Category Archives for "Free Content"

PM: The squeeze is on

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

The market likes to frustrate the greatest number of traders at any given time.  Since the popular sentiment was waiting for the post-Fiscal Cliff pullback, the market is rallying instead.  But how long can this last?

MARKET BEHAVIOR

A wild day as we gaped up at the open, retreated back to break-even, before finally surging to new highs into the close.  Volume was a bit higher than average and the highest volume we’ve seen since the Fiscal Cliff rally day.  The last couple hours of sent bears running for cover as the expected breakdown turned into a powerful rally instead.

MARKET SENTIMENT

Little doubt the last two hours of trade took bears’ breath away.  Many lost their nerve and bought back their shorts, adding fuel to the fire.  The big question is how much fuel is left in this fire?  Are we just getting started, or are we running on fumes?

The market set another closing high and is less than 0.2% from the intra-day high set back in September.  It is getting really challenging for perma-bears to keep holding their short positions and many are defaulting to the attitude “the market can stay irrational longer than you can stay solvent” and pulling the plug on their shorts.

Tomorrow will most like hit a new 52-week high, but we have to watch how the markets respond after this closely watched event.  Will anyone actually buy this market other than bears covering shorts?  Are sideline watchers starting to chase, fearing this market is leaving them behind?  It would be hard to argue value investors are buyers at these  levels, so who else does that leave?  Without follow-on buying gravity will take over, so the key rests in figuring out if there is a follow-on buyer to keep this rally going.  And while it is easy to discount chasers, they drove the three-month Q1 rally last year so without a doubt chasers can push things far further and longer than anyone expects.

A lot of people assume this market will head higher in the near-term, but pullback not long after.

TRADING OPPORTUNITIES

Expected Outcome:
So many questions and so few answer.  As I stated above, the market could be running out of gas, or just getting started.  For a while I’ve called for one last short-squeeze before breaking down and today could very well be that day.  Or it could be the start of a larger squeeze.  Or it could be the start of a larger and longer move higher.  There is too little information  to make an intelligent decision and the next couple trading days will be key in signaling what the market thinks and how it is positioned.

I would be highly reluctant to add new money here.  If you are sitting on cash, stay in cash and wait for the next trade.  It is better to miss a trade than force it.  The year is just getting started and there will be countless other profit opportunities.  For swing-traders sitting on some profits, watch the market closely because we are getting close to the time to start reeling in those profits.  A strong surge higher wold make me a seller or at the very least set up a trailing stop, I would sit through a modest gain or pullback, and a big selloff through 1450 would get me short.

When in doubt, stick with the trend.

Alternate Outcome:
Since the expected outcome is so ambiguous, there really isn’t an alternate outcome and we are simply waiting for further information.  I remain bullish on the economy and market over the longer-term, it the timing of the near-term pullback that is so hard to pin down.  But there is no reason to hold out for top dollar.  Take your profits and wait for the next trade because there is no greater shame in the market than letting hard-earned profits evaporate into thin air.

AAPL daily at end of day

INDIVIDUAL STOCKS

The market rebound breathed new life into AAPL and it recovered nicely from the intra-day lows. And so the swing-trade continues.  AAPL goes up and AAPL goes down.  If you are following the crowd in and out of this trade, you are losing your shirt, but if you go the other way and buy the dips and sell the rallies, you should have a nice profit cushion that could mitigate the risk of holding through earnings.

This is nothing more than a hunch, but I think AAPL has seen most of its selling already and will rally into earnings as more optimistic traders buy the stock in anticipation of AAPL blowing away expectations yet again.  But if the stock does rally into earnings, that changes the risk/reward and makes it a lot more vulnerable to a pullback if earnings disappoint.  But that is a little premature and we’ll cross that bridge when we get there.

Stay safe

AM: A higher-high

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:15 EST

AM Update

Markets gapped at the open and notched new post-election highs, but started sliding and filled the gap by mid morning.

Stocks hit their head on 1470 and retreated to yesterday’s close of 1461 before finding support and bouncing back to the middle of the range by mid-day.  A little something for bulls, bears, and everyone in between.

MARKET SENTIMENT

The market continues marching higher in spite of all the reason it should selloff.  Bears will point to the retreat from 1470 as a lack of conviction, but that is just grasping at straws.  The retreat from 1470 is seducing shorts into holding, or worse yet adding to their positions.  They say you can boil a lobster without him realizing it if you raise the temperature one degree at a time, and that is what the market is doing to bears here.  The market takes a bite from them, retreats a bit and lulls the bears back into complacency.  As long as the market keeps taking little bites, the rally will continue.  What we need to watch for is the high-volume climax where the rate of gains ramps up and finally sends bears running for cover.  After the last bears are chased out of the market, buying will climax, demand dries up, and we head lower.  And the cycle continues……

TRADING OPPORTUNITIES

Expected Outcome:
Stocks are making higher-highs.  The trend is clearly up and there is no reason to get in the way of this steamroller yet.  The market is digesting the Fiscal Cliff gains over time instead of pulling back.  As long as pessimism persists, look for the rally to continue.  Stocks rally in the face of pessimism and decline on the back of complacency.  At this juncture we are still a ways from complacency.

How far we can go from here is anyone’s guess, but a possible scenario is rallying through the Debt Ceiling compromise and once everything starts looking good, complacency sets in and the market finally pulls back.

Alternate Outcome:
Anything can spook the market, including its own shadow.  An unexpected event could put a chill over the market and send us through all the stop-losses under 1450.  If this happens, we need to keep an eye on the price action and sentiment to determine if the market is rolling over and worthy of selling, or the dip is just another bear-trap before bouncing higher.

AAPL daily at 1:16 EST

INDIVIDUAL STOCKS

AAPL is having a tougher go of it this morning as it gapped higher at the open, but its slide took it into the red and it hasn’t seen the same bounce the S&P500 has and it continues trading near the lows of the day.  Right now the stock is plagued by momentum investors that are jumping all over each rally and pullback.  These swing traders don’t care for the underlying value and are just playing a game of Chutes and Ladders.  Even if you don’t play that game as a trader, it is helpful to understand the rules so the resulting volatility doesn’t shake you out at the exact wrong time.  For the last three months the best trade on AAPL has been buying the dips and selling the rallies.  If this continues, the smart call is buying weakness and selling strength, so rather that sell AAPL here, look to buy or continue holding instead.

Stay safe

PM: Support is holding up

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

The market continues holding the Fiscal Cliff highs in spite of the negative headlines and those saying we need to pullback.  The more negative sentiment is, the more supportive it is for a continuation.

MARKET BEHAVIOR

Stocks were higher after two days of selling, but they gave back some of the early gains and closed off the day’s highs.  Volume was above average and slightly ahead of Tuesday’s selling volume.  The market is still flirting with the 1460 level that proved too difficult for last fall’s rally to hold.  From this a bear sees a double top and bull sees higher-highs and lower-lows.   Part of what makes chart reading so difficult is a trader can see whatever he wants to see.

MARKET SENTIMENT

We continue holding the Fiscal Cliff rally and resist the pressures of profit-taking and pessimistic headlines.  But while we are not selling off, not many people are buying this market either, leaving us in no man’s land as both sides are waiting for the confirming breakout/breakdown.

The one thing that pushes the needle in the bulls favor is bears are actively trying to break this market and failing to do so.  Bulls are cautiously holding, but not overly vocal about their confidence in the move higher.  If the easy trade is the wrong trade and the hard trade is the right trade, then I’d have to say owning this market after an explosive move higher is a lot harder than shorting it.  Selling the 65-point rally is the obvious trade, while buying the 65-rally doesn’t make a lot of sense intuitively and triggers a fear of heights in most rational people.  But if the markets made intuitive sense we’d all be rich right now, so maybe the non-intuitive (ie contrarian) trade is the one to make.

TRADING OPPORTUNITIES

Expected Outcome:
Not much has changed over the last several days, so my expectations remain the same.  We are holding these levels which is supportive of a continuation.   Selloffs from grossly overbought levels happen quickly and this support shows we are not grossly overbought   Further, breaking above recent highs will trigger a short-squeeze and push the market even higher.

Alternate Outcome:
I’m just making up numbers here to demonstrate a point, but lets say the probabilities of a continuation are 80% and selloff are 20%.  To keep things simple, lets assume the potential upside and downside moves are of equal magnitude.  Under these circumstances, the smart trade is going with the continuation.  And while more often than not this trade will make money, one out of five times the low probability trade will come out on top.  But this is supposed to happen and doesn’t mean you or your analysis are wrong.  If the low probability trade didn’t happen 20% of the time then it does mean something is wrong!

In the market it is normal, healthy, and expected to be wrong.  (The danger comes from staying wrong.)  Stick with the high probability trade and you will make more money than you lose and don’t let the frequent strike-outs discourage you as long as you practice prudent risk management

AAPL daily at end of day

INDIVIDUAL STOCKS

Much like the indexes, not a lot new is happening with AAPL.  The most significant thing is the stock lost a few dollars and closed under $520, a level it was finding support at the last few days.  But this was only minor support.  The primary support is down at $500 and the story remains intact as long as we still hold above this level.  But the stock is quickly becoming a binary trade revolving around the upcoming earnings.  The stock will pop or plunge on earnings because there is just too much disagreement over the future of this company and earnings will prove one side right and the other wrong.

Stay safe

AM: Stocks find some footing

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:20 EST

AM Update

Stocks are finding their footing after recent weakness.  The longer we hold these levels without breaking down, the more supportive it is for a continuation of the rally.

MARKET BEHAVIOR

Stocks are clawing their way higher after recent selling, regaining the 1460 level and adding to the cushion above support at 1450.  The thing to be aware of is the large number of automatic buy-orders above recent highs of 1470 and sell-orders under 1450.  Right now we are comfortably in the middle of this range, but expect a decisive break once we move out of this consolidation.  The longer we stay within it, the stronger the reaction will be.

MARKET SENTIMENT

Traders are still trying to come to terms with this rally.  It is hard to find anyone with something good to say about the world, in fact the leading reason bulls use to justify buying this market is that it is going higher because there is not much else for them to hang their hat on.  Since we profit from price movement, not fundamental data, bulls have a valid point here.

It is tough to embrace this market, but that is what makes it buyable here.  Pessimism remains the rule and we are a long way from complacency.  A lot of people confuse contrarian investing with going against the trend, but that isn’t right, contrarian investing is going against the popular opinion.  In many cases the contrarian trade is going WITH the trend when everyone doubts the sustainability of the trend.

Fundamentals will eventually catch up with the market, but is that bearish or bullish?  There is a lot of fear surrounding the economy and politics, but I cannot think of one important indicator that is declining.  Employment, GDP, political compromise, and other hot button issues are all trending in the right direction.  It might not go as fast as most hope, but recoveries rarely do.

TRADING OPPORTUNITIES

Expected Outcome:
We continue holding the Fiscal Cliff gains, building more support for these levels with each passing day.  Most of the profit taking and short-selling has happened already, yet here we stand.  The bears had a couple of opportunities the last few days to drive this market lower, but they failed to trigger follow-on selling.  All of this signals the likelihood of a continuation.  Maybe this next leg higher will be short-lived, or it will be part of a larger move, it is too early to say.  We will need to sample trader sentiment and positioning as it develops.  A steady crawl higher is sustainable, a spike on high volume that quickly fizzles is most likely the start of the pullback.

Alternate Outcome:
The market could easily breach 1450 support and trigger a wave of autopilot selling, leading to a follow-up wave of emotional selling, especially if sellers feel justified by some unnerving news story.  Without a doubt the market will correct at some point, the only question is when.  Support at 1450 seems to indicate this is not that time, but that could easily change.  If this were easy, everyone would be rich.

INDIVIDUAL STOCKS

AAPL is selling off modestly but finding support at $520 as big money managers seem willing to support the stock at this price.  How long this can last is anyone’s guess, but the longer we stay near this level the more likely it is we will dip under it.  There are still a couple of weeks before earnings are released and we should expect some choppiness until there is more clarity about sales.  If AAPL exceeds expectations like they normally do, expect a strong pop out of this stock.  But even if earnings disappoint  the stock has sold off and much of this is already priced in.   It would be surprising to see AAPL dip very far into the $400 range unless there were signs of serious trouble at the company

Stay safe

PM: High-volume reversal

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Stocks sold off for a second consecutive day, but they found support at 1451 in early trade and finished near the middle of the day’s range.  This was the third red day out of the last four, but stocks are only down 5-points from the Fiscal Cliff rally day’s close.  Volume was above average today, showing a fair amount shares changed hands.  One interpretation is today’s high-volume reversal was a capitulation bottom for this modest selloff.

MARKET SENTIMENT

Bears tried again to break this market but were spurned as we bounced off support at 1450.  Everything was there for a larger selloff, it just failed to take hold.  Maybe we are stair-stepping lower, but corrections from grossly over-bought conditions typically happen quickly and dramatically.  Using that as a benchmark, holding these levels for five-days seems to indicate this market is not grossly over-bought.  While it still might be over-bought, it is not grossly over-bought and we shouldn’t expect an imminent plunge.

A lot of people are shooting for this market and expecting a pullback.  Between the negative headlines and the massive run-up,  both fundamental and technical traders are wary of this market.  I have no doubt they are right, but in the market it isn’t so much about figuring out what the market will do next, but identifying and trading the exact timing of those moves.  In the markets early is the same thing as wrong.

TRADING OPPORTUNITIES

Expected Outcome:
Stocks continue showing strength even as we are down three out of the last four days.  The declines have been so modest in comparison to the 65-point, two-day rally that they can be counted as wins.  Everyone is expecting a pullback, but it isn’t happening.  Often this is a sign to take the other side of the trade.

While the market might head higher from here, we can’t become complacent and need to recognize that the next leg higher might be the last of this rally, so don’t get greedy and be prepared to take profits early.

Alternate Outcome:
We are a few points from a huge number of stop-losses sitting under 1450.  It isn’t out of the realm of possibility that market makers will nudge us through that level just to trigger all that trade.  After a certain point, selling can take on a life of its own as selling begets more selling.  And of course an unexpected news story could send the markets lower at any time.  There is no risk-free trade and we always need to have a plan to respond if the market moves against us.  It would be great to make money on every single trade, but that just isn’t realistic.

INDIVIDUAL STOCKS

AAPL actually closed in positive territory today.  Right now $520 seems to be the level where buyers will step in and accumulate shares.  If we hold this level, look for a move above $550 to create a bullish pattern of higher-lows and higher-highs.

Stay safe

AM: Fortune favors the bold

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:15 EST

AM Update

MARKET BEHAVIOR

Markets are selling off for a second day, but temporarily found support in early trade at 1451.  1450 was overhead resistance in December and is acting as support here.  Even though the day is red, we are still close to the Fiscal Cliff highs and a wave of selling has not consumed the markets…….yet.

MARKET SENTIMENT

Declines over the last two-days have bears licking their chops, but a 15-point pullback after a 70-point rally can hardly be called breaking down.  No doubt things can accelerate from here, but so far the market is holding up well and this modest pullback is far more bullish than bearish.

This weak spell is seducing bears to short and spooking weak longs into selling.  The question is if all this selling will hit critical mass and trigger further selling, or if this bout of weakness will clear up and we head higher on lack of supply?  Two consecutive red days is an open invitation for people to start dumping shares, but the modest 15-point decline shows people are relatively comfortable holding because they expect better things to come.  It is bullish if these holders are longer-term investors willing to hold through some near-term volatility.  But if too many are greedy momentum chasers bought this rally late in the move, that sets the stage for a selloff as these emotional traders rush for the exit all at once.

The unique thing about the recent rally was the speed and timing in which it happened.  Occurring during the holiday-split week and having a monster gap on the second day reduced the number of shares chaining hands during this move.  There simply wasn’t time to spook out shorts or let value investors sell to chasers.  We woke up last Wednesday to a monster gap and everyone was caught flat-footed.  The internal dynamics were different from a rally that marches higher and develops over time.  A lot of shorts stayed short because they are waiting (praying) for the inevitable pullback.  Chasers also saw how big the gap was and area developing an aversion of heights.  And previous value investors are more confident in their position since they were proven right after buying the Fiscal Cliff dip.  And this is why selling hasn’t accelerated.

TRADING OPPORTUNITIES

Expected Outcome:
Although the market is getting close to the 1450 level, it hasn’t broken support and the current price action hints at a continuation.  If the market finishes off the lows, that means it resisted the temptation to collapse in a wave of selling for a second day in a row.  Based on this support, the dip should be bought, not sold or shorted.

Alternate Outcome:
The market is not a science and technical levels are better drawn with crayons than a straight edge, so a dip under 1450 doesn’t automatically kill the rally, but a plunge under it does.  I know this is a little ambiguous  but if analyzing the market was easy, everyone would be rich.  And that is the art of tape reading, knowing what is a real breakdown and what is just a test of support.

A lot of people are watching the 1450 level and a violation could send us down in a wave of stop-loss selling, especially if a new negative news story give buyers pause.  But for the time being, I think the upside potential of another short-squeeze is greater than that of an avalanche of selling, but I reserve the right to change my mind as conditions develop.

INDIVIDUAL STOCKS

AAPL is trading just above $520 as everyone waits for earnings.  So far nothing has changed and that is why the stock is stuck in this $500-$550 range.  The recent trade and news hasn’t changed anyone’s mind on the stock and it will take new fundamental data out of the company’s earnings release to break this log-jam.  The one exception would be if traders start warming on the stock and start buying the stock in anticipation of a strong Q4 result.

Stay safe

PM: Bears can’t push this market down

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

The S&P500 finished lower for the day, but more importantly was able to hold recent support at 1455.  As much as bears want to break this market, they were unable exploit today’s weakness and failed to make much of a dent.  The lack of follow on selling after early weakness is bullish and supportive of these levels.

MARKET SENTIMENT

With as many reasons for the market to selloff, it is holding solid.  Some think we came too-far, too-fast, others are pointing to the Debt Ceiling, and then there are things that fell off the front page like Europe and the economy.  But the market is oblivious to these concerns and rallying in spite of the pessimism.

What is confusing fundamentalists and technicians actually makes a lot of sense when you look at how people are positioned and the effect this has on supply and demand.  All of the negative headlines are recycled stories from months, even years ago.  The market responds to new and unexpected news, not the things everyone including your mother in-law is talking about.

The old news is already priced in  because those that were going to buy or sell based on it have already done so.  Markets respond to new buying and selling, not stuff that happened weeks or months ago.  People can change their mind regarding certain risk factors and that will move markets, but if attitudes stay the same, then there is no new trade and thus no price move. Until people start talking about the Debt Ceiling and Euro Contagion as bullish catalysts, we can assume attitudes toward these situations remains pessimistic and priced in.

Back to today’s trade, everyone knows we are too high and anyone with a fear of heights already sold.  Same goes for the early pessimists fearing the Debt Ceiling.  All the bears have already sold, yet here we are just a fraction off a 52-week high.  That doesn’t bode well for bears because not only do they not have the strength to push the market lower, paradoxically the large number of bears is creating the fuel for the next rally leg.  When pessimists are out of the market, they cannot further pressure prices, but they can buy back in and that pushes prices higher.

TRADING OPPORTUNITIES

Expected Outcome:
Today’s price-action was bullish and supports a continuation higher.  The market had every opportunity to crumble, but it held up because bears are not in a position to pressure the market.  After they sold last week, the only thing they can do is watch (or buy back in and push prices higher).

I’m becoming more bullish on this market and there might be a nice upside trade.  But at the same time there is merit to the too-high, too-fast crowd’s argument, so any upside profits should be locked in fairly quickly.

Alternate Outcome:
Markets can breakdown over the littlest things and that can certainly happen here.  While most of the selling has already taken place, that is only half of what can make a market sink.  Lack of demand can also pressure prices.  And if fear grips the market, formerly bullish holders can turn into sellers.  While the high probability trade is to the upside, the downside risk is still very real and we need to be prepared to deal with it if the lower probability events becomes a reality.

INDIVIDUAL STOCKS

AAPL found support after early weakness.  While the stock finished in the red for the day, today’s price action is supportive and shouldn’t spook and holders out of the stock.  If the broad market makes a move higher, AAPL will follow.

Stay safe

AM: Testing the recent consolidation

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:31 EST

AM Update

MARKET BEHAVIOR

Stocks are selling off this morning, but still within the recent consolidation.  Holding support for a 3rd day in a row would be bullish and signal a continuation of the rally because breakdowns from significantly overbought levels happen fairly quick.  We need a material breach of the 1450-1455 level before confirming a breakdown.  We are close, but it will all depend on how the market closes this afternoon.  Failing to hold support could send us back to the 50dma, but a bounce could signal another round of short-squeezing.

