Category Archives for "Weekly Analysis"

Mar 09

WR: Big weekly gain

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

Strongest weekly gains in two-months as holders refuse to sell and keep supply scarce.

MARKET BEHAVIOR

Stocks had their best weekly gains since the start of the year, setting multiple-new highs along the way.  Weekly volume was unremarkable on this 2% up-week.  The market is 45-points above the 10wma and 124-points above the 40wma, both fairly reasonable levels for a bull market.

We are 14-points shy of the all-time closing high and 24-points from the intra-day high.  This rally set numerous records already, is all-time S&P500 highs next on the todo list?

MARKET SENTIMENT

Markets moved past recent volatility and rallied six-days in a row, gaining 50-points in just over a week.  This finally produced the large weekly gains we have looked for as a potential signal of impending exhaustion, although volume was modest and shows chasing has not hit a fever pitch yet.

We are within arm’s reach of all-time highs.  Can the market really come this far and not take them out?  Everyone is watching these levels and recent strength is emboldening holders.  They are less likely to sell when all they can think about is how smart they are and much money they are making.   Expect their confidence and greed to keep supply tight.

Losing shorts last week is a major development since they have been instrumental in powering the market higher with their short-covering.  The lack of pop on Friday shows their numbers are dwindling because the gap-up on strong employment was the perfect setup for another powerful short-squeeze.  The reason it didn’t happen is because bears are finally growing wary of shorting this market and were sitting this one out.

TRADING OPPORTUNITIES

Expected Outcome:
The market is drawn magnetically to record highs and no doubt all-time highs are on the todo list.  There are three-weeks left in this quarter and the market has a little more upside left in it.  Strength early in the week, pushing us to 1565 and beyond should be sold.  We’ve come a long way and the market needs to rest, even if it is just a few days.  If the market dips early in the week, finding support above 1530 signals a continuation and record highs before the end of the quarter.  Violating 1530 likely means we ran out of buyers and the pullback is happening.

There is no good reason to hang on much longer in this market.  We have 20-points of upside and 100-points of downside.  That doesn’t create a favorable risk/reward.  Once we are in cash, that frees us to look for the next trade.  Maybe that is shorting the correction, or maybe buying the continuation.  Either way the clear head from being in cash is what let us see the next profit opportunity.

Alternate Outcome:
Six-consecutive up-days isn’t even close to the record and we could string together another six.  But just because it is possible doesn’t mean it is likely.  We are here to make the high-probability trade and that often means getting out early.  Maybe we proactively sell into strength or alternately use a trailing-stop , but at some point we have to say good enough.  If this market has a lot more upside in it, it will slow down and rally at a sustainable pace, meaning it will be easy enough for us to recognize and correction our mistake of selling too soon.

Stay safe

Mar 03

LA: Look for new highs

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead

The market clearly wants to go higher, but stay vigilant because the next dip is less likely to bounce.  Look for AAPL’s weakness to persist as money managers dump shares before the end of the quarter.

MARKET BEHAVIOR

The market finished within 1% of a 52-week high in spite of several down-days that tried to break the market.  Weekly volume was above average, not surprising given the volatility.

MARKET SENTIMENT

Last week’s violation of major support at 1500 gave the market every excuse to breakdown, but rather than trigger a larger wave of panic selling, the dip ran out of supply and prices snapped back.  This behavior is extremely insightful for understanding what the market is thinking.  Obviously we had an initial wave of sellers crowding the exits, but no one else followed their lead and soon after the selling stopped.  When the market finally bounced back, holders were rewarded for holding and sellers were humiliated for being impulsive.

This strength is emboldening bulls and humbling bears.  We can take two things from this.  First, holders are more confident and less willing to sell because in their mind every dip bounces.  This keeps supply tight, reduces volatility, and supports price increases.  Second, when the market does dip again, this will be the real thing.  If everyone is holding the dip, yet we are still going down, that means we ran out of buyers and the music has stopped.

TRADING OPPORTUNITIES

Expected Outcome:
Stay long and look for new highs.  The recent shakeout refreshed the market and 1550 is expected and all time highs at 1575 is within reach.  But be wary of any breakdowns because they will be less likely to bounce.  Falling under 1500 shows this market lacks follow-on buying and makes for a stop-loss of last resort.    If we keep making new highs, use a trailing stop to protect gains.  For example, if the market hits 1540, move the stop up to 1520.

Alternate Outcome:
Last week’s price action was extremely bullish, but there are no guarantees and the market could turn lower at any moment.  Give the market some room to move around and digest recent gains, but if dip buyers fail to show up near 1500, they are not coming and we need to get out.  Markets can only bounce so many times before they run out of support and break lower.  The trend is higher and that is the high-probability trade, but always cover our backside.

INDIVIDUAL STOCKS

With just a few weeks left in the quarter, AAPL is running out of time to bounce and save overweight managers.  When portfolio managers become convinced AAPL will not bounce back by the end of the quarter, they will sell ahead of quarter-end so they don’t look foolish being overweight AAPL.  Expect this window-dressing to keep weighing on the stock in coming weeks. But what starts as window-dressing will likely devolve into wider selling as the market dips under stop-losses and flushes out holders who cannot handle any more pain.  This will likely push AAPL to $400 over the next couple weeks.

A steep selloff without a legitimate fundamental catalyst says the stock is finally reaching capitulation.  This will be the ‘V’ bottom that finally put a floor under the stock.  The lack of a fundamental driver means it is a sentiment based move and is finally showing a change in investor attitudes.  But if the stock continues grinding lower, that is more worrisome because grinding bottoms are longer and deeper.  The goal is extinguishing all hope and a slow grind lower means holders are still stubbornly holding on and refusing to let go.  This is like pulling a band-aid, quick is usually better than slow.

ET CETERA

I receive a lot of compliments for this blog and I want to thank everyone for their support and encouragement.  I created a new tab to showcase all the kind words people share and I want everyone to know how much I appreciate it.  Thank you.

Stay safe

Feb 24

LA: Buy the dip?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review and Look Ahead

Look for a quick bounce from last week’s dip as holders grow more comfortable holding.  This market will top, just not yet.  AAPL continues its 6-month trend of lower-highs and lower-lows.  Don’t bottom pick in this stock and wait for strength to come back before buying.

MARKET BEHAVIOR

Stocks recorded their first negative week of the year and shook out a pile of nervous holders in the process.  Weekly volume was light due to the holiday, but each day was near or above average, meaning it was not a quiet trading week.  The 10wma is catching the market and only 33-points behind.   The slower moving 40wma is still 100-points, but closing the gap.

While the market finished down just 4-points, the weekly range of 34-points was the widest we’ve seen in a while, setting a new high and temporarily dipping under support at 1500.  Obviously things didn’t workout as planned for anyone buying the breakout or shorting the breakdown and everyone will be watching anxiously for the market’s next move.

MARKET SENTIMENT

There are two kinds of pullbacks, those that go further than expected and those that bounce quicker than expected.  While there are no hard rules in the market, extended pullbacks are usually rooted in emotion.  Obama winning reelection and the Fiscal Cliff debate lead to a wave of emotional selling as traders left reason at the door and predicted an imminent collapse of the American way of life.  The subsequent rebound was equally impressive because the selling was unjustified.  Now compare this to the dips that were more structurally based and arose from buyers taking a break.  Selloffs caused by normal supply and demand imbalances are short-lived because the market is simply regaining its footing.

Many traders expect last week’s selling to continue, but it really doesn’t need to and in fact the high-probability trade is a quick bounce.  Of course quick is a relative term and can mean anything from 1 to 3 weeks, but the sheer number of people thinking this selling will continue leads me to believe it is likely done.  I could be wrong, but that’s what stop-losses are for.

TRADING OPPORTUNITIES

Expected Outcome:
The harder trade is buying the dip after only two-day, but the dramatic shift in sentiment and surge in the VIX suggests we already shook complacency from the market.  It is encouraging selling dried up on Thursday as holders kept holding after a dip under 1500.  And more than that, anyone who held the dip is feeling pretty smart and  even more committed to this rally.  That growing confidence among holders is why this market will not top on bad news.  No doubt the rally’s days are numbered, but the correction will happen from running out of buyers.  In the near-term continued strength will force bears to cover shorts and those trailing the market will keep chasing, meaning there is more buying left in this move.

Alternate Outcome:
Two-days of selling might not be enough and we could see another week or two of weakness before the market makes new highs again.  The deeper the selling, the more sustainable this rally becomes.  Shaking weak hands is what refreshes the market and clears the way for a move higher. If we resume the rally after just two-days of selling, the rally will be fragile and close to topping.  A deeper dip will let this market more thoroughly refresh, potentially extending into the 2nd quarter.

As for a trade, stay long the market as long as it holds above 1495 and look for a new high stretching past 1540 over the next few weeks.  A dip under 1495 means the market will test support at 1475.  No one knows for sure what the market will do next week and we will revise our outlook as the market gives us new information.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL fell 2% for the week and is resting at $450.  Upside resistance remains at $485 and the low of the move is $432.  Dropping under $432 will extend the pattern of lower-lows and a close above $485 gives the stock its first higher-high in 6-months.  It took rumors of an increased dividend to push the stock up to $485 two-weeks ago and it will most likely take another fundamental catalyst to get it back up there.  Without some great news, expect the stock to continue drifting lower.  The stock could rally on broad market strength, but use that as a selling opportunity and resist the temptation to buy strength until the stock regains $485.

Stay safe

Feb 18

LA: What to look for

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead

How far can this streak of up weeks continue and where is the incremental AAPL buyