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AM: Obvious top isn’t so obvious

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:52 EDT

AM Update

MARKET BEHAVIOR
Stockes recovered all of yesterday’s selloff.

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

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

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

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

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

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

AAPL daily at 1:24 EDT

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

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

Plan your trade; trade your plan

PM: Is the rally dead?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks dipped nearly one percent on average volume.  Since early March the market has been range bound with each breakout and selloff stalling near the highs and lows.  Today’s selloff short of 1600 continues that pattern.

MARKET SENTIMENT
While today’s move lower spooked many traders, we are still within one percent of all-time highs and it is premature to write this rally’s obituary.  Over the last eight-weeks the market always struggled near highs, but no matter how many people piled on the short bandwagon, buyers always stepped in to support it after a modest selloff.  Is there a legitimate reason this weakness will end differently?

People blame today’s weakness on economic data, comments from the Fed, or something else, but the truth is big money doesn’t like buying new highs.  We’ve seen this play out time and time again over the last couple months as buying stalls near the highs, but these same traders gladly rush in and support the market a few points lower.  This cycle of buying dips and shunning highs is what keeps us rangebound.

Many bears are excited this is finally the selloff they’ve been waiting for, and they could be right, but is there new evidence this dip will end any differently than all the other failed selloffs since last November?  Cynics point to weak economic data, but this market rebounded from negative GDP headlines, hiring numbers that missed by six-figures, and all the noise out of Europe.  If the market ignored all of that, why is it suddenly worried about today’s headlines?

Markets move exclusively on supply and demand.  Institutional buying dries up near the highs and picks up near the lows.  Until we see a material violation of this pattern, stick with it.  This market will eventually top on lack of demand, but support over the last four months shows there is still an ample demand ta these levels.   The current crop of recent sellers will power the next move higher when they buy back in.

TRADING OPPORTUNITIES
Expected Outcome:
Today’s dip doesn’t change anything and was largely expected by anyone who’s paying attention.  We didn’t know today specifically would be the day, but we new it was coming and now that it’s here we shouldn’t be scared of it.  Look for support near 1570 and the rally is not in serious trouble until we break through 1540.

Alternate Outcome:
Every change in direction starts with one day.  Is today that day?  Probably not, but we need to watch closely just in case.  It is safest to assume this is just another swing within the trading range because trends are more likely to continue than reverse.  I will only become concerned if we close under 1570 and bearish if we break the 50dma.  Anything else is a buying opportunity.

Trading Plan:
Stick with what is working.  While scary, today’s dip is nothing new.  Watch for buyers to support this market above 1570.  Anyone looking to get in the market can use this weakness as a buying opportunity with a stop under 1570.  If we cannot hold 1570, the next level we will test is the 50dma.  Failing that means the widely expected selloff is finally here.

AMZN daily at end of day

INDIVIDUAL STOCKS
AAPL took a breather with the rest of the market.  We are still above the 50dma and a bull can continue holding, but keep the stock on a tight leash and sell if we break the 50dma.  Look for overhead resistance near $470 and take profits before then.  There are a lot of unhappy AAPL shareholders looking to get out at break-even  so expect substantial selling pressure as the stock moves higher.  I remain wary of this rebound and think the stock needs one last flush lower to chase off the last of the hopeful, but that is just my opinion and as long as we hold the 50dma, bulls can continue ignoring me.

AMZN had a rough day and failed to hold the 200dma for the first time in over a year.  This is a big change in personality and signals a lack of support from bulls.  This is a decent short entry with a stop above the 200dma.  Expect volatility in a move lower and take profits after strong moves and reshort the inevitable bounce.

I’ll write about UA tomorrow.  Leave comments with other stocks you want me to look at.

Plan your trade; trade your plan

AM: Step back

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:25 EDT

AM Update

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

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

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

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

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

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

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

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

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

FB daily at 1:25 EDT

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

Leave other stock requests in the comments.

Plan your trade; trade your plan

PM: How high is too high

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
New all-time highs as the market rebounded from an early selloff.  Buyers keep buying this market and there is clearly no problem with demand.  Today’s record was set on elevated volume, showing plenty of strength left in this bull.

MARKET SENTIMENT
The cynics were dealt another defeat.  They will be right at some point, but timing is everything and they remain on the wrong side of the trade.

Tomorrow is the first day of May and we get to hear everyone promote “Sell in May….”.  There are two views on this, those that fear summer weakness and already sold, and those that don’t care and are still holding.  At this point Sell in May has already been factored into the market is a non-issue.  We could selloff for any number of reasons, but Sell in May is not one of them.  If anything this is slightly bullish because recent sellers become potential buyers as the rally continues.

Traders remain wary of this market and with plenty of good reasons, but the market is not listening.  Since we make and lose money by the market’s moves, that is what we need to give the greatest weight to.  At the same time we cannot lose sight of what others are saying because they could eventually be right.  We are four-years into this bull market and it is fairly old for a bull.  Currently we are living on easy money complacency.  The real shock will come on the first hints of withdrawing monetary stimulus.  We are still a ways from the Fed increasing interest rates, but the a whiff of winding down bond buying will send people running for cover.  If the economy continues making progress, we could reach levels where the Fed feels comfortable pulling back, but like any junky, the market is going to suffer from painful withdrawals.  While the economy might be stable, we could fall into bear market.

TRADING OPPORTUNITIES
Expected Outcome:
Keep doing what is working.  The market is on the verge of hitting 1600 for the first time in history and buyers continue showing up in sufficient numbers to hold us at these levels.  The more people fear this market, the more comfortable I am.  We need to take this day-by-day, but the likely outcome is a strong summer with weakness getting pushed back to the fall.  We could see a 3-5% pullback at any point, but the larger correction is still months away.

Alternate Outcome:
There is a lot of air under the market and anything could trigger a stampede selloff.  Price action remains bullish, but we need to watch for cracks in the foundation.  As small traders we have the advantage of speed.  Use trailing stops to ride the market higher while guarding against the eventual breakdown.

Trading Plan:
The market likes round numbers and 1600 is just a couple of points away.  We might see a little selling after brokers pass out the 1600 hats, but as long as we hold 1570 everything is fine.  Investors looking to get in this market don’t let much weakness develop before jumping on discounted shares.  Slipping under 1570 means buyers are no longer enthusiastic and more cautious, likely leading to a test of the 50dma.  Failing to hold 1540 means we ran out of buyers willing to buy these levels and we need to fall further before value investors will step in.

INDIVIDUAL STOCKS
AAPL had a strong debt offering as part of its plan to return cash to shareholders.  It is nice to see the company sharing the wealth with shareholders, but it is too bad it cannot find something more innovative and exciting to do with its profits.  We can continue higher on a relief rally, but it is hard to get excited about an iPhone5s and we should expect AAPL to fall further behind Samsung this year.  It is also likely the Galaxy S4 will outsell the iPhone5s as few iPhone4s users feel compelled to spend the money upgrading.  PCs have a 4-year refresh cycle and as smart phone capabilities plateau, expect a similar shift to less frequent upgrades.  But what is bad for AAPL is good for ATT and VZ.

AMZN recovered the 200dma as dip buyers rescued the stock.  Was the selling overdone or just getting started? The rebound can continue for a couple more days, but another test and violation of the 200dma shows a lack of conviction from buyers and more selling is likely.  But a note for shorts, this is a trading stock and AMZN is not going out of business anytime soon.  Don’t get greedy and take profits near $220.  For longs, it is hard to get excited about this bounce until it reclaims the 50dma.

TSLA daily at end of day

I had a reader request to look at TSLA.  I hadn’t pulled up the chart in a while and boy did I miss an impressive move.  It is hard to be anything but cautious after such a strong run.  Today’s huge volume reversal is also an obvious concern.  Anyone lucky enough to ride this higher should consider locking in some, if not all of their profits.  There could be more to this move, but obviously the rate of gains cannot continue at this pace.  A bull could buy back in after finding support at $45.  As for shorting this stock, it is tough to get in front of such a strong move, but if someone is feeling lucky, short with a stop at $55 or $58 and take profits at $45.  Since this is such a volatile stock, manage risk by trading a smaller than normal position.

While I cannot review all the stocks people request, I’ll try to incorporate reader request in future posts, so keep leaving suggestions in the comments.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:18 EDT

AM Update

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

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

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

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

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

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

AAPL daily at 1:18 EDT

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

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

Plan your trade; trade your plan

PM: New closing highs

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
We set a new closing high on light volume.  Some people worry about the sustainability of light volume, but this market sure doesn’t.  We are a hair under 1600 and well past the point of a head-and-shoulders top.

MARKET SENTIMENT
The next potential bearish pattern is breaking through 1600 and forming a double-top, but at this point these predictions are mostly wishful thinking from cynics who missed the rally.  This market cannot go up forever, but as long as it keeps going up we should ride it, not fight it.  The rally remains in effect until we start making lower-highs and lower-lows.

I was bearish until April 19th’s bounce off the 50dma.  The market had the perfect setup to selloff, yet it bounced instead.  When the market doesn’t act as expected, it is right and we are wrong.  No ifs, ands, or buts.  We made a mistake in our analysis and need to change our outlook.  We might eventually be proven right, but never forget, in the market early is the same thing as wrong.

The market continues rallying because cynicism is the rule, not the exception.  Even bulls are waiting to buy the pullback.  When everyone expects near-term weakness, they sell ahead of it and wait to buy it, but this behavior prices in the pullback and it doesn’t happen.  In fact the opposite is more likely because recent sellers become the next crop of buyers.  That is why this market continues defying gravity.

TRADING OPPORTUNITIES
Expected Outcome:
It will be interesting to see where the market goes from here.  Willy buying dry up near recent highs and we stay within the trading range, or will we breakout and defy the doubters by marching to new highs?  Chances are it will do a bit of both.  Look for a new breakout and then a consolidation of those gains.  Holding above 1570 shows buyers are still supporting this market.

Alternate Outcome:
The market has a nasty habit of convincing us we are wrong before proving us right.  Many bears are giving up and going long this market.  That buying is the fuel pushing us higher, but these are often the last buyers.  The market is far more patient than most traders and only after people give up waiting for the pullback will it finally happen.

Trading Plan:
Look for new highs in coming days, and use this opportunity to move a trailing stop up to 1570.  If we break this support level we will dip to the 50dma and possibly challenge 1540.  Failing to hold 1540 means the long predicted selloff is finally taking hold.

INDIVIDUAL STOCKS
AAPL finished just shy of the 50dma and is up 10% over the last couple weeks.  Is this finally the bottom all the bulls have waited for?  Could be, but it sure doesn’t feel like the move down to $385 was true capitulation that dramatically altered sentiment and ownership in the stock.  We could rally for a few more days, but AAPL is a trading stock, not an investing one and the best money is made buying dips and selling rallies.  We probably have one more whoosh lower before finally demoralizing and chasing off the last of the hopeful, especially now the last bullish catalysts have come and gone.

GLD daily at end of day

AMZN broke the 200dma and presents an interesting shorting opportunity with the 200dma as a stop-loss to buy the stock back.  We easily could see a bounce back above the 200dma before a larger selloff begins, but with a tight stop, the risk is limited and the potential gains are large.  A bear needs to be patient and it might take a couple tries before he finally hits on the mother load.  A rebound above the 50dma means the expected breakdown is not happening and a bear needs to wait for another opportunity.

GLD mostly closed the gap from $143.  Does this mean the selloff is done, or just a dead cat bounce on the way lower?  This easily could be the V-bottom that ends the slide starting back in September, but this is an insane amount of volatility for a “safe” commodity.    I’m not in gold and have no interest, but if I were, I’d be looking to sell this bounce, not buy it.

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

Plan your trade; trade your plan

AM: The bounce continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:20 EDT

AM Update

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

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

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

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

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

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

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

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

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

GOOG daily at 1:20 EDT

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

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

Plan your trade; trade your plan

LA: Buyers keep buying

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Look Ahead

MARKET BEHAVIOR
Elevated volatility continued for the third week as the market rose 1.75% and extended the bounce off the 10wma.  We remain inside the recent trading range between 1540 and 1597, but are above previous resistance at 1570.

MARKET SENTIMENT
Increased volatility is often seen in market tops as the debate between bulls and bears intensifies.  This week’s rebound was the third largest weekly gain since the start of the year, but for all the criticism thrown at this market, we are still within 1% of the highs.  Believe in this rally or not, we live and die by price and right now prices are near all-time highs.  This rally is fueled by an abundant supply cynicism and is why we continue heading higher.

Markets go down because people stop buying and start selling.  No matter how far this rally came, holders keep holding and buyers keep buying.  Until this changes, expect the rally to keep going.  Every dip is a buying opportunity because large institutions use the weakness to build their positions.  It is anyone’s guess how long this can continue, but we need to stick with that is working until it stops.

TRADING OPPORTUNITIES
Expected Outcome:
We remain inside the trading range between 1540 and 1597.  Recent volatility could signal the last gasps of the rally before we roll over, or the volatility is flushing out weak hands and clearing the way for another leg higher.  Elevated volatility accompanies market tops and we have that in spades, but market tops are due to a lack of buying.  So far we have an endless supply of buyers willing to rush in and buy every dip.  As long as we keep making higher highs, the stick with the market.

The best thing about being small and nimble is we can respond to the market’s moves and don’t need to anticipate them.  If we don’t know comes next, we simply wait for the market to tell us.

Trading Plan:
Until we have evidence to the contrary, assume the rally is alive and well.  The market is stuck in a range between 1540 and 1595.  Setting new highs shows there are ample buyers willing to chase.  If we stall and break through support at 1570, look for continued selling to the lower end of the trading range.  As long as we stay above 1540, the rally is still intact and the dip is buyable.  But there are only so many times we can test a level before failing, so be extremely cautious and use tight stops under this level.

Plan your trade; trade your plan

PM: On the 6th day we rested

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks finished modestly lower on Friday, but held above 1580 in light volume.

MARKET SENTIMENT
This is a tough market to trade and the only groups making money are proactive swing-traders and option premium sellers.    The market is currently pushing toward recent highs, leaving us wondering if this strength is a another selling opportunity or the start of the next leg higher (or lower).

Volatility’s picked up in recent weeks showing traders are becoming restless and ready for the next move.  We rarely get this long to sell the top, meaning the next leg is likely higher.  That doesn’t mean the breakout is sustainable, just that the next move is higher.

There are more reasons to avoid this market than buy it.  In fact I cannot think of a reason to buy other than it is going up.  This rally is old.  We are at all-time highs.  There are a slew of negative economic indicators.  Too-far, too-fast.  Etc.  Everything points to a topping market, but we have to ask why the market is not breaking down in the face of all this negativity.

The answer is surprisingly simple; there are more buyers than sellers.  But how can this be?  It’s actually not that counterintuitive if we look at it from the right point of view.  Those that are paranoid already sold, meaning most of the selling already happened.  Buyers that bought this uncertainty are comfortable with their analysis and willing to sit through near-term volatility.  Getting rid fo the nervous and replacing them with the confident takes a lot of supply out of the market and makes it far easier for the rally to continue.  And that is exactly what we’ve witnessed.  Our job is not to figure out what the market should do, but what it will do.  Right now it looks like it will continue higher.

TRADING OPPORTUNITIES
Expected Outcome:
A little selling today is normal, expected, and healthy after a five-day, fifty-point rally.  The dip was modest and found a floor at 1580, well above recent resistance at 1570.  As long as we hold 1570, expect the rally to continue.  I cannot say for how long, but at least expect new highs above 1600.

Alternate Outcome:
Markets have a nasty habit of misleading even the best of us and just when it looks like it won’t breakdown, it breaks down.  I don’t mind being on the wrong side of the trade, but I hate staying on the wrong side.  The market is defying cynics and it is far more profitable to trade with the trend, but we need to watch for the breakdown because it will come when we least expect it.

Trading Plan:
The rebound remains intact as long as we hold above 1570.  Failing support at 1570 shows the trading range is sucking us back in, but the market tis not breaking down until we test and violate 1540.  Bulls can use 1570 as a trailing stop and bears as a short entry.

AMZN daily at end of day

INDIVIDUAL STOCKS
AAPL is attempting to recover $420 and will probably attract bottom-pickers who push it up to the 50dma near $430.  But look for buying to dry up after the dip crowd runs out of money.  There is no valid reason to expect this selloff is done and look for lower prices in coming weeks/months.  Anyone still in this should sell strength when the stock challenges the 50dma.  If they are a long time believe in the stock they can buy it back later

AMZN lost 7% on gigantic volume.  The stock finished near the lows of the range, but found support above the 200dma.  A high volume break of the 200dma is a good short trigger and will allow a trader to avoid a near-term bounce.  If someone wants to buy the stock, this isn’t a bad place to own it with a tight stop at the 200dma.

Plan your trade; trade your plan

AM: A step back

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:16 EDT

AM Update

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

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

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

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

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

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

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

AMZN daily at 1:16 EDT

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

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

Plan your trade; trade your plan

PM: Challenging recent highs

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
The win streak continues as the market finished higher for the fifth-consecutive day and is less than 1% from all-time highs.  Volume was above average but the day ended in the middle of the range due to a ten-point afternoon selloff.

MARKET SENTIMENT
Here we are pushing up against all-time highs again.  Bears reassure themselves with the afternoon selloff and will surely explain away new highs as building a double-top.  These are both valid points, but are they enough to finally bring down this resilient market?  Bulls and bears are evenly matched as shown by the sideways trade, but when in doubt stick with the trend.

TRADING OPPORTUNITIES
Expected Outcome:
I’ve been cautious since early March.  I thought the market would struggle with the transition to the second quarter, but it held up nicely instead.  The market flirted with 1540 three-times and bounced decisively after each.  Topping markets run out of steam, but this one keeps going and we cannot dismiss that.  There are a million reasons for this market to go lower, but it isn’t listening, at least not yet.  Picking tops is hard to do and we get it wrong far more often than we get it right.  It simply  comes down to probabilities, a market continues countless times but reverses only once.  This market is not giving any signals it is ready to breakdown, so stick with the rally until something new develops.

Alternate Outcome:
Every rally must come to an end and this one is no different.  The higher and longer we go, the bigger the eventual correction will be.  We have a couple more weeks to see if the expected May selloff takes hold, but if the rally continues through the Summer, look for a larger pullback this Fall.

Trading Plan:
The market can do three things here, up, down, and sideways.  Breaking and holding 1597 shows the rally is ready to continue.  Finding a ceiling at 1600 means the trading range is sucking us back in.  The breakdown only takes hold if we fall under 1540 again.  We are closer to the upper end of the range need to watch for the breakout, but guard against the swing-trade lower.  If someone is out of the market, it is a little late to buy and early to short, so wait to buy the breakout or sell breakdown in coming days.

AAPL daily at end of day

INDIVIDUAL STOCKS
AAPL had an uninspiring up-day as it finished at the lows of the day.  Volume was well off of average as few felt compelled to adjust their position two-days after earnings.  A lot of hopeful holders are still hanging on, but another move lower without a fundamental catalyst in sight will demoralize the last optimists and ironically lead to the end of the selloff.

AMZN dipped in after-hours trade following earnings and closed extended trade near the 50dma.  A material breach of this level on Friday or coming days makes an attractive short entry, but if the stock holds up it is a better buy than short.  This is a momentum story so wait for momentum to develop and don’t jump in front of this stock on principles alone.

Plan your trade; trade your plan

AM: Strength continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:58 EDT

AM Update

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

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

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

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

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

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

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

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

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

AMZN daily at 12:58 EDT

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

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

Plan your trade; trade your plan

PM: Can the rally continue?

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks closed unchanged on average volume.  This was the fourth-day buyers showed up in sufficient numbers to support these levels.

MARKET SENTIMENT
It is really hard to get excited about the market here, but that is what makes it work.  Everyone expects a pullback, even bulls preface their bullishness by saying they expect near-term fluctuations.  What this means is those fearing a major correction already out.  Swing-traders took their profits and are ready to short this market.  Even bulls are waiting for weakness so they can add to their positions.  Most of the selling already took place and we have a growing pool of money outside the market ready to come back in.  This is why the inevitable selloff still eludes us.

TRADING OPPORTUNITIES
Expected Outcome:
Good old supply and demand.  Sellers threw everything they had at this market and here we stand, 1% shy of all-time highs.  If this was the best bears could do, there is nowhere to go but up.  I don’t understand it, but that’s the way the market works.  If this made sense anyone could do it.

Sell in May and go away has been a thing for the last several years and many of traders expect another weak Summer.  But if that is expected, it makes it less likely to happen.  Maybe this year we rally through Summer and have a larger correction in the Fall.  Certainly a possibility we have to consider

Alternate Outcome:
Until yesterday the Expected Outcome was a selloff but it just hasn’t worked out that way.  Buyers continued buying this month and we found solid support at 1540 and the 50dma.  I still don’t trust this market, but it nullified many of my criticisms and I must acknowledge and respect that.  I don’t have to own the market here, but bulls deserve credit for putting up such a good fight.

Just because I stopped fighting this market doesn’t mean I embraced it.  I remain paranoid of our precarious position and 1540 and the 50dma are the key levels to watch.  As long as we hold above these the rally is on, but another test and violation of support is unlikely to bounce back.  Stay with what is working, but keep a close eye on the exits.

INDIVIDUAL STOCKS
AAPL’s increased dividend and share buyback program failed to impress and the stock finished flat on the day.  Most interesting is how little the stock moved following earnings.  Results were a mixed bag and both bulls and bears got a little of what they wanted.  But we have to award the draw to bears because momentum is clearly on their side and another fundamental catalyst came and went without reigniting the stock.

Realistically speaking the most bulls can look forward to is a minor refresh of the iPhone5 and a retina display coming to the iPad mini.  What else is there to bring this stock back to life?  Look for selling to continue and even accelerate into the mid to lower $300s.  This will be the last flush and finally put a floor under the stock.  The most loved stock needs to become the most hated and today’s uninspiring earnings moved us one step closer.

GLD daily at end of day

GLD is making a comeback, but the obvious bounce is rarely the real bounce.  Everyone is buying the dip and that is why the price is coming back, but what happens when dip buying dries up?  This occurs often enough on Wall Street that it earned the name “dead cat bounce”.  I cannot say how long or high the bounce will go, but we will retest $130 before this is over, making this a better selling opportunity than buying one.  I’m not a gold bull or bear and don’t have a particular opinion one way or the other, I am simply looking at it from a crowd psychology vantage.  The speed of how quickly dip buyers embraced the selloff makes me suspicious.

NFLX traded flat after blowout earnings.  There are still a truckload of shell-shocked shorts praying for this gap to slide back down, but unfortunately the market gods are far more inclined to humiliate the hopeful and desperate than help them.

AMZN reports earnings Thursday and this one is a coin flip   With such an outrageous valuation the stock is standing on a trapdoor and any bad news will send the stock reeling.  But Bezos and Co are masters at pulling rabbits out of hats.  Can they do it again?  Buying or shorting earnings is like betting on black or white.  The safer and higher probability trade is waiting for the news and then trading the subsequent move.

Plan your trade; trade your plan

AM: Buyers continue supporting this market

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:24 EDT

AM Update

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

PM: Hard to fight this bull

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks rallied to 1579 and continued the three-day win streak following a bounce off the 50dma.  Volume was average and an improvement over yesterday’s light volume rally.  Of course volume was boosted by midday drama and panic selling when a hacker tweeted on the Associated Press’s Twitter account an attack on the White House.  The market initially sold off ~1% before rebounding minutes later when the story was refuted.

MARKET SENTIMENT
We’re back in the hunt for new highs after a two-week dip to the 50dma.  All that was wrong in the world is now right, or at least that’s what the buyers think.  Our job is figuring out if these buyers know something the rest of us don’t, or are dumb money arriving just before the curtain falls on this rally.

Another sustained bounce off of 1540 is impressive, but only if it holds.  There is no such thing as a triple-bottom, but no one told this market that.  We’re not out of the woods yet and we need one more support day on Wednesday to show this rebound is more than just dip-buying from a small group of swing-traders and short covering from premature bears.

If the market holds, we have to respect that and the resulting strength can be attributed to widespread expectations this market is on the verge of pulling back.  Even bulls say they expect a near-term weakness before resuming higher.  Everyone recognizes the nearly straight up move is unsustainable, but it will continue until people stop talking about a pullback.

TRADING OPPORTUNITIES
Expected Outcome:
If the market holds recent gains on Wednesday and finishes strong, we must give the credit to the bulls and this Teflon rally.  I have no idea how much higher this can go and I don’t need to participate in the rally if I don’t feel comfortable with it, but no matter what my personal bias is, continued strength indicates the next move is higher.

Alternate Outcome:
Market weakness on Wednesday will send up warning flags buying is waning and we could be near the end.  Unsustainable dip buying can prop the market up for a few days but it takes real buying to continue a move.  If follow-on buyers fail to show up tomorrow, we will start the widely expected pullback.

INDIVIDUAL STOCKS
AAPL’s earnings came and went.  The stock rallied after hours on a new buyback and increased dividend, but outlook tempered enthusiasm and the stock finished flat in extended trading.  Given all the back and forth between bulls and bears, the least expected outcome was no move on earnings.  I still chalk this up as a win for bears because another fundamental catalyst came and went without reversing the nasty down trend.  Look for the slide to continue until at least $350.

AMZN daily at end of day

AAPL and Steve Jobs are famous for ignoring customer opinions and instead tell them they don’t know what they  want.  This works brilliantly when faced with new products categories customers doesn’t yet understand, but it is a disaster if you get it wrong.  AAPL insists customers don’t want five-inch smartphones, but someone should tell all the people drooling over the Galaxy S4.

AMZN reclaimed the 50dma for the fourth time in recent months.  There are only so many times a stock can tempt fate before coming up short.  I wouldn’t want to hold or short this into earnings, but if earnings disappoint, there is a lot of air under this stock.

Plan your trade; trade your plan

AM: 100,000 views!

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

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

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

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

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

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

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

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

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

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

NFLX daily at 1:28 EDT

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

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

Plan your trade; trade your plan

PM: Light volume saves the day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

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

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

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

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

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

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

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

MSFT daily at end of day

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

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

Plan your trade; trade your plan

AM: Stuck in the range

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:28 EDT

AM Update

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

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

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

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

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

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

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

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

Plan your trade; trade your plan

LA: Can bulls hold on?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Look Ahead

MARKET BEHAVIOR
The market remains range bound even though we widened the window in recent weeks.  March traded primarily between 1540 and 1560.  A couple breakouts and breakdowns later, that range stretched from 1536 to 1597.  Twenty-points of volatility exploded to sixty since the start of the second quarter.  Increased volatility on the heels of a steady six-month rally hints at a shift in market personality and often signals the trend is on the verge of changing.

MARKET SENTIMENT
This rally was supposed to pullback January 3rd after the massive and “unsustainable” Fiscal Cliff pop.  Yet here we are nearly four-months later and a hundred points higher.  Like a broken clock, the naysayers will eventually be proven right if we wait long enough, are we finally getting close to that point?

Our job is not to know what the market will do next, but what it is more likely to do.  This is a very subtle, but important distinction.  No one knows what will happen tomorrow, but we can combine herd psychology with an understanding of what other traders think and how they are positioned.  There is no way to know what the news will be, but with some insight we can make an educated guess about how the market will respond.   Remember, while the news is random, the crowd’s reaction to it is not.

This market largely ignored any and all negative headlines on our climb to all-time highs.  Should we expect that to change anytime soon?  Some expected US markets to breakdown on China data two-weeks after it ignored the most sluggish employment report in nearly a year.  Really?  This market went from fearing every headlines six-months ago to completely ignoring them.  I don’t know what tomorrow’s headlines will be, but I do know this market doesn’t care about them.

This cannot go on forever and at some point the market will pullback; it always has and it always will.  If it won’t implode on a negative headline, what’s left?  Too optimistic.  Once all the chasers are in, no one is left to buy and the market will fall from a lack of demand.  This is the topping scenario we are watching for.  Unfortunately identifying the number of chasers left is far more ambiguous than trading some concrete and timely economic data point.

Previous market tops since the 2009 lows were abrupt, headline driven selloffs.  The selling was aggressive, but short.  Within a week or two we found a bottom and resumed the up-trend after a brief basing period.  If this market tops differently, will the resulting selloff be different too?  Something to keep in the back of our mind as we watch this market’s next move unfold.

TRADING OPPORTUNITIES
Expected Outcome:
There are plenty of reasons for the rally to continue here, namely the number of people still expecting a pullback.  But I just don’t feel comfortable owning it here.  In a rally of this age, the market no longer gets the benefit of doubt and it needs to prove itself, until then I will remain cautious.

Market selloffs take occur quickly and holding 1550 through Wednesday shows bulls still have the upper hand.  From there expect the next move to be higher.  But if the market runs into resistance at 1570 and rolls over, another test of 1540 is unlikely to hold.  Like a cat, a rally only has so many lives and we’ve used several of them in recent rebounds.  We are getting closer to the dip that doesn’t bounce with every passing day.

Alternate Outcome:
Rallies often go longer and higher than anyone expects.  That is clearly the case here and it could continue proving the cynics wrong.  Many traders locked in profits over the last six-weeks of nearly flat trade and these are the next buyers ready to chase the next leg higher.  The most obvious sign the rally still has legs is seeing it head higher.  Regaining and holding 1570 is impressive and breaking above 1600 will put all this head-and-shoulders nonsense behind us.  But no matter what the market does, there is no reason to own what we don’t understand and trust.  Most traders know how to find good trade, but they end up giving back all those profits by forcing an ill-conceived trade when they get a little too cocky.

INDIVIDUAL STOCKS
AAPL’s make or break moment is just around the corner.  Even if the company modestly beats expectations or announces a dividend increase, the resulting strength is a selling opportunity, not a buying one.  This stock was built on 30%+ growth and unless it puts up those kind of numbers, it won’t regain its former glory.  The stock is now a dividend/value investment and one last selloff will chase off the leftover growth holdouts.  Without a doubt AAPL has a future and is a money printing machine, but the same can be said of MSFT, INTC, and CSCO.  How many growth investors are still hanging out in these 1990 growth stocks?  The same maturation is happening to AAPL.

It wouldn’t surprise me if GLD saw more selling this week.  We’ve seen the dead-cat bounce as anxious dip-buyers snapped up discounted shares.  The unfortunate thing for them is what is cheap, usually gets cheaper.  It is far easier to buy the overdone selloff than throw on a short, meaning this is the wrong place to buy.  Buying when there is blood in the street is a good way to get killed.  The key to successful dip-buying is having the patience to wait until the blood is dry.

Plan your trade; trade your plan

WR: Who is buying the dip?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

Weekly Review

MARKET BEHAVIOR
This was the largest weekly loss since the election, even beating out the final week of 2012 when Fiscal Cliff fears climaxed.  Volume was also the highest of the year as holders wavered in their resolve and were selling by the truckload.  The market finished just above the widely followed 50dma/10wma.  The largest weekly gain immediately followed by the biggest selloff shows the market’s personality is chaining from the steady and predictable first quarter rally.

MARKET SENTIMENT
Was this week’s high-volume selloff the capitulation point before resuming the up-trend?  Without a doubt that is one of the possible outcomes.  Losing 60-points over a handful of days is more than enough to flush out weak hands.  Buyers replacing the sellers are clearly not afraid of this market and proved willing to step in front of a freight train.  Finding support at 1540 on Friday provided vindication for the buy-the-dip crowd, but is this real support or just a pause on the way lower?

True capitulation happens when emotional and irrational selling gets so carried away value investors can no longer resist and jump in, scooping up shares with both arms.  Is that what happened here?  Did we plunge far beyond sane levels and value investors were unable to hold back any longer?  That is a hard case to make when we only broke through to these levels in March.  Not a lot has changed in the ensuing weeks to make this 1540 level irresistible to value investors when they were uninterested in it six-weeks ago.   Heck, things are actually a tad worse with dramatically slowing employment and the precedent set by the Cyprus bailout.  There is no way value-buyers propped up the market on Friday when we are only 2.5% off of all-time highs and in the face of deteriorating economics.

If it wasn’t value investors, who was buying on Friday?  Speculative dip-buyers.  Every other dip this year was buyable and when people see something happen often enough, they start expecting it.  The unfortunate thing for bulls is dip-buyers lack the conviction, confidence, and deep pockets of value investors.  These late chasers opinions change with the wind and they will sell in droves as soon as the market moves against them.  Only after the selling accelerates and prices drop precipitously will reliable value investors finally step in and prop up the market.

TRADING OPPORTUNITIES
Expected Outcome:
Even if the this market is built on a house of straw, we could continue higher for a few more days.  Friday’s bounce will likely suck in another wave of dip-buyers, but look for the rebound to stumble when the limited supply of new buyers dries up.  Retesting 1540 shows buyers are running out of strength and can no longer support further upside.  A break of this key level will quickly send the market to 1500.  From there it is just a hop, skip, and jump to 1450.

Alternate Outcome:
As we discussed in Friday’s PM post, bearishness is picking up, offsetting the widespread optimism seen a couple of weeks ago when we set record highs.  Many of these pessimists are already out of the market and the aggressive went short, relieving potential selling pressure and making a move higher more likely.  Churn in sideways trade is what makes flat bases work as the paranoid sell to the confident.  Flat bases take longer to develop because they grind down optimists instead of frighten them with a sharp and decisive plunge.

If we hold 1550 through next week, bulls are stronger than most give them credit for and look for new highs.  Selloffs develop quickly and the longer we stay at these levels the more likely a continuation is.

GLD weekly at end of week

INDIVIDUAL STOCKS
AAPL finally broke recent lows at $419 and plunged 9% on a fresh wave of selling.  The sliver lining is this dropped first quarter’s expectations below the already low levels and reduces pressure on next week’s earnings.  Failing to find a bottom is finally extinguishing hope and causing many AAPL evangelists to give up.  Only after the most loved stock becomes the most hated does it stand a chance at bouncing.  A disappointing earnings next week will trigger one last selloff and AAPL will finally be buyable.  An earnings beat only prolongs the agony as the resulting bounce inevitably sells off.  This move has nothing to do with fundamentals and the selloff won’t end until all the hopeful are finally driven off.  Anything that delays this cleansing process puts off finding the bottom.

GLD found temporary support at $130 and finished at the highs of the weekly range, albeit down 6% for the week.  Volume was the highest we’ve seen since the market top in 2011.  Optimists will call this a capitulation bottom, and they might be right, but if a dip is too easy to buy, it is rarely the bottom.  Anyone in GLD should use this strength to sell and wait to buy back in at lower prices.

Plant your trade; trade your plan