MARKET SENTIMENT

A lot of people want to see this market selloff after last week’s sharp rally, the question is if the market wants to cooperate.  Right now it feels a little too easy to short this weakness and that doesn’t bode well for bears.  The best trades are often the hardest ones to make and right now buying seems to be the hardest thing to do.

Often the best way to determine what the market will do next is figure out what movement will create the greatest pain for the largest number of traders.  A breakout from here would please the bulls.  A breakdown would please the bears.  That’s too easy.  How about a whipsaw to zing both sides and make everyone look stupid?  A breakout above resistance will squeeze out all the shorts and tempt in the breakout buyers, but then reverse lower from the new highs to make everyone look stupid.  That is why I think the high probability trade is one more short squeeze before selling off.

MARKET OPPORTUNITIES

Expected Outcome:
In spite of today’s weakness, we are still holding the recent support area and this is bullish for higher prices.  We are so close to new highs that the market will invariably be drawn to breaking them even if the next move is lower.  Look for one more leg higher in the near-term, but then watch out for the pullback.  This setup is hard to trade and most would be better off waiting for a higher probability trade and just sitting this one out.  Longer-viewed traders can continue holding, just expect some near-term volatility and don’t let that shake your confidence.  Headlines are about to get ugly again over the Debt Ceiling, but this creates buying opportunities and is not a reason to sell.

Alternate Outcome:
The market can selloff for any reason and doesn’t always do what it is supposed to do.  A material break of 1450 would signal a lack of willingness form buyers to step in and we could see the slide everyone is expecting due to a lack of demand.  But don’t get short the market until we beak support and take profits quickly because this is just a counter-trend trade, not a material selloff.

AAPL daily @ 1:31 EST

INDIVIDUAL STOCKS

AAPL saw early weakness, but bounced back above $520 by late morning.  It is encouraging to see the stock find some footing after the last couple days of selling.  It looks like the stock wants to chop sideways until we get better clarity from the earnings report in a couple of weeks.  So far the stock has been a safe buy near the $500 level, but that won’t help if earnings disappoint.  I think the stock has seen a lot of selling ahead of this earnings report and most of the pessimism is already priced in, meaning most of the downside risk has already been realized.  On the other side, a positive report will launch the stock higher.  Limited risk on the downside, explosive upside potential, sounds like a great trade.   But there are no guarantees in the market so always practice prudent risk management.

Stay safe

WR & LA: Does this rally have legs?

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Weekly Review & Look Ahead

MARKET BEHAVIOR

The S&P500 was up decisively last week with a 4.5% gain.  Weekly volume was less than average, but the holiday shortened week played a big role in that.   The market is up an impressive 120-points since the post-election bottom in mid-November.  For as bad as the headlines and sentiment have been, we are a fraction from new 52-week highs.  Just another example of the contrarian trade being the right trade.

MARKET SENTIMENT

Obviously the big catalyst was the last-second Fiscal Cliff compromise, but the size of the rally had less to do with the news and primarily driven by the imbalance in trader sentiment and positioning.  Most traders were expecting us to fall off the cliff, sold ahead of time to avoid the near-certain collapse, and the market exploded higher when things turned out less bad than feared.  This was a beautiful asymmetrical trade.  Most of the selling occurring ahead of time, limiting the downside risk, and the oversold condition created a coiled spring to the upside.  A savvy trader prints money with setups like that.

The actual Fiscal Cliff compromise is nothing to get excited about and we will be back on the brink in a matter of weeks as the Federal Govt hits the Debt Ceiling.  Fundamentals are just as bad today as they were last week, but we find ourselves 5% higher because shorts were forced to climb over each other to cover their positions.  Normally this lays the foundation for a pullback, but after the market’s most recent rally, skeptics are a dime a dozen and it is these remaining skeptics that made the market drift higher in the later half of the week.

TRADING OPPORTUNITIES

Expected Outcome:
Overbought markets correct fairly quickly.  We saw two support days on Thursday and Friday, suggesting we are not overbought and have more upside before the inevitable correction.

Monday’s price action will go a long way to let us know what direction this market wants to go.  A breakdown signals a retest of the 50dma.  Anything short of a breakdown shows this market is not ready to selloff and another short-squeeze is on the menu.

Shorting the market here is a bad idea and instead wait for the breakdown before jumping in front of this rally.  You’ll be a little late, but you will reduce your risk exposure dramatically.  Further, a short here is a counter-trend trade, so don’t get greedy and take profits early and often.

For longs, we are closer to the end of this rally than the start and it is too late to chase this winner.  For those on the sidelines, the best trade is to wait for the next opportunity.  Any swing traders start looking for opportunities to lock in profits wait for the next trade.

Alternate Outcome:
The market doesn’t always do what it is supposed to and if we don’t see one of our expected scenarios play out, step aside and wait for the next opportunity.

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL finished up for the week, but well off the weekly highs as the stock sold off on market share concerns.  The stock is still comfortably above the $500 level, but technical will become meaningless after earnings are announced this month.

A couple of months ago everyone was bullish on AAPL, but the recent pullback brought out the cynics and they’ve become more vocal with every leg lower.  As popular as AAPL is, it has created a lot of passion on both sides and the stock will most likely move strongly one way or the other after earnings are announced.  One side will be decisively victorious and the other will run home with their tail between their legs.

With the lowered expectations, the higher probability trade is to the upside.  Of course there are no guarantees and that is where prudent risk management is essential.  No matter how good a setup looks, always trade so you can live to fight another day.

ET CETERA

I changed web hosts over the weekend and that caused some downtime.  I’m doing my best to ensure a smooth transition, but if you notice something not working, please let me know about it through the contact form above.  Hopefully it will be a seamless transition for everyone.

Stay safe

PM: 52-week closing high

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

The S&P500 closed up 0.5%, setting a new 52-week closing high and is just half of a percent from the absolute high.  Volume was average, but less than the previous two days.  The market is 55-points above the 50dma and just over the 1460 level that last Fall’s rally could not hold.

MARKET SENTIMENT

A lot of people are waiting for the market to pullback because everyone knows a two-day, 65-point rally is too-far, too-fast, but in the markets, the obvious trade rarely works out.  Most of the doubters have already locked in profits and/or sold short, yet we are still inching higher.

If most of the preemptive selling has taken place, supply is on the verge of drying up and we could see a new 52-week high next week.  That would send a lot of shorts running for cover and tempt breakout buyers to jump on board.  As the market continues its march higher, it will suck in the last undecided watching from the sidelines, but these last stragglers will signal the top as this time we run out of buyers and demand dries up.

TRADING OPPORTUNITIES

Expected Outcome:
Much like everyone else I expect a pullback, but I also see higher prices before that pullback happens.  Breaking 1475 would mark a new high and send shorts running for cover.  That last short-squeeze could be the top, or it could kickoff the next rally leg, it all depends on what other market participants think and how they are positioned as we make that new high.  If sentiment turns positive and breakout volume is huge, that would be a signal to fade the move.  But if  volume remains modest and most traders resist the temptation to buy, then the rally will continue.

Alternative Outcome:
This thing has to breakdown at some point and it could do that out of the gate Monday morning.  We need to close around 1460 to show support for the recent rally and if the market cannot do that, then the pullback will happen without a final short-squeeze.  No one knows for certain what will happen next and that is why we need to plan for multiple scenarios so we are better prepared for whatever the market throws at us.  It seems more likely the market will head higher, but that is no guarantee.

AAPL daily at end of day

INDIVIDUAL STOCKS

AAPL diverged from the broad market and lost 2.8% on concerns over market share.  The stock couldn’t find a bid and finished near the lows of the day.  No doubt this selloff sent a chill of fear and regret through many of the chasers who bought near $550.  Some of them probably even sold impulsively today as they feared the headlines and a bigger selloff.  But if a person bought in the low $500s, then this pullback is no big deal.  A big part of success in the markets is buying right.  If you can buy right, everything else becomes a lot easier.

Stay safe

AM: 20,000 views!!!

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 1:14 EST

AM Update

This morning I logged my twenty-thousandth view and I want to thank everyone for their enthusiasm and positive feedback over the last few months.  I am glad so many people find value in my analysis and I am always happy to share.  But the real benefit for me is these posts force me to be be thoughtful, analytical, and rational in my approach to the market and it has taken my personal trading to the next level.  Most people with teaching experience know the best way to learn something is to teach it, and I want to thank everyone for being a willing audience and allowing both of us to grow through this experience.

MARKET BEHAVIOR

Stocks continue trading around the 1460 level.  Reversals from extreme overbought conditions tend to happen within a couple of days, so barring a breakdown this afternoon, the market is firming up around these new levels and setting the stage for a continuation.  Monday will be the real test of this level and if we hold, expect higher prices, not lower.

MARKET SENTIMENT

Predicting the market is easy, the hard part is correctly timing those predictions.  Markets always pullback, but all the money is made in figuring out when they will pullback. There are a lot of traders afraid of this market and calling for an imminent pullback,  but we still haven’t seen evidence of that happening.  The longer we hold up in the face of this bearish sentiment, the more bullish it is for stocks.

TRADING OPPORTUNITIES

Expected Outcome:
The longer we hold at these levels, the more supportive it is for a continuation.  Maybe that is just one last short-squeeze, or maybe it is another leg higher.  But either way, this is becoming a dangerous place to be short the market.  We will eventually pullback, but the longer we hold at 1460, the less likely an imminent pullback from this level becomes.

Alternate Outcome
Rock-steady value buyers who purchased shares during the height of Fiscal Cliff pessimism are locking in profits and selling to more emotional traders who chase the market.  This is building a fragile foundation of owners who will panic at the first signs of weakness and negative news.  We might not yet have a critical mass of flighty owners in the markets yet, but their numbers are growing by the days and we shouldn’t expect the rock solid support we found near 1400.

AAPL daily @ 1:14 EST

INDIVIDUAL STOCKS

AAPL is plunging 2% over alleged market share concerns.  But in reality it is just some selling after a big run.  The stock closed the gap and is hopefully building a foundation to continue higher.  As we discussed earlier, AAPL is becoming a trading stock and as expected it hit some resistance at its 50dma.  But so far nothing is wrong with the stock and the only people who have to worry are those that chased it up at $550.  This further reinforces the approach of buying when you don’t want to buy and selling when you don’t want to sell.  It was tough to buy when the stock retreated to $500 and it was tough to let go after it surged to $550.

Stay safe

PM: Rest day

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Stocks closed modestly lower on elevated volume, snapping a monster two-day win streak.  We are resting just below the 1460 level that proved too difficult to break through last Fall.  Will this time be different?

MARKET SENTIMENT

Elevated volume today shows a lot of people were selling the 65-point rally, but declines were modest as new buyers were just as willing to step in at these higher levels.  Is this smart money selling to dumb money?

We squeezed past the Fiscal Cliff, but that wasn’t convincing enough to win over the pessimists who are now fretting about something else.  Attitudes and expectations about the future change slowly and one event doesn’t move the needle much.  The biggest difference between this week and last is the market is 65-points higher.   Rock solid value buyers bought the dip and are now selling to flighty momentum chasers.  This shift in ownership will add to coming volatility.  What was a coiled spring at 1400 is now mostly unsprung.  Anyone buying up here is chasing the market and chances are it will end badly.  We might see a little more upside just because too many people are expecting a pullback, but more often than not these big gains see a step-back before resuming higher.

TRADING OPPORTUNITIES

Expected Outcome
Longer-term holders should sit tight, just expect some near-term volatility as we digest these new gains and the market’s attention shifts to the next impending crisis.  Don’t let this noise shake your resolve.  Day-traders look for one last short-squeeze and hop on.  And swing-traders keep your powder dry until we see a convincing point to jump in.  The reason to remain cautions is we might not see the last short-squeeze, so the odds are not very favorable for swing-trading it.

Over the near-term I expect a pullback to 1425 before value investors feel like they are getting their money’s worth and willing to buy this market.   But expect headlines shouting doom and gloom when we do pullback.  It is never easy to buy the dip and it won’t be any different this time.

Alternate Outcome
There is a good chance my calls for a pullback are premature since this is such a widely held opinion.  This is why I expect one last pop before this rally fizzles, but I could be underestimating the size of the imbalance remaining in the market and the rally could go further and longer than just a short-squeeze.  But if this is the case, we’ll know soon enough when the market isn’t breaking down and we have time to adjust our positions.

AAPL daily at end of day

INDIVIDUAL STOCKS

Broad market weakness weighted heavily on AAPL today as it declined 1.3%.  The silver lining is the light volume shows not many people were selling and it was mor a lack of buying after a big run that lead to the weakness.  It would be perfectly reasonable and healthy for the stock to close the gap, so don’t let additional weakness spook you.  AAPL’s quarterly earnings are coming up in a couple of weeks and no doubt that will be the catalyst for the next move.  The gap between the bull’s opinions and that of the bears is just too wide for the stock to remain unchanged after earnings.  Between the lowered expectations and AAPL’s tendency to surprise the market, we could see a pop.  With as much selling as the stock has seen in recent months, there isn’t a lot of downside left in the name.  Strong upside potential with limited downside seem like a good setup for a trade.  There are no guarantees in the markets, but this one deserves a look.

Stay safe

AM: Modest gains

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:32 EST

AM Update

MARKET BEHAVIOR

Stocks are up modestly after yesterday’s monster rally.  The market is digesting that 65-point gain and neither side is making an aggressive move this morning.  We are just a hair above the 1460 level that was resistance for last Fall’s rally.  A move above 1465 could trigger a wave of breakout buying and another round of short-covering.

MARKET SENTIMENT

Looking back at the charts, there are many examples of large two-day moves, but the one thing to note is most of them gave back the second day’s gain before resuming the trend higher; the proverbial two-steps forward, one-step back.  If this happens again, we should expect to fill the gap and retest ~1425 before continuing higher.

Markets decline for one of two reasons, aggressive selling or lack of buying.  As far as this market came, many buyers are reluctant to buy up here and are waiting for a pullback.  This lack of demand will pressure prices.  Of course this is a double-edged sword because many of these reluctant buyers can also fuel a push higher.  If the market doesn’t pullback like expected, these reluctant buyers will be forced to chase prices even higher or risk being left behind.  And the third outcome is a little bit of both, continue higher to suck the last of the chasers before pulling back.

TRADING OPPORTUNITIES

Expected Outcome:
Yesterday’s gap up wasn’t as painful for bears as a steady rally that demoralizes them by a thousand paper-cuts   With a gap, there is no watching in dread as the market marches relentlessly against their position, eating their account minute by minute until they can’t stand the pain any longer.  Shorts woke up yesterday and were already so far under water the only thing to do is hope and pray for a pullback.  And the flat trade since the gap allowed many shorts to continue hanging on.  Look for a pullback to 1425, but expect another short-squeeze higher first.

Alternate Outcome:
With everyone calling for a pullback, it might not happen.  This bull could continue rallying on a steady diet of bears and pessimists.  Obviously the pace of the rally cannot continue and we will need to digest some of these gains, but if the market holds up for several days without turning lower, expect the market to continue higher.

INDIVIDUAL STOCKS

AAPL is pulling back modestly this morning after the big gains over the last two trading days.  This is constructive and supportive of the recent rally and $500 base.  It won’t be an easy hold, but patience will be rewarded in coming months as AAPL regains the 200dma and pushes toward $650.

Stay safe

PM: Fiscal Cliff rally

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR

Stocks had the best single-day gain in over a year and we have to go back much further to find a comparable two-day move.  Volume was the highest in a few weeks, as we easily cleared the December highs and are less than 1% off a 52-week high.

MARKET SENTIMENT

Clearly bears fueled this surge because fundamentals were not a factor in this move.  The world is not any better today than it was last week, it just isn’t as bad as some were predicting.  WIth the Fiscal Cliff is behind us, we can start obsessing about the next big catastrophe and right now the leading contender is the Debt Ceiling.  Who knows, maybe at some point earnings will matter again, but probably not in the immediate future.

As we discussed last week, the asymmetric trade was to the upside, but even I didn’t expect something this strong.  This is what happens when too many people think alike and position their portfolio the same way.  Everyone expected the market to crash as we plunged off the Fiscal Cliff and they traded this opinion ahead of time.  But the nature of supply and demand created a unique opportunity with limited downside and a huge 65-point two-day rally as the upside.  The news doesn’t matter nearly as much as understanding how other traders are positioned.  If all the sellers sold last week in anticipation of the Fiscal Cliff selloff, supply dries up and the market heads higher.  Add in a little good news and the market explodes higher.  But remember, the market is a spring, the 65-point rally pushed things pretty far and there is not a lot of upside left in this spring.  Much of the buying has already happened and it will take a new catalysts to bring in a fresh crop of enthusiastic buyers.

TRADING OPPORTUNITIES

Expected Outcome:
The market finished at the highs as it continued squeezing bears.  This might continue for a couple more days, but it will be hard for serious value investors to buy a 65-point, two-day rally and they will wait for the pullback.  As soon as bears are done covering their shorts, demand will slack off and there will be a modest pullback.  Be careful of chasing the rally at this point since most of the move is already behind us and anyone buying here is late to the party.

Alternate Outcome:
The market could continue driving higher as we set new 52-week highs.  Some bears are desperately holding on, praying for a pullback to let them get back some of the money they lost.  As long as these guys are hanging on, we can keep heading higher as they continue getting squeezed out.  But holding out for top dollar is a fools game and traders should be willing to lock in profits early and start looking for the next high-probability trade.

INDIVIDUAL STOCKS

AAPL joined the market’s rally, but it simply matched the market’s gain and didn’t have a big beta move.  But any AAPL bull should appreciate this restraint because the faster they rise, the harder they fall.  A measured rally is a sustainable rally.  AAPL is approaching the 50dma and this could provide some upside resistance that will eventually turn into support.

Stay safe

AM: We’re saved!!!

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:03 EST

AM Update

MARKET BEHAVIOR

Two percent gap-up at the open as we averted the Fiscal Cliff.  Huge short-squeeze as the last bears were sent for cover.  We easily eclipsed December’s high and continue putting in higher-highs and higher-lows.  It goes without saying this is a bad time to be a bear as we covered 60-points in two-days and 120 in two-months.  Regardless of headlines, the trend is higher.

MARKET SENTIMENT

Lets celebrate our politicians saving us from the very disaster they created!  Cynicism aside, the market is popping on avoiding some arbitrary and artificially created event.  If we didn’t have a “Fiscal Cliff” to be saved from and instead politicians sprang a surprise tax-hike and spending cuts on the markets, they would have tanked big-time.  This shows the news doesn’t matter as the exact same change spun two different ways creates dramatically different results.  Successful traders don’t trade the news, but the people’s reaction to the news.  This isn’t a game of fundamentals or technicals, but human psychology.

In two-days the bipolar market rallied 60 points from certain Fiscal Cliff apocalypse to unbridled euphoria.  But as we’ve seen, extremes in sentiment rarely last.  By the time the Fiscal Cliff confetti hits the ground, the market will already be fearing something new.   Right now the new rallying cry of the pessimists is the Debt Ceiling.  And to be honest, default is a far bigger deal than some politically conceived Fiscal Cliff.  But expect the halo and fuzzy feeling from the Fiscal Cliff compromise to continue for a bit as the market expect this collaboration in Washington to continue.  Only after we see a return to stubbornness and partisanship will it start weighing on equity prices.

TRADING OPPORTUNITIES

Expected Outcome:
A lot of the rally was driven by short-covering and we should expect the pace to slow, even pullback, as the market forgets about the Fiscal Cliff and focuses on what comes next.  The recently passed bill did not address the Debt Ceiling and we should expect this to weigh on investor’s minds in coming days and weeks.

This morning’s short-squeeze is a good time for swing-traders to lock-in profits.  We might see some additional short-squeezing over the next day or two, but it is a fools folly to hold out for top dollar.  For others looking at new buys, it is a little late in the game to chase the rally and we could see some selling of the news in coming days.  For longer-term traders, I remain bullish but expect some near-term volatility, wait for those dips to initiate new positions.

Alternate Outcome:
It is possible stocks will continue racing higher in a repeat of 2012’s record-setting first-quarter rally, but if this is the case, there will be plenty of time to jump back on the bandwagon since market rallies take time.

AAPL daily at 2:04 EST

INDIVIDUAL STOCKS

AAPL opened at $555 this morning, up 10% from its recent lows.  People are jumping all over each other to buy a stock that just a couple of days ago was left for dead.  Swing-traders should look to lock-in profits as the stock could run into overhead resistance at the 50dmda.  Wait for the inevitable dip to buy back in.  For longer-term investors, hopefully you bought earlier and have a nice profit cushion to ride out near-term volatility.  If you missed the rally, try to resist the temptation to chase and wait to buy near-term weakness.  And hopefully any shorts learned their lesson about being greedy and holding too long or chasing the obvious short too late in the game.

Stay safe

PM: Fiscal Cliff plunge = rally?

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

PM Update

What was the least expected price action today?  That is exactly what we got.  Markets don’t move on fundamentals or technicals, they move on supply and demand.  Run out of sellers and markets rally, cliff or no cliff.

MARKET BEHAVIOR

Stocks were up 1.7% on the final day of the year.  The market opened lower, but rallied through the day on Fiscal Cliff hopes.  This put the hurt on bears as the obvious Fiscal Cliff collapse turned into a monster rally instead.

MARKET SENTIMENT

A lot of traders were positioned for a Fiscal Cliff collapse and this rally caught them by surprise.  People pay too much attention to the news and not enough to how other traders are positioned.  Deal or no-deal, the Fiscal Cliff is a drag on the economy, but if you trade the fundamental story, you would be on the wrong side of this trade.  This is because markets respond to supply and demand, not fundamentals or technicals.  Everyone saw the Fiscal Cliff coming from a mile away and sold ahead of it.  There is no supply of new sellers remaining, thus we rallied in spite of the headlines.

Speaking of headlines, lawmakers have a couple more hours to strike a deal and avert the cliff, but this focusing on the wrong thing.  We are obsessing over “deal or no-deal”, but this isn’t a binary event.  A deal doesn’t save us and no-deal doesn’t ruin us, but that is the way people are trading it.  Once we are past the deal/no-deal hoopla, the market will move its attention to something else.  Maybe that is the ramifications of the compromise, maybe it is Europe, or maybe something entirely new.  Remember every ECB meeting or employment report from last year that was supposed to “make or break the market”?  The Fiscal Cliff will be just like that, hours later and it will be ancient history.

TRADING OPPORTUNITIES

Expected Outcome:
Most of the selling already happened and the high probability trade is to the upside.  All the sellers have sold and supply is drying up.

Alternate Outcome:
Within hours of the New Year and we still don’t have a deal.  When markets open on Wednesday, that could pressure prices, especially since we had a strong short squeeze Monday.  But even renewed weakness presents a buying opportunity because the market is so overly pessimistic and most of the weak hands have already sold.

AAPL daily at end of day

INDIVIDUAL STOCKS

The strength of the indexes was only out-shined by the monster run AAPL had, up nearly 4.5%.  This stock is finding buyers and running out of sellers, a recipe for higher prices.  It won’t be a smooth ride because there is a lot of overhead supply to work through, but the stock has probably seen the lowest of the lows.  I’m not an AAPL bull by any stretch and think they will see real competition from Samsung and Microsoft next year, but the stock was oversold and presents a great buying opportunity as we will probably see $650 this year, maybe even before summer.

Stay safe

AM: Waiting on DC

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:56 EST

AM Update

Churning sideways at 1410, but the asymmetric trade remains to the upside as most traders fearing the Fiscal Cliff already sold and holders are willing to hold in the face of this risk.

MARKET BEHAVIOR

Markets are down a half-percent in light trade as everyone awaits developments out of Washington.  We bounced off 1400 yesterday and are holding around 1410 today.  So far 1400 is the line in the sand, break below this and we could see a wave of technical and stop-loss selling hit the markets, but so far bulls have successfully defended this key level.

MARKET SENTIMENT

The Fiscal Cliff continues dominating headlines at the expense of everything else.  Yesterday’s bounce off 1400 started when the House announced it was reconvening on the 30th.  While there is little hope a deal will be reached over the next few days, this development was enough to squeeze bears out of the market.  This hints at the upside potential if good news comes out.  On the other side, most traders are already resigned to falling off the cliff.  Those afraid of headlines already sold ahead of the 31st expiration, leaving few sellers still in the market to actually sell the news.  If anyone was convinced we were headed over the cliff and this would lead to a massive selloff, who wouldn’t sell ahead of it?   These pessimistic expectations and positioning create an asymmetrical trade to the upside since most of the downside has already been realized.  This isn’t to say we cannot see further near-term weakness.  While we won’t see a massive wave of selling, a dearth of buying can also pressure prices, but the upside potential at this juncture is greater than the downside.  Success n the markets it isn’t about predicting the future, but knowing the probabilities of various outcomes and trading those when they are in your favor.

TRADING OPPORTUNITIES

Expected Outcome:
Most of the Fiscal Cliff selling has already happened, meaning we should only see modest weakness after the event, and might even see the market find support in a sell-the-rumor, buy-the-news phenomena.  While dysfunction in Washington is not a good thing,  once all the selling happens, supply dries up and the market has nowhere to go but higher.  Since this is such a well telegraphed event, most of the Fiscal Cliff selling will happen ahead of time and the new crop of buyers are willing to hold through this volatility.  The ironic thing about stock holders expecting volatility is they eliminate volatility.  This is because confident holders don’t sell the headlines and that is all it takes to put a floor under the market.

Alternate Outcome:
Since we are so close to 1400 and all the stop-losses resting just below this technical support level, even modest weakness could drop the market to the point where it sets off a wave of autopilot selling. But while the avalanche might feel scary, it will find a floor not long after because the autopilot selling will climax fairly quickly when it isn’t followed up by real selling.  Many of the holders bought after the election and in the face of Fiscal Cliff headlines, meaning they have a longer-view of the market are harder to shakeout.  Their confidence in the future prospects will keep a bigger wave of selling at bay.

AAPL daily at 2:58 EST

INDIVIDUAL STOCKS

AAPL is holding near $510, giving traders another opportunity to jump in at the $500ish level.  Funny how when the stock is $550 or $600 people wish they bought at $500, but when it retreats back to $500, it is hard to pull the trigger because it looks like it is breaking down.  My experience is the hardest trades to make often work out and the easy trades blow up in my face.  If a stock seems too high, it keeps going higher; if only fools would buy it, it probably bottomed.  On the other side of the coin, if a rising stock is a sure thing, it is probably peaking and if a falling stock looks like a great buy, then it will probably continue lower.  And this isn’t just hyperbole, there is a lot of psychology and supply and demand dynamics that make this a very real phenomena that we can get into at some other time.

Stay safe

AM: Testing 1400

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:26 EST

AM Update

MARKET BEHAVIOR

Stocks are down for the 4th day and finally breached the 50dma.  Volume is light in the holiday shortened week, but volatility and uncertainty remain high because of the ongoing Fiscal Cliff debate in Washington.

MARKET SENTIMENT

Not many big money managers are interested in buying stocks this holiday week.  As we discussed last week, most senior decision makers are on vacation and the junior traders manning the desk don’t have the authority to make new buys and are just there to sell stock if we break key technical levels.  Today we find ourselves at two of these key levels, the 50dma and 1400.  Will stocks fall further as automatic sell orders are placed and value buyers are on vacation and not there to put a floor under the market?

There are few optimists remaining who think a Fiscal Cliff deal will happen before the end of the year.  Falling off the cliff is already baked in and we don’t need to fear a massive selloff when we officially go off the cliff next week.  It is so widely expected, anyone who fears the cliff already sold, limiting the amount of new selling to hit the market when it actually happens.  But while we won’t get hit with a wave of selling, lack of buying can also push prices lower and we could see further weakness until value buyers come back to work next week.

TRADING OPPORTUNITIES

Expected Outcome:
Most of the Fiscal Cliff fears are already baked in the market, meaning there is more upside than downside at this point.  Traders can wait for more weakness to develop, but don’t pile on the short-side expecting a plunge because most of the selloff has already happened.  Instead start looking for the next big opportunity on the long-side as the market moves past Fiscal Cliff worries.  Finding support at 1400 would signal a good time to buy stocks.  Buy the rebound instead of trying to catch the falling knife.  A dip under 1400 could trigger more selling before we finally bottom, so wait for the confirmation.

Alternate Outcome:
While a lot of the professional Fiscal Cliff selling has already taken place, the wildcard is an emotional selloff from 401k investors.  Will these less experienced investors hit the panic button when the January 1st headlines are screaming Fiscal Cliff collapse?  There is a chance we could see a repeat of the cascading post-election selloff, but that seems less likely because November’s selloff shook out most weak and emotional hands, leaving us primarily with holders that are less skittish in the face of uncertainty, hence the reason they are holding in the face of the Fiscal Cliff worries.

AAPL daily at 2:26 EST

INDIVIDUAL STOCKS

AAPL is making a move for the $500 level again on the back of broad market weakness.  Recent support at $500 might encourage more adventurous value investors to jump in at these levels.  As risky as it seems owning AAPL down here, this is the safest time to own AAPL in nearly a year.  AAPL has gone from everyone’s favorite stock to the favorite whipping boy with countless reasons not to own it.  The recent slide made it hard to remain positive on the stock, but this change in sentiment was inevitable given how bullish everyone has been for so long.  Can the stock slide under $500?  Absolutely, but buying AAPL at $500 is without a doubt safer than buying it at $700.  Keep an eye out for a material penetration under $500, but 10% risk to the downside and 20% opportunity to the upside sets up for a nice trade.

Stay safe

AM: Merry Christmas

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:50 EST

AM Update

MARKET BEHAVIOR

Stocks are down fractionally on Christmas Eve as most buyers and sellers are taking the day off.  We are sitting at 1425, but we need to be wary of any dip under 1410 that would violate the recent bounce and 50dma.  This would trigger a wave of stop-losses clustered below these technical levels, further pressuring the market.

MARKET SENTIMENT

Friday’s selloff didn’t continue and overwhelm today’s light pre-holiday trade.  While we might see more weakness in coming days, don’t expect a major collapse.  All the bears who are pessimistic about this economic and political environment have leaned into this market with all their might and the best they coud manage was a 20 point decline.  The market also tried to shake out weak holders and but failed to induce many traders to bail on their positions.  Most of the holders in this market are willing to hold through the headline risk and that bodes well for the bull case.

News doesn’t drive markets, people trading stock does.  If bears are already out/short and holders are willing to hold through volatility, then markets defy gravity and negative headlines slide right off.  This description fits our current situation pretty well.  Going into next year how do things look?  We have all this headline risk and pessimism already priced into the market.  If we have already realized most of the downside, it doesn’t take a genius to figure out what the markets will do once we see a constructive resolution to these risks?

TRADING OPPORTUNITIES

Be ready to buy the rebound in the second half of this week.  We could see some initial weakness, so wait to buy on strength.  Shorts really need to get out-of-the-way of this market and should use weakness today or Wednesday morning to go flat.  Most people now anticipate us moving into the new year without a Fiscal Cliff deal, so don’t expect major selling when that widely expect event comes and goes.

INDIVIDUAL STOCKS

AAPL is up modestly in spite of broad market weakness. The low $500 range attracts buyers as we bounced off this level three-times already.  So far this has provided firm support for AAPL shares and is a key line in the sand going forward.  AAPL is buyable as long as we hold above this line.  Drop under $490 and we need to reevaluate.  I would largely discount selling due to another analyst downgrade or other opinion based analysis.  The only thing that would concern me is a material change in fundamental data out of the company in their upcoming earnings report.

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LA: Light volume trade be misleading

By Jani Ziedins | Intraday Analysis

S&P500 weekly at end of week

Look Ahead

MARKET BEHAVIOR

Markets were positive last week, but finished on a sour note after Friday’s selloff.  The big question is if the market will continue the weekly trend higher, extend Friday’s slide, or the third option, a bit of both, further weakness before rebounding higher.

MARKET SENTIMENT

The holiday-shortened week will see light volume as most big-money managers are on vacation.  Obviously these guys cannot closeout their positions before leaving, so to manage risk their only alternative is leaving stop-losses to protect their portfolio.  Some of these are electronic, others are junior traders stuck manning the desk through the holidays.  But while the junior traders have the authority to sell shares if the market hits predetermined stop-loss triggers, these young traders don’t have the same authority to initiate new buys.

What makes this noteworthy is it creates an imbalance with sell triggers piled around key technical levels but very upside catalysts where automatic buying will take place.  The light volume also increases the opportunity for volatility because smaller orders carry more weight and can move the market. It could make for an interesting week with a slight negative bias.  But often these holiday week moves are not fundamentally driven and do not stick once the decision makers return to work.

TRADING OPPORTUNITIES

The lack of massive selling last Friday on the Fiscal Cliff breakdown, shows the market is not spring-loaded to the downside.   This is encouraging news for bulls looking to buy this market.  We could see some carry over from Friday’s selloff, but barring panic induced selling, we are close to the bottom.  As I shared above, the holiday week could result in a negative bias, meaning we might wait to buy until the back half of the week to see how things develop.  We could easily see the market take off on light volume, but we could also see it plunge if stop-loss selling kicks in.  But either way expect the market to stall after the initial flurry of orders is filled.

I continue being constructive into next year as the market stops worrying about the Fiscal Cliff and a lot of this new money from special dividends and 2012 tax selling gets pumped back into equities.  Even longer-term there is huge upside potential as money starts flowing out of bonds and back into equities.

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL is the exception where I expect there are many automatic buy-orders near the $500 level with big money itching to get back in the stock near these lows.  If there is weakness in the markets, we could see AAPL find a floor near $500 as junior traders are under orders from their bosses to buy any time AAPL dips to $500.  For those holding the name, this could provide some downside protection.  Of course breaking $490 and all bets are off and you’ll see a lot of stop-loss selling punish the stock.

Some people criticize my analysis because I lay out two different scenarios.  But the truth is I don’t have a crystal ball and I cannot know for certain what the market will do in the future.  I trade the higher probability, but even low probability events happen on a regular biases   I am always considering multiple outcomes so I am prepared for whatever the market throws at me and I know how to trade different situations.  In AAPL’s case, I expect to find support at $500 and the stock is buyable here, but dip under $490 and expect a wave of stop-loss selling to punish the stock.  How a person trades that cascade of selling depends on their timeframe and holding period.  But having a plan at $490 helps alleviate some of the fear and doubt that inevitably happens when a trade moves against us.

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