Category Archives for "Free Content"

AM: Holding near highs

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

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

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

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

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

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

LNKD daily at 1:23 EDT

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

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

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

Plan your trade; trade your plan

PM: One point selloff

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks failed to hold early gains and slipped a single point.  Volume was lower than recent days and this looks more like rest after a strong run than anything we should be concerned about.  We cannot go up every day and given the hot streak,  a one-point giveback is not a big deal.

MARKET SENTIMENT
The bounce that should have died in January continues setting all kinds of records.  It is hard to avoid commentary on how rare this rally’s performance is in historical context.  But that shows people are still looking for excuses to distrust this rally.  As long as suspicion remains high, look for the rally to continue.

The “sell in May” folks are running out of time and are 70-points in the hole.  Without a doubt we could give all that back in the next 10-days, but so far 2013’s “buy in May” is one for the record books.  But there is always next month.  Maybe it will be “Sell in June and go to the Moon”.  That sounds catchy.  Of course I better not joke about it lest people start repeating and believing in it.  Never forget we trade people, not calendars, rhymes, or Wall Street folklore.

TRADING OPPORTUNITIES
Expected Outcome:
Stay on the winning side of this market, but transition from offense to defense.  We are in this to make money and that is best done by locking in profits when everyone else is dreaming of bigger gains.  Either sell proactively or tighten up our trailing-stop to ensure we protect our hard-earned profits.  Too often I hear traders talk about profits like they are less valuable than initial investment.  The only reason we put ourselves through this brain damage is to capture profits, don’t let them slip away.

Alternate Outcome:
Every correction begins with one down-day.  While this might not be that day, we need to keep a lookout because that day is coming.  The eventual top will likely sneak up on us when everyone writes it off as another normal rest day following a hot streak.

Trading Plan:
Look for opportunities to lock-in profits, either by selling proactively, or using a trailing-stop.  We have major support back at 1600, but waiting that long would give back a big chunk of our profits.  Instead defend minor support under 1650.  We stand a greater chance at getting shaken out in a routine pullback by using a closer stop, but our main focus is shifting to defense after such a strong move.  We will shift back to profits when this move ends and we come across the next attractive setup.

TSLA daily at end of day

INDIVIDUAL STOCKS
AAPL had a good day and recovered the 50dma.  Holding this level shows big money is potentially supporting this stock after many months of selling it as fast as they could.  But if we fail to hold the 50dma, it indicates this rebound is built on nothing more than the hope and prayers of stubborn bulls.  These diehards have not been able to defend the stock over the last $300 and will continue losing this battle if they don’t get help from deeper pocketed investors.

GLD had a huge rebound as this boring, safe, commodity is keeping conservative investors up at night.  The obvious short ended in a massive short-squeeze today.  The time to short was earlier in the move and the retest of $130 was the time to take profits.  Look for volatility to continue and the best trade remains buying weakness and selling strength.  For the time being the down-trend remains intact and look for dip-buyers to sell in droves when the stock breaks $130.

TSLA is hanging in there after the secondary offering.  Climax tops often end in a spike higher.  Holding these levels for a few days means the top might not be in and this is remains a dangerous, even suicidal short.  This thing will breakdown at some point, but as long a buyers keep buying the $80s, stay away.

Plan your trade; trade your plan

AM: The chase continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:46 EDT

AM Update

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

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

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

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

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

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

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

GLD daily at 1:22 EDT

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

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

Plan your trade; trade your plan

PM: How high can we go?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

AM Update

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

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

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

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

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

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

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

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

GLD daily at 1:16 EDT

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

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

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

Plan your trade; trade your plan

PM: Don’t look down

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks broke through the 1630 ceiling and finished at 1650.  Volume was only average, but quicker than recent days.

MARKET SENTIMENT
There are two kinds of traders in this market, those afraid of heights and those that don’t look down.  It is easy to claim this won’t end well, but people have been saying that for months, yet we keep going higher.  This has been the most trustworthy market that no one trusts.  Only after everyone believes in this thing will we finally exhaust the supply of buyers.

TRADING OPPORTUNITIES
Expected Outcome:
We are about to find out how far we can come in a month’s time.  So far we are 114- points above April’s low set less than a month ago.  A dip to 1600 is in order, but that doesn’t mean it will happen.  I am reluctant to buy here and it seems like a decent time to lock-in profits.

Alternate Outcome:
This rally will end at some point and the strong gains bring us closer to that day.  A five or ten percent pullback is normal, healthy, and expected, but if this market continues higher without pausing, the resulting correction gets bigger.  Strength into the fall means the next correction could lead to a bear market.  The higher they go, the harder they fall.

Trading Plan:
Locking in profits here is not a bad idea.  We are in this to make money and can only do that by selling our winners, often when we least want to.  The most confident can move their stops up to 1620 and see what happens next.  The most meaningful level of support is 1600; until we violate that, assume any weakness will bounce.   A day-trader should look for a possible pullback and take a quick ride lower, but this is only for the most nimble and experienced

TSLA at end of day

INDIVIDUAL STOCKS
Horrible day for AAPL.  I find the midday plunge under $450 concerning.  This was obviously stop-losses getting triggered, but more significant than the few dollar loss is it shows many longs are not committed and simply trading the rebound.  This stock will only recover if it finds institutional sponsorship that doesn’t waver in the face of day-to-day volatility.  If it firms up and regains the $450 level, this was a false alarm, but if selling continues, it shows this bounce will end like all the others.

LNKD recovered the 50dma on huge volume.  As long as the broad market holds up, the stock is buyable.  NFLX ripped to the upside and continues proving bears wrong.  Same goes for AMZN as it recovered the 50dma after a brief flirtation with the 200dma.  Hopefully shorts got out when it failed to breakdown.  It is okay to be wrong, but fatal to stay wrong.  What can we say about TSLA, except wow.  If this isn’t a climax top, I don’t know what one is.

Plan your trade; trade your plan

AM: Another leg higher

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:19 EDT

AM Update

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

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

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

Source: Yahoo Finance 5/14/2013

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

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

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

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

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

GLD daily at 1:19 EDT

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

Plan your trade; trade your plan

AM: No cracks yet

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:26 EDT

AM Update

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Nice recovery

By Jani Ziedins | End of Day Analysis

PM Update

MARKET BEHAVIOR
Stocks recovered much of yesterday’s selloff thanks to a surge into the close.  Volume was light, but most of this rally has been ‘suspiciously’ light and so far it worked out, so we shouldn’t read too much into it.

MARKET SENTIMENT
Buyers won’t allow much weakness to develop before they swoop in and buy a dip.  Anymore ten-points is a buyable as anxious, big-money feels the heat from missing this rally.  Here is an interesting article from Yahoo Finance discussing how upset the hedge fund community is with Bernanke and his easy money policy.  You’d think a rising market would  have these guys gushing with praise, but “smart” money missed this rally and their pessimism is making them look downright foolish. They blame Bernanke for their struggles because obviously the guy in the mirror had nothing to do with it.

Everyone insists this market is overly-bullish, yet there is little data backing this up.  There are the grossly bearish surveys I shared earlier in the week, and now we have these grumpy hedge fund managers who are humiliated by their underperformance.  Everyone assumes this market is rising because it is so bullish, but they have it completely backwards   This market is rallying because everyone is bearish!  We need new buyers to push prices higher and there is no disputing this market keeps going higher.  No matter what anyone says this market found an endless supply of new money and we are anything but overly-bullish.

The easy answer people throw out is Ben is inflating stocks, but I bet most of these accusers cannot explain how he is doing it.  They simply repeat what

S&P500 daily at end of day

the talking heads say on TV say or the guy in their coffee club told them.  Ben is buying bonds and bonds have never been higher.  People don’t sell things that keep going up and any outflows from bonds have been relatively modest.  Falling prices will drive bond holders to stocks but so far bonds have done nothing but go up.  There is some chase for yield, but that is a fairly modest phenomenon.  The simple truth is stocks continue rising because all the pessimistic bears have been dead wrong on all accounts and they continue being wrong.  Double dip, Euro Contagion,  Debt Ceiling, Sequester, you name it, the bears got every single thing wrong and the market continues higher because the real world is far better than people make it out to be.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  We could see a near term dip to 1600, but buyers’ ferocious appetite for dips might prevent us from retesting this level.  As long as we hold 1600, the rally is alive and kicking.

Alternate Outcome:
At some point he cynics will be right and we all know this market cannot go up forever.  Look for a series of lower-highs and lower-lows to signal demand is drying up.

