to the upside.  Maybe they do it again, one errant comment out of the earnings call like we saw with NFLX and FB and the stock will be down 20-points.

Plan your trade; trade your plan

Still hanging in there

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks ended a two-day losing streak with a nice 0.3% gain.  Friday was the sixth close above 1750 as the market consolidates recent gains and is building support at this level.

MARKET SENTIMENT
We are holding within 1% of all-time highs as recent fears are fading from memory.  The market exploded higher as the weight of Taper/Shutdown/Default was lifted from its shoulders, but while we feel better about the world, most of the upside has already been realized.  We get paid for owning risk, not buying comfort and anyone chasing up here is a day late and a dollar short.  Most often the best trades are buying what we don’t want to buy and selling what we don’t want to sell.

Politics aside, the biggest risk facing the market is an abrupt overhaul or repeal of Obamacare. While there are plenty of stories on how Obamacare affects business and hiring, it is a known quantity that markets have come to terms with.  Upsetting this balance would toss a big portion of our economy into near chaos if the bill was gutted and left for dead.  What would happen to insurance policies?  People with preexisting conditions?  Subsidies?  Insurance company actuarial tables that were designed around expected enrollments?  Abruptly overhaul or repeal Obamacare and all of a sudden no one knows what the rules of the game are anymore.  Markets hate uncertainty and that would pull the floor out from underneath nearly 20% of our economy.  There is a good reason the market surprised many pundits when it shot higher following the Supreme Court’s ruling upholding Obamacare.  The market hates uncertainty more than it hates Obamacare and the last thing it wants to do is reopening the healthcare debate.

TRADING OPPORTUNITIES
Expected Outcome:
There are two ways hot markets cools down, giving up a portion of recent gains or churning sideways for an extended period.  130-points over 15-trading sessions was an amazing run and no one is surprised the market is taking a break.  The bigger question is if we pullback to support, or simply trade sideways before resuming the up-trend.

If the market holds 1750 on Monday, that shows it doesn’t want to pullback any further.  It had every opportunity to slide on profit-taking and cynical bears shorting all-time highs in recent days, but this resilience is noteworthy.  It shows dip-buyers are aggressively chasing even the most modest pullbacks and their money is putting a floor under the market.

Alternate Outcome:
With so little fear in the market, it is vulnerable to a new, previously unaccounted for risk factor.  Keep an eye out for anything that could send traders scrambling for the exits.  There is always risk of the unknown, but we can protect ourselves if we see it before everyone else.

Trading Plan:
Shorts should get ready to cover if the market doesn’t stumble in coming days.  It is always better to get out proactively when our investment thesis isn’t working as expected and our losses are modest. Avoid the stubborn pride that makes us stick around until the market moves so far against us pain forces us out.  Longs can buy continued support, but expect a slow grind higher since most of the explosive move is behind us.

Plan your trade; Trade your plan

Another rest day

By Jani Ziedins | End of Day Analysis

Regular readers of this blog will notice a new tab above this post.  I am excited to announce the launch of a Real-Time Trade Alert service that allows subscribers to follow my trades in real-time.  If you are interested in learning more, click the Real-Time Trade Alerts tab above or follow this link.  For everyone else, have no fear, I intend on keeping the CrackedMarket blog exactly as it is and will continue publishing it free of charge.  

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks finished lower for a second day, but the losses were fairly modest in comparison to recent gains.  The market started weak, but recovered early losses by midday as traders bought the dip.  Unfortunately for them, things unraveled in the final hour of trade and we closed near the day’s lows.  Of course “unravel” is bit strong to describe today’s 0.38% decline.  The market is still well above support and a little cooling off is expected and healthy.  This is nothing to sound the alarm over yet.

MARKET SENTIMENT
Many traders bought the midday rebound, but it was short-lived as we slid into the close.  Given yesterday’s “engulfing candle”, prospective buyers remain cautions and today’s weak close justified that sentiment.  While the long-term trend remains solidly intact, 130-points over three-weeks is a hell of a run and a little pullback here is long overdue.

Bears love to talk about how “overly-bullish” this market is.  When we keep setting record high after record high, how can this be anything but over-bought?  Here is another Yahoo Finance poll that shows an “overwhelming” plurality of traders have “no fear”.  The 42% bulls far outweighs all the other categories, but is this the right way to look at the data?  What if we combined everyone fearing a bubble and compared them against those that think the world isn’t in such bad shape?  Then we find 42% think things are okay, while 68% fear we are on the verge of some kind of bubble.  Framing it that way, it is hard to claim this market is overly bullish and traders are complacent when nearly two-thirds of all traders think we are standing on a trapdoor.

Source: Yahoo Finance 10-31-2013

TRADING OPPORTUNITIES
Expected Outcome:
Given today’s weak close, we probably have a little more selling in the near-future, but this is nothing more than two-steps forward, one-step back.  Look for a retest of 1730/1740 support before a larger legion of dip buyers jump in and buy the discount.

Alternate Outcome:
While most markets go up and down, occasionally we run into a market that goes up and up and up.  It’s been a strong year and this outcome is less likely given where we are, but it is possible big money will buy any and every dip no matter how small.

Trading Plan:
While the trend remains intact, expect some near-term weakness as prospective buyers wait for the market to dip to support.  Maybe they will rush to buy before we get there, or maybe they wait to see how far we will go.  I don’t have a crystal ball and we will evaluate the situation as it develops.  Prospective buyers should wait a little longer to see if we get better prices. Shorts can hold for a little more downside.  But both sides should realize this will be a modest dip, so don’t wait too long to initiate new positions or cover shorts.

Real-Time Trade Alerts
A free look into my portfolio:  As of this writing, I am 300% short the SPX through the SPXU leveraged ETF and have been since Wednesday morning.  My target is the 1740 region and depending on how the market responds to this level, I will look to cover and go long if we find support.  To get more trade ideas like this, subscribe to the Real-Time Trade Alerts using the tab above this post or follow this link.

Plan your trade; trade your plan

Outside day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks set another record high in early trade, but it was all downhill from there as we closed lower by half a percent.  The last 15-trading sessions put together a tremendous run, so it is no surprise a down day was waiting for us.  Markets go up and markets go down, and today’s price action was simply one of those down days.

MARKET SENTIMENT
I heard a lot of chatter about an outside day or an engulfing candle.  That is when both today’s high and low are higher and lower than yesterday’s high and low.  While I’m not real big on trading technical signals, we use this widely made observation to figure out what other people are thinking and how they will trade it.

By most accounts this is a negative pattern, but in this case it will be a self-fulfilling prophecy.  When prospective buyers expect lower prices are imminent, they wait for the market to come to them.  While holders remain confident and are not worried about a few down days, if buyers sit on their hands, prices go down no matter how confident holders are.  Many professional money managers are behind their benchmarks heading into the last two months of the year.  While they feel pressure to chase, they are reluctant to buy a market that was up 13 out of the last 15 sessions.  They will wait for the market to come in a couple percent before they feel good about buying the dip.  That pressure to chase will keep this selloff relatively shallow as big money buys every dip, but over the medium-term, a little sideways consolidation is constructive and supports a sustainable rally into year-end.

The catalyst for today’s drop was the Fed staying the course.  In a vacuum, this would be considered bullish because it continues the easy money policy.  Things get more complicated when we factor in what other traders expected and how they were positioned.  Most saw this coming from a mile away and were already positioned for an uninterrupted continuation of QE.  This leads to a buy the rumor phenomena as traders act in anticipation of an event.  But since everyone say this coming, there were few left to buy the news today and we fell due to the vacuum of demand.  Remember, markets only move when people trade, and people only trade when they change their mind.  This Fed meeting didn’t change anyone’s mind, and thus no one bought the news.

TRADING PLAN
Expected Outcome:
Expect further weakness over coming days as traders sit on their hands following today’s engulfing candle.  We will likely slip to prior support near 1740 before dip buyers jump to the rescue.  This could be a couple of days or couple weeks, but the important thing is this is only temporary weakness and we will resume making new highs before the year is over.

Alternate Outcome:
If the expected outcome is a little down and then a little up, then the alternative is a big move either direction.  Given how far we came over recent weeks, it is hard to see an explosive move to the upside.  With the budget and debt ceiling pushed to another day, there is little hanging over the market to act as an upside catalyst when the risk is removed.  Given where we are, there is more risk to the downside if we are blindsided by a new risk element not already factored in.  This isn’t Taper or Default, but something all new.  I don’t know what or when, all we can do is wait and respond proactively when we see it.

Trading Plan:
Anyone out of the market, here is your chance to get back in.  We will likely see a dip to support near 1740.  Depending on how aggressive dip-buyers are, we might not even fall all the way to support before desperate buying turns the market around.  Or we could see the market penetrate support and set off a wave of stop-losses before rebounding.  No one has a crystal ball and we simply have to wait for the situation to develops.  Bulls should not try to catch a falling knife if  we start selling off.  Wait for it to find a bottom and stabilize.  There will be plenty of time to get back in when we find support.  Better to be a little late than a lot early.  On the other side, bears with a short positions need to recognize this is a counter-trend trade and that means taking profits early and often.  Making money in the market is easy, the hard part is keeping it.  Bears have seen a lot of good downside trades and they would be having a good year if they were disciplined about taking profits.

Plan your trade; trade your plan

Time for a break?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Another up-day, making it thirteen out of the last fifteen.  The market continues defying both bears and gravity, but how long can it last?  The rate of gains slowed after we passed 1740 as traders grew more cautious of these dizzying heights.  So far the market is giving every indication we transitioned to a directional phase and that means countless new highs are ahead of us.  But like every move in the market, it won’t be straight line and we should expect an occasional step-back for every two-steps forward.

MARKET SENTIMENT
Bears are obsessing over the low-volume.  In their view, we cannot trust any move that doesn’t have a lot of people participating in it.  But here is the thing, traders do more than just buy and sell.  In fact, they do a more holding than anything else.  We are rising on low-volume because most owners don’t want to sell and that speaks “volumes”.

Every dip this year was a buying opportunity and anyone who fell for the head-fakes doesn’t want to be fooled again.  While this market will top like every one before it, it won’t be because of owners’ complacency.  That is another popular misconception.  When owners are disinterested in selling, that keeps supply tight and makes it far easier to rally on modest demand.  Low-volume strength was the secret sauce for the first-six months of the year, and early indications are the same behavior will close the year too.

But that is the two-month outlook.  Trading over the next few days will responded to different currents.  It is really tough for big money to buy a market that is up nearly every day over a three-week period.  We saw a lot of short-covering and breakout buying push us higher, but these active traders represent a small sliver of the market’s capital.  Soon these gains will stall when big money doesn’t continue buying this nearly non-stop move higher.  We don’t need a big dip to interest underweight money managers, but they need something to ease their conscience that they are not buying the top.  It is perfectly reasonable, normal, and healthy to see this string of up-days take a break and the market to re-test support at 1740.  That is actually far more bullish and sustainable than continuing higher without resting.

The potential catalyst for a modest pullback is the Fed meeting.  Most traders, including myself, are not expecting a change to QE, but that means it is already priced in.  We don’t need bad news to soften the market and could actually dip on good news if the market sells the news.  While I still believe most of the Taper trade is long behind us, it could easily inject a little volatility, leading to a near-term re-test of support before we brush it off and resume the up-trend into year-end.

TRADING OPPORTUNITIES
Expected Outcome:
While I think the up-trend will continue, we should expect some near-term weakness that allows the market to consolidate recent gains.  Depending on a trader’s timeframe and risk-tolerance, they can either choose to hold through the dip, sell into strength, or for the most ambitious and nimble, take a stab at trading the counter-trend move.  I still expect the market will make new highs in coming weeks, but near-term down-days are an important part of moving higher.

Alternate Outcome:
There is no reason the market needs to pause and could actually accelerate into a climax top.  These things go further and longer than anyone expects and the least expected outcome is another week of non-stop up-days.  But this is a less likely outcome and to succeed in this game we need to always consider the risk/reward of any trade.  While it is conceivable we could continue higher for another few days, how much downside risk are we exposing ourselves to for a few extra points of upside?  The goal isn’t to make all the money, just the easy stuff.

Trading Plan:
This is the wrong time to be initiating new longs.  The market already expects no change from the Fed, so there will not be a sustainable pop on the news.  In fact, if there is a pop, that could be a good opportunity to lock-in recent profits and looking for a better level to buy back in.  Longer-term traders can hold the volatility because so any near-term weakness looks like it will simply be part of the process of moving higher.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL had an ugly reversal and while it didn’t violate support, this is unlikely to be a one day event.  $500 is easily in play and risks go up if we fail to hold the 50dma.  A lot of traders and investors are excited about the value in this stock, but that increases the risk of it being over-owned.  When everyone loves something, who is left to buy it?

TSLA had a dramatic day, but managed to pull out of it and actually close up a dollar and a half.  While a lot of traders jumped at the chance to buy the stock near $150, I’m not sure the selling is done.  Last Friday Musk said the company didn’t deserve this valuation and it is really hard to argue with the CEO.  If the stock reclaims the 50dma on elevated volume, then the party is back on, but at this juncture, expect prospective buyers to step back and wait and see what happens.  Their lack of buying could lead to further weakness and even more attractive levels for them to buy shares.  They will not be in a hurry if they think the stock will get even cheaper.

NFLX found support at the 50dma, but volume was barely average and not very convincing.  This looks more like dip buying than major institutions using the weakness to add to their positions.  Wait for the high-volume confirmation before buying the 50dma bounce.  On the other side, owners need to have a plan to take profits.  Maybe they sell a violation of the 50dma, or they wait for a breach of support at $270, but either way, have a plan to take profits.  It is always better to be out of the market wishing you were in, than in the market wishing you were out.

Plan your trade; trade your plan

Fear of Heights

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks finished modestly higher, setting new all-time intraday and closing highs, as buyers and sellers continue supporting these levels.  The breakout is holding recent gains and suggests we are not on the verge of breaking down.  Unsustainable levels see quick reversals and sitting above 1740 for the last seven sessions suggests this is the real deal.  Markets can do one of three things, up, down, or sideways.  We traded mostly sideways through the summer, but the market is giving every indication we already entered the next up leg.

MARKET SENTIMENT
While not a definitive measure, it is interesting to see the Stocktwits SPY sentiment gauge slip from 60% bulls to 45% bulls over the last week and a half.  No surprise sentiment surged to 60% as prices rebounded from the Default lows, but we are clearly seeing a negative shift even as the market continues making new highs.

Source: Stocktwits 10-28-2013

This shows many traders are reluctant to trust these levels and they expect us to pull back from recent highs.  The thing to remember is most of these cautious traders already expressed their outlook by selling the strength.  The market has been resilient enough to swallow this profit-taking and bearish shorting without missing a step,.  Further, if those that don’t trust these levels are already out, that means there are fewer left to sell and the resulting tight supply will keep the rally alive.

Yahoo Finance had another interesting poll showing 27% still think Cash and Bonds are the best place to keep their money.  That ties big-caps and easily outpaces the NASDAQ and Small Caps.  Clearly these last two surveys of sentiment are not “overly bullish”, yet I keep hearing people claim the market is.  “Overly Bullish” is the crowd’s state of mind, not a price level, and is the mistake most of these “experts” are making.  Contrarian investing is going against the crowd and more often than not that means sticking with the trend when no one else trusts it.

Source: Yahoo Finance 10-28-2013

TRADING OPPORTUNITIES
Expected Outcome:
Why fight what is working?  We expected the market to transition from sideways summer volatility to a directional fall move and is exactly what we’ve gotten.  Countless gurus pointed out how horrible September and October typically are and said we should stay away.  Of course many are the same people that warned us to sell in May.  As long as people don’t trust this market, expect it to continue rallying as the holdouts are forced to chase into year-end.

Alternate Outcome:
The market is running out of things to fear.  We still have Taper and another round of Debt Ceiling talks, but so far those fears are fading into the background.  Bears have been the Boy Who Cried Wolf and they are losing their credibility as each crisis turns into a false alarm.  But rather than become complacent, we must keep an eye out because the wolf is coming.  No one knows when or where, but he is coming.

Trading Plan:
It is tough to buy the market up here, but I have every expectation we will continue higher.  How we get there is a bit less certain.  Maybe we dip on a headline or maybe we melt up as underweight traders keep buying every dip.  Either way, being long is the right call and short is an exercise in futility.  Anyone in the market should keep moving up their trailing stops and ride this thing as far as it will go.

INDIVIDUAL STOCKS
AAPL reported impressive earnings, but the stock sagged after-hours on disappointing margins.  The stock is still holdable as long as it stays above $510.  The one thing that continues concerning me is how pros, amateurs, and analysts all think AAPL is a great buy.  They point to dividends, cash hoard, buybacks, and China as all reasons this stock will go higher.  But if everyone who wants AAPL already has AAPL, who is left to buy?  While I think Apple is a great company with popular products, the stock is entering a mature phase.  We saw this with MSFT, CSCO, WMT, DELL and every other great growth story before it.  There is no reason to think that AAPL is immune from the same decade of stagnant stock price.  Steve Ballmer doubled revenues and earnings at MSFT under his tenure, but the stock was stuck in the $20 for most of that time.  Cook will likely continue adding to AAPL’s bottom line, but is that enough to move the stock back to old highs?  Only time will tell.

NFLX is still suffering from the earnings reversal and Icahn hangover.  The stock is still above the 50dma and is not screaming sell just yet, but any bull better be prepared for some volatility if we slip under this widely followed moving average.

TSLA is a few days ahead of NFLX in regard to penetrated the 50dma.  Last week it tried to rally back above this key level, but failed and slipped back under today.  The stock is down seven out of the last nine days.  For any long-term holders, this might not be a bad place to take some off the table.  Sell half and lock in some profits.  The adventurous can let the house money ride.  We are in this to make money and the only way to do that is selling our winners.

Plan your trade; trade your plan

Another new high

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks finished at the highs of the day and set another record close.  Holding recent gains suggest we are moving past the sideways summer trade and setting up to finish the year with a bullish up-leg.

MARKET SENTIMENT
Recent volatility cleansed the markets of weak owners and replaced them with a new crop of holders that demonstrated a willingness to sit through uncertainty and weakness.  These holders are being rewarded for their confidence and patience as everyone with a diversified portfolio is sitting on profits.  When holders are rewarded for holding and sellers regret selling, it further encourages traders to hold weakness and buy dips.  While many will claim this complacency is dangerous and signals an imminent top, we must remember these things go further and longer than anyone expects.  Markets don’t top due to confident holders, they rally because no one is selling and this keeps supply is tight.  We don’t top until we run out of buyers, and given all the defensive and reactive selling we saw through the summer, there is plenty of demand itching to get back into this market.

Yahoo Finance put out a poll today that many bears will point to as a sign of complacency because the single largest response was from traders “not worried” about the rally.  While this 48% is far above the 20% bullish responses we saw a couple of months ago, it is not concerning yet.  If we consider the other responses, we see a quarter are selling defensively and another quarter are still sitting on the sidelines.  That means 52% still don’t trust this market and remain potential buyers.  48% bullish and 52% bearish is many things, but it isn’t “irrational exuberance”.

Source: Yahoo Finance 10-25-2013

TRADING OPPORTUNITIES
Expected Outcome:
Today’s strong close shows the rally is not ready to roll over just yet.  A few weeks ago I thought we might see a sell-the-news following the debt ceiling compromise, but holding these levels for over a week demonstrates we are not running out of buyers.  Anyone left out of this rally is looking for ways to get in.  This pressure to chase will cause many to buy any and every dip.  The more people we have buying dips, the shallower and less frequent they become.

Alternate Outcome:
This rally will end like every one before it. It is easy to predict what the market will do eventually, the hard part is getting the timing right.  This rally leg is nearly a year old and the bull market is turning six soon, but there is no reason confident owners and money moving out of bonds cannot prop up this market for another twelve months.  This is not a prediction, simply stating that markets often go further and longer than anyone expects.  But it will end and it will happen when no one expects it.  We can ride the confidence and complacency higher, but stay vigilant and look for cracks signaling deeper trouble.

Trading Plan:
Recent strength is putting pressure on underweight money managers who were waiting for the widely expected correction to take some sting from their under-performance.  But instead the market is leaving them further behind and they have little choice but to chase into year-end.  Ride this rally higher and use a trailing stop to protect recent gains from the unexpected.  A stop under 1730 is not a bad place for a recent buyer to limit his exposure.

Plan your trade; trade your plan

Still holding up

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:17 EDT

MARKET BEHAVIOR
Stocks made new highs in early trade, but slipped to break-even by midday.

MARKET SENTIMENT
The market is muddling along as profit-taking cannot dent recent gains, yet new buyers are reluctant to chase new highs.  Previous volatility shook out many weak owners and those left standing demonstrated they are comfortable holding.  While some claim this complacency is a bad thing, it actually supports prices.  Comfortable owners don’t sell weakness or fear mongering, meaning they keep supply out of the market and make it easier for markets to continue climbing in spite of all the calls for a top.  Don’t worry about comfortable owners, but fear a dwindling supply of potential buyers.  Given how many sold Taper, Shutdown, and Default headlines, there are plenty of recent sellers looking for a way to get back in this market.  Their dip buying will support prices and fuel the next leg higher.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  Holding above 1740 for the 6th day shows there is ample demand at these levels and the next move is likely higher.  Profit-takers and cynical new-high-shorters have largely sold anything they were going to sell, meaning supply is drying up.  Even though investors are wary of new highs, it doesn’t take a lot of demand to push us higher when supply is tight.

Alternate Outcome:
The market is relieved after weathering a storm of volatility and headline uncertainty.  It is making new highs as we avoided the worst-case scenario and took a lot of risk off the table.  But with less risk priced in, it leaves us vulnerable to a new headline that is not expected.  Markets by nature are always looking for something to worry about and expect it to find something, real or imagined in the not too distant future.

Trading Plan:
Anyone out of the market can use today’s continued support above 1740 as an entry point.  If we were at unsustainable levels, the market would have rolled over by now.  But as usual, there are no guarantees and we need to cover ourselves with a stop-loss under recent support.  Slightly under 1730 gives us enough room to ride out the inevitable dip and test of support at 1740.

INDIVIDUAL STOCKS
AMZN crushed bears with yet another short-squeeze.  Fighting a stock purely on valuation is a quick way to the poor house.  Wait for price-action to crack on fundamental weakness.  This also applies to other high fliers like FB, NFLX and TSLA.  Let some other poor fool die on the cross of valuation.  When these stocks crack, there is plenty of room to fall and we can easily afford to miss the first 10%.  It is better to be a little late, than a lot early.

Plan your trade; trade your plan

Holding recent gains

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks recovered half of Wednesday’s sell off as buyers were willing to step in at these levels.  This is the fifth close above 1740 and we are slowly consolidating recent gains and building support.

MARKET SENTIMENT
We moved past the fiscal and political driven volatility and the market is quietly digesting third-quarter earnings.  It almost feels serene following the all the shouting and political theater a couple of weeks ago.  This calm is constructive and lets traders rationally evaluate and trade their outlook without worrying if they are standing on a trapdoor.

Trading above 1740 for a fifth-day gave profit-takers plenty of time to harvest recent gains and thus far buyers have been willing to step in and defend these levels.  Once this wave of profit-taking and cynical new-high-shorting passes, look for prices to continue rallying on tight supply.  No matter what people think the market should do, we continue making higher-highs and higher-lows and we cannot fight the trend.

Given all the fear and uncertainty over Taper, Shutdown, and Default, the fact the market held up so well signals we are not standing on a trapdoor.  The market had every invitation to breakdown, but it bounced instead.  That alone tells us the market is not “over-owned” because few owners were interested in selling the endless stream of headline fear mongering.  If anything, the market is under-owned since all the nervous sellers over the last few months are looking for a way to get back in.  Expect their demand to prop up prices as they rush to buy every dip.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  While there is nothing wrong with locking-in recent profits, the longer we hold support, the safer it is to buy back in.  The rebound chased out most of the bears in a powerful short-squeeze, but it will take time to win over the rest of the skeptical traders standing on the sidelines.  But with year-end only two months away, expect big money to feel pressure to chase performance into the end of the year.

Alternate Outcome:
It’s been a fearful year between Fiscal Cliff, Sequester, Cyprus, Taper, Shutdown, and Default, but the market is standing as high as ever as it weathered the storm.  Right now it is hard to think of anything the collective is fretting over.  While it feels comfortable, the market is a worrywort by nature and it will quickly find, or invent, another crisis.  Depending on what it is and how worked up traders get, we could see larger selling if it catches traders off guard and causes currently confident owners to lower future expectations.

Trading Plan:
Keep a trailing stop at 1710, 1730, or 1740, depending time-frame and level of risk.  Those out of the market can look at getting in Friday if we continue holding 1740.

TSLA daily at end of day

INDIVIDUAL STOCKS
TSLA shook off a dip under the 50dma as it recovered this widely followed level.  This is encouraging behavior since it shook out all the stop-losses under the 50dma, but selling stalled and did not cascade out of control.  If the bounce continues on high volume, it is a valid entry, but keep a tight stop since we are late in this move and the chances of failure are elevated.

AAPL continued higher as Icahn pushed for a $150b buyback.  While that would be very shareholder friendly, AAPL management typically ignores shareholder pressure.  $513 is support and the stock is holdable as long as we stay above this level.  Volatility creates great buying and shorting opportunities for the nimble swing-trader, but its been a tough ride for the buy-and-hold investor.  Expect the sideways trade to continue as momentum investors have since moved on to TSLA, NFLX, and FB.  AAPL is a great company with fantastic products, but eroding market share and declining prices will prevent it from reclaiming prior highs.

NFLX is struggling with an identity crisis following Tuesday’s massive reversal and revelations Icahn cashed in half his stake because the valuation was getting a little rich.  Expect this to put a damper on festivities for a while, but if the stock holds current levels in the face of the defensive selling and aggressive shorting, that is bullish because it is building the launching pad for the next leg higher.  For shorts, the stock doesn’t break lower soon, cover the short before you are forced to in yet another short-squeeze.

Plan your trade; trade your plan

Is the market complacent?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks slipped in early trade, but found support near 1740.  We covered 110-points in two-weeks and were up nine of the last ten session; a red day was more than expected.  We remain solidly above the summer’s trading range and comfortably above the previous high of 1729.  The market often sees a directional move following a sideways summer.  We remember the scary drops, but directional trades also take us higher, and so far the upside breakout remains intact.

MARKET SENTIMENT
Nothing calms markets like rallying prices.  We transition from fear of an economic collapse due to default to all-time highs is less than two-weeks.  Not a bad reversal for those positioned to profit from a capitulation bottom, but that was then and this is now.  While fear largely evaporated, we must remember markets don’t move on fear and greed, but buying and selling.  Even though we feel better, to understand what comes next, we need to figure out how previously nervous traders are positioned following the rebound.  Did they recognize their mistake and buy the rebound within days of finding a bottom?  While that is a level-headed and disciplined reaction, often traders don’t act rationally.  After mixing in pride and stubbornness, expect a fair number of recent sellers watched this rebound in complete disbelief.  They didn’t recognize their mistake and reverse their position, they sat there paralyzed by indecision, stuck between visions of a collapse and fear of being left behind.  While much of the fear left the market, many shell-shocked traders are still sitting on the sidelines and have yet to embrace the rebound.  Even though sentiment improved, it will take time for those left out to wade back in.  This stream of buying will push the market higher into year-end.

TRADING OPPORTUNITIES
Expected Outcome:
The market will consolidate recent gains and could pullback to 1700 or 1710, but we flushed out many of the weak sellers between the June and August lows.  Expect higher prices as confident holders keep holding for more.  Don’t mistake confident owners as signs of a top, but an indication continued tight supply.  Owners holding through modest weakness and keep a floor under the market.  The real key is watching demand.  When we run out of buyers, it doesn’t matter how tight supply is.  With the huge supply of regretful sellers sitting on the sidelines, we don’t need to worry about exhausting demand anytime soon.

Alternate Outcome:
While the market came to terms with recent headlines, we are getting comfortable and that leaves us vulnerable to a new and unexpected headline that traders have not priced in.  We could go months without a worry and cannot trade the unknown, but we can wait for it and trade it decisively when it comes.

Trading Plan:
We came a long way and there is nothing wrong with locking in profits.  For those that insist on holding, keep a trailing stop under recent support at 1700. 1710, or 1730 depending your level of risk.

AAPL daily at end of day

INDIVIDUAL STOCKS
Watching AAPL‘s product event yesterday was revealing, not so much for the incremental hardware and software upgrades, but for how they laid out their core strategy going forward.  I have to wonder if they are having a BBRY moment with their stubborn insistence on sticking to their current strategy.  Cook and Company took several shots at MSFT‘s “confused” strategy and insisted AAPL’s approach to tablets and computers would not change.  Is this similar to BBRY making fun of AAPL’s touch screen and lack of physical keyboard, claiming professionals would never embrace a soft keyboard?

In my view, AAPL is making a mistake keeping tablets and computers in separate silos.  They insist people don’t want to use a tablet like a computer and a computer like a tablet.  But let me tell you, I have enough fingerprints on my Macbook’s screen to prove otherwise.  Anyone who borrows my laptop is always trying to use the nonexistent touch interface, but Jobs said it is awkward to reach up and touch a laptop’s screens and he always knows best.  Of course he also said a 7″ tablet is “DOA” and now the iPad Mini outsells its bigger brother two to one.

Mobile operating systems, processors, and software are nothing more than placeholders until hardware specs catch up and we can fit full-powered processors and software in a tablet form factor while maintaining respectable battery life.  We should be there within two-years given the leaps INTC is making with its low-power processors.  Funny thing is AAPL already embraces these new processors in their MacBooks, achieving a shocking 12-hour battery life in the 13″ MBA.  Why do they think people don’t want a souped up tablet/keyboard combo that completely replaces their laptop?  MSFT’s “confused” strategy is to give customers everything they want and need in a single device, while AAPL thinks people want to own and use two separate devices.  How can they possibly think that when they lead the revolution that put a phone, camera, mp3 player, GPS, and web browser in a single device?  The future will continue consolidation and AAPL’s two-pronged strategy will be as obsolete as point-and-shoot cameras and hand-held GPS units.

AAPL also made a big deal about “turning the industry on its ear” by giving away software for free.  Never mind that Google’s been doing it for years and the Surface RT already includes Office, but now that AAPL is doing it, it is revolutionary.  Earlier this year Cook claimed AAPL is a software company.  I’m not sure how a software company makes money when they give away their main product for free.  Google is an advertising company that gives software away for free so they can sell more ads.  By giving away its software for free, AAPL is making a strong case that it is a hardware company and they give away the software in order to sell hardware.  What little software AAPL previously sold, they are now giving away for free, so I don’t buy the “we’re a software company” line.

And as far as software goes, I downloaded Mavericks and they need to give it away for free because it is such a minor upgrade I have yet to notice a difference.  They added iBooks and re-skinned the calendar.  Wow, color me impressed.  Oh wait, how could I forget, they added iMaps, meaning I need to hide this half-baked app on my computer just like I did on my iPhone.

Plan your trade; trade your plan

The Chase is On

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:27 EDT

MARKET BEHAVIOR
Stocks ramped up following an employment report that missed expectations.  This pushes us to fresh all-time highs as we continue the nearly year-long rally off the post-election lows.  This move clearly broke the summer’s 1500-1600 trading range and is in the middle of its next directional move.

MARKET SENTIMENT
The market is well above previous highs and anyone holding a diversified portfolio is sitting on profits.  This rebound rewarded everyone who held recent weakness, making them even less likely to sell the next dip.  Fewer sellers equals tight supply, allowing us to continue rallying on modest demand.  Low-volume strength has been the theme of the year and it will likely continue into year-end.

This run-up is pressuring anyone still sitting on the sidelines.  Those that sold recent weakness are looking for ways to get back in and this surge leaves them stuck between a rock and a hard place.  Do they chase new highs, or wait for a pullback?  So far anyone waiting for a pullback keeps falling further and further behind.  They can only wait so long before they are forced to buy this strength and the pressure to chase will keep a bid under the market as the desperate buy every dip.

The market is up 20% for the year and most money managers are well short of their benchmarks.  This is the easiest buy-and-hold market no-one trusts.  Even bulls are suspicious of this strength and wondering if they should lock-in profits.  This doubt is the fuel that keeps propelling us higher.

This morning’s price-action indicates many traders still believe bad is good as they bought the weaker than expected employment.  The theory goes that prices rally on excess liquidity from QE and a struggling economy makes it more likely the Fed will keep printing money.  At least that is how the financial press is justifying today’s strength, but the truth is bears are running out of reasons to hate this market and their buying keeps pushing us higher.

Source: Yahoo Finance 10/22/2013

TRADING OPPORTUNITIES
Expected Outcome:
The theme of 2013 has been a relentless rally that humbled anyone questioning its strength.  While this market will end like everyone before it, it will go further and longer than anyone thought possible.  Expect participants to transition from fear to greed as owners stop selling weakness and buy every dip.  While markets top on complacency and greed, they rally as these feelings take over and we only top once everyone gives up fighting the strength.  So far we are early in this transition and more upside remains.  The adjacent survey shows that while bullish sentiment increased from the low 20s a couple of months back, more traders are neutral on this market and we are still a long way from irrational exuberance.

Alternate Outcome:
The Fed and our politicians kicked their respective cans down the road and we are still awaiting the ultimate day of reckoning.  While the market is coming to terms with fiscal and monetary austerity, the uncertainty surround these events still pose risks.     But since these two topics have been so widely dissected and traders largely formed an opinion, they are less likely to trigger new waves buying and selling.  The bigger worry is an unexpected headline that no one is talking about and not priced in.  Markets only move when people change their minds and without a doubt there is something lurking out there what will cause traders to lower their expectations.  We don’t know what it is or when it will happen.  All we can do is wait and react before everyone else.

Trading Plan:
The last few weeks saw monster gains and we should be looking for places to take profits, not initiate new positions.  The cautious can sell into this strength and the optimistic can move up their trailing stops.  Given today’s strength, we could put tight stops under 1740 or 1730.  Those that want to give the market a little more room can use 1710.  Either way, don’t let recent profits evaporate.

NFLX daily at 1:29 EDT

INDIVIDUAL STOCKS
Shocking reversal on NFLX as Reed Hastings sabotages the stock one more time by insinuating the stock is getting ahead of itself.  The stock opened $35 higher and is now down more than $20.  A reversal this dramatic is unlikely to be a one day event.  High flying stocks are almost entirely sentiment driven and this reversal will likely rattle the confidence of holders and prospective buyers.  Expect demand to dry up over coming days as potential buyers wait to see if weakness persists and in a self-fulfilling prophecy, this lack of demand will pressure prices further.  If anyone wanted to short this stock, here is your invitation.  I would use yesterday’s close as a tight stop, or better yet use an option strategy to control your risk.

AAPL is in the process of releasing its new iPads.  Most of the news likely leaked out ahead of time and is already priced in.  Like the iPhone refresh earlier in the summer, we could see a buy the rumor, sell the news if AAPL doesn’t produce anything exciting and unexpected.  Jobs always killed it with his “one more thing”, but it’s been years since AAPL surprised us with anything unexpected.

TSLA is another momentum stock struggling in recent days.  It tested and slipped under the 50dma for the only the second time since this monster run began back in April.  Bulls are waiting for the dip buyers to jump in like they have every other time, but eventually there comes a point where everyone who wants some already has some.  Keep an eye on the 50dma and if we fail to hold this widely followed moving average, selling will likely continue.  Most recognize this is a momentum stock and its bubble will pop eventually.  There is nothing wrong with riding it up, but don’t take the round trip.

Plan your trade; trade your plan

Holding recent gains

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:50 EDT

MARKET BEHAVIOR
Stocks dipped modestly by midday, yet continue hanging on to 1740 following the Debt Ceiling bounce.  Earlier in the day we set another all-time high as the market continues moving beyond earlier fears of Taper, Syria, Shutdown, and Default.  The rate of gains has slowed in the second half of the year and we are currently at the upper end of this channel.

MARKET SENTIMENT
Markets typically decline swiftly and grind higher, but the last six-months flipped this conventional wisdom on its head as we grind lower and explode higher.  The market is up nearly 100-points in less than two-weeks and this surge follows similarly powerful rebounds in April, June, and August.

While most bears claim this market is complacent and overbought, the evidence points to the contrary.  These explosive moves are a direct result of unsustainably negative sentiment.  The crowd pushes the market lower in anticipation of the next correction, yet the spring explodes higher in their face each time.  Too often people mistake trend for sentiment and that is exactly what bears have done.  Just because we are at all-time highs doesn’t mean we are complacent.  Traders are notoriously afraid of heights and few are embracing this strong market.  Instead they are predicting a correction following every bump in the road.  But these constant predictions of a correction keep the rally from overheating and topping.  As long as the crowd remains suspicious, the uptrend will persist and every dip is buyable.

TRADING OPPORTUNITIES
Expected Outcome:
While the recent rebound provided an excellent profit opportunity for those willing to bet against the herd, that spring is now sprung.  Clearly we cannot continue the current rate of gains and the market needs to consolidate or at the very least slow down.  Recent gains leave us with an excellent profit-taking opportunity and is the right trade for many.  As gains slow, there is less reason to hold risk for modest upside.

Looking ahead, most of the big fears have been mitigated and the risk of a dramatic move lower on existing concerns is unlikely.  Many that sold defensively in recent months need to get back in, leading to year-end rally and that constant bid under the market will grind higher over the final two months.  It is up to the individual investor to decide if grinding profits are worth the risk of the unexpected.

Alternate Outcome:
While we largely put to bed the worst fears over Taper, Syria, Shutdown, and Default, we never really had to fear them because everyone was already talking about them and thus already priced in.  We rallied as the outcome was better than the worst case and all is right with the world again…….at least until the next crisis.  Currently there is not a lot of fear priced into the market and we will rally in this calm, but that is what leaves us vulnerable to the next unseen risk.  The problem with trading the unknown is there is no way to know when it is coming and how big it will be.  All we can do is wait and respond to the next crisis before the rest of the market fully appreciates the new risk.  For the time being bears need to be patient.  Don’t sell because we are too high, sell when the market is caught off guard.

Trading Plan:
Recent gains over such a short period make a nice place for proactive traders to lock-in profits and wait for the next trade.  Others can wait for more upside, but move up your stops to protect recent gains.  If the market grinds higher into the end of the year, we should hold above 1710.  If we fall under this level, we need to reevaluate our end of year outlook.

AAPL daily at 1:50 EDT

INDIVIDUAL STOCKS
AAPL is surging higher ahead of the iPad refresh and tight supply for the iPhone5s, putting us at levels not seen since January.  It will be interesting to see if the excitement is warranted since the iPad upgrades are expected to be as evolutionary as the iPhone5s.  The market largely expects a Retina display on the mini and a new form factor for the 10″ model.  While these will help AAPL stay competitive with other tablets, it will not lead to a large wave of upgrades since these devices lack heavy subsidies.  Last year AAPL ran up to $700 on its reputation as an innovator and market leader, but even with recent upgrades to the iPhone and iPad lineups, we still haven’t seen anything truly innovative and disruptive out of AAPL in years.

TSLA is down 6% as it retests the 50dma.  If the stock finds support and bounces off this moving average, it is buyable, but if it fails to hold, expect a wave of selling to hit the stock as it crashes through large swaths of stop-losses.  If that happens, don’t buy the weakness and wait for it to find a bottom first.  With high-fliers, it is better to be a little late than a lot early.

Plan your trade; trade your plan