Trading Plan:
We can hold this market as long as it remains above 1600.  A dip under this level makes us more cautious and we should raise cash, but any bounce should be bought.  So far this market is only getting stronger in May and this could be the start of the first robust summer in over five years.  Failing to hold the 50dma is when we start getting nervous.

INDIVIDUAL STOCKS
AAPL didn’t see the same late day rebound as the rest of the market and finished near the day’s lows.  There are few traders more arrogant than AAPL bulls and is why I still think we have not seen the final purge in this stock.  We are remain above the 50dma and it is holdable here, but everyone should keep this on a tight leash because breaking the 50dma will likely set off a wave of stop-loss selling and shorting, pushing it to new lows.  Of course finding support from big money at the 50dma means we have a near-term bottom and it is setting up for a nice swing-trade.  The next negative catalyst is the release of a warmed over iPhone5s.  If this phone fails to impress, look for sellers to punish the lack of innovation.

GLD reclaimed most of the gap lower, but watch for support at $140 to turn into resistance.  If Gold cannot reclaim this level, look for lower prices in the near future.

Plan your trade; trade your plan

AM: Rest day part 2

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update

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

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

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

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

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

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

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

GLD daily at 1:28 EDT

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

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

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

Plan your trade; trade your plan

PM: Taking a break

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks gave up a little ground, but are still above Tuesday’s close.  We cannot go up every day and after covering 100-points in three weeks, the market is entitled to some well-earned rest.  Volume was average, but less than yesterday, showing the selling was rational and orderly.

MARKET SENTIMENT
Nothing like a few point selloff to get bears excited again.  Just like a broken clock, they will be right at some point.  As nimble traders we have to decide if this is finally their moment.  Predictions of this market’s demise are clearly premature since we are only half a percent from all-time highs.

TRADING OPPORTUNITIES
Expected Outcome:
While this might not be the top, we could see a modest dip after the impressive streak of up days.  The new level of support is 1600 and any bounce off this level is buyable, although eager buyers might not allow the market to fall to 1600 before stepping in.

Alternate Outcome:
At some point bears will be right and we get closer with each passing day.  We are just shy of all-time highs and it is clearly premature to call for a top, but we must stay vigilant and stick to our profit targets, trailing-stops, and stop-losses.   This market will top when everyone expects it to continue higher and our rules will prevent us from being seduced into giving back all of our hard-earned profits.

Trading Plan:
1600 is the level to watch.  As long as we remain above that, the rally is alive and kicking.  A dip to 1600 that finds support is buyable.  Breaking 1600 means we need to be more cautious and locking in gains is good defense.  The 50dma is racing higher with each passing day and it will reach at least 1580 by the time the market dips to it.  Failing to hold the 50dma is another concern and expect stop-loss selling and shorting to pressure the market back down to 1540.  At that point the viability of the rally is finally in jeopardy.  Until then the wind is at our back and stick with the rally.

LNKD daily at end of day

INDIVIDUAL STOCKS
AAPL finished at the lows of the day, but held $450.  Much like the broad market, AAPL earned a break and today’s selling was on light volume.  The stock is acting well and this is the longest streak above the 50dma in well over half a year.  But don’t lose sight of the fact this stock is in the middle of a brutal correction and half a dozen similar bounces fizzle and collapsed lower.  The question any bull needs to answer is who will buy this stock here?  This was the most widely held stock and many were overweight AAPL near the highs.  The selloff humiliated and humbled many investors and they are far less likely to embrace it with such reckless abandon any time soon.  The dividend boost and share buyback make it attractive to income investors, but these are highly price sensitive investors and will not bid the stock back up to old highs.

NFLX bounced near the $200 level on strong volume.  There are no signs this stock is ready to breakdown and bears are in store for another round of humiliation.

LNKD slipped under a rapidly rising 50dma.  While it would be nice to see the stock bounce off this moving average, holding up here is not bad.  Selling has been contained and buyers are willing to step in at these levels.  If the stock breaks above the 50dma on volume, it is buyable, but expect a wild ride and take profits when it feel like the stock is invincible.

Plan your trade; trade your plan

AM: A rest day

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

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

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

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

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

Source: Yahoo Finance 5/9/2013

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

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

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

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

AMZN daily at 1:23 EDT

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

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

Plan your trade; trade your plan

PM: Who believes in this rally?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks set another all-time closing high on slightly elevated volume.  This was the fourth consecutive record closing high as the good times keep rolling.   At 1632 the market is getting a tad extended from recent resistance, now support at 1600, and the 50dma back near 1560.

MARKET SENTIMENT
So far its been a “Buy in May” kind of month as we set record high after record high.  There is plenty of time for holders to lock-in recent gains and “go away”, but for the time being the market is chasing this breakout.

It is easy to come up with reasons this market should go down and hard to justify a 100-point rebound off of the 50dma.  But that is what makes this move work.  When everyone expects one thing, it is already priced in and the only thing left is doing the opposite.  Bears will debate how overly bullish we are at these levels, but the price action clearly demonstrates how overly bearish the market really is.  I often hear bears talk about widespread bullishness, but I rarely hear from these bulls firsthand.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  If someone is out of the market, it is a little late to chase the breakout and wait for the inevitable step-back.   Even if we head higher over the next couple days, it is highly unlikely this is the last time we will see 1630 in coming weeks.

Alternate Outcome:
The market rose nearly 300-points six months and it’s been a phenomenal ride for anyone willing buy the post-election pessimism and Fiscal Cliff hype.  But all good things must come to an end and so will this rally.  I don’t know if it will be this week, this month, or this quarter, but at some point we will finally get the correction everyone is calling for.  The longer we put it off, the uglier it will be.  Stick with the rally, but keep a lookout for waning demand, leading to lower-highs and lower-lows.

Trading Plan:
Stick with this rally, but look for opportunities to lock in profits.  Either sell proactively on the way up, or follow the market with a trailing-stop.  We’re in this to make money and the only way to do that is selling winners.  It is premature to short this market for anything other than a quick day or swing trade and for the time being, every dip remains buyable.

Plan your trade; trade your plan

AM: Still going

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:26 EDT

AM Update

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

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

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Buyers keep buying

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:29 EDT

AM Update

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

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

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

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

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

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

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

TSLA daily at 1:29 EDT

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

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

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

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

Plan your trade; trade your plan

PM: Quiet support

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
A quiet day for stocks as they closed modestly higher on light volume.

MARKET SENTIMENT
Neither buyers nor sellers showed up in force following Friday’s breakout.  A large part of this market’s strength derives from a core group of confident holders who hold through thick and thin.  They were not spooked by recent volatility and are uninterested taking profits after Friday’s record close.  As long as these holders continue holding, it keeps supply off the market and makes it far easier for the rally.

TRADING OPPORTUNITIES
Expected Outcome:
How much longer this can continue is anyone’s guess, but there are no signs the market is weakening or running out of buyers.  Stick with what is working and as long as we continue making higher-highs and higher-lows, we have the green light to own stocks.

This market often takes a step back after making new highs, so don’t let that catch you off guard and certainly don’t short it for anything longer than a day or two swing trade.  Work under the assumption every dip will bounce until it doesn’t.

Alternate Outcome:
Sell in May has been a thing for the last three-years and there is nothing to say we cannot make it four in a row.  Stay vigilant and watch for lower-highs, lower-lows, and breaking support.

Trading Plan:
Expect near-term weakness, but the best trade is owning this market as long as we hold 1590.  Buy the rebound above 1590 and use 1590 as a trailing stop-loss.  The next support level is the 50dma, break that and 1540, and there is a lot of clear air down to the 200dma.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL had another good day and is up nine of the last eleven trading days.  $75 in two-weeks is an impressive stretch.  At this rate it will be back to $700 by late June.  Sounds plausible doesn’t it?  Of course not.  Not even the most rabid bull would believe something like this.  If we all agree the rate of gains cannot continue, then we must decide where and when we will slow down and even pullback.  $470 is a major peak and a significant challenge for the stock.  This is the stock’s first chance at setting a higher-high in over half a year, but the rebound might run out of gas just as we get there.

Unless someone believes in the $700 by July trade, now is a decent time to consider locking in gains and is a poor place to buy more stock.  Wait for support at the 50dma to add to your position.  Failing to hold the 50dma shows big money is not supporting this stock and it will likely make new lows before this is all done.

AMZN slipped back to the 50dma.  A bear needs to be patient and persistent.  Take small losses and eventually you will hit the home run.

LNKD is finding support at the 50dma.  We are still waiting for the high volume bounce to show buyers continue supporting this stock.  There is more upside left, the only question is if the near-term selling is done.  Wait for the stock to tell us.  We will miss some profits, but it dramatically reduces our risk by waiting for the confirmation.

Plan your trade; trade your plan

AM: What bullishness?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:23 EDT

AM Update

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

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

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

Source: Yahoo Finance 5/6/2013

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

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

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

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

Plan your trade; trade your plan

WR: A Great Week

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Weekly Review

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

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

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

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

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

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

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

AAPL weekly at end of week

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

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

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

Plan your trade; trade your plan

PM: Bears run for cover

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

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

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

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

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

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

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

Plan your trade; trade your plan

AM: Bulls do it again

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EDT

AM Update

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

Source: Yahoo Finance 5/2/2013

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

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

Source: Yahoo Finance 5/3/2013

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

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

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

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

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

LNKD daily at 1:15 EDT

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

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

Plan your trade; trade your plan

PM: Bad is good

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks reclaimed all of yesterday’s selloff and are just shy of 1600 for the third time.  The market established a mini-trading range between 1580 and 1600 over the last week and a half.  Yesterday it felt like we wanted to breakdown, today everyone is looking up.  It is hard to predict the intra-day moves, but the trend remains higher and is the better trade.

MARKET SENTIMENT
Friday’s headline event is the monthly employment report.  February’s numbers were shockingly bad and dramatically lowered expectations for April’s.  But as disappointing as February’s were, you wouldn’t know it from looking at the stock market.  Last month’s employment report preceded a 50-points surge that smashed all-time highs.

This market shrugs off bad news like no other and we certainly shouldn’t fear a bad employment report tomorrow.  A big reason is traders are buying because of monetary easing.  The logic goes, the worse the economy, the more money the Fed pumps into the system.  In this perverse, bizarro world, bad is actually good.  Does this mean good is bad?  Hard to test this theory since we haven’t seen good news in a long time.  But if this market became addicted to easy money, a strengthening economy threatens that and good could be bad.    Between February’s unexpectedly bad showing and Sequester layoffs finally kicking in, it is hard to imagine a legitimately good employment report Friday.  We could easily beat the pathetically low expectations, but that is simply less bad.  We are still a long way from posting healthy employment numbers that signal a strong and vibrant recovery.

TRADING OPPORTUNITIES
Expected Outcome:
As we know, this market does not respond to fundamentals, so we are wasting our breath spending more time on them.  Buyers keep buying every dip and today’s rebound shows they still have sufficient numbers to support this market.   Expect the zigzag higher to continue as big money buys every dip, but dials back purchases near new highs.

Alternate Outcome:
Every day brings us closer to the dip that doesn’t bounce.  I don’t know if it is next week, next month, or next year, but I do know it is coming.  We need to keep a lookout for the end of this rally because it will happen when most people least expect.  This rally leg lasted longer than others because it is immune to negative headlines.  While that often takes down other markets, this one needs to run out of buyers while everyone is still expecting higher prices.  No matter how bullish people are, once we run out of buyers there is nowhere to go but lower.

Trading Plan:
The rally remains on firm footing unless we dip under 1570.  From there we likely bounce off the 50dma and the bull is not in serious jeopardy until we slip under 1540.  Stick with what is working and expect the grind higher to continue in spite of, actually because of, all the calls for a top and selloff in May.  Use a trailing stop to protect gains and don’t try shorting this market until we see buying stall as seen by lower-highs and lower-lows.

INDIVIDUAL STOCKS
AAPL holds the 50dma for a third day.  Maintaining these levels into next week demonstrates real support for the stock.  As long as we stay above the 50dma the stock is holdable, but keep it on a tight leash and take profits early and often because it will be a choppy assent due to all the overhead resistance weighing on the stock.

LNKD daily at end of day

LNKD dropped sharply in after hours trade on a disappointing outlook.  Even with a $20 selloff, the stock is only back to levels from a couple of weeks ago.  It is tempting to hold a stock that we think is the next 10x winner, but more often than not we are better off taking profits after such a strong run.  The stock probably has more upside, but it cannot keep up its current rate of gains.  Lock in profits and look to reenter at a better price.  We’re in this to make money and we can only do that by selling our winners.

Plan your trade; trade your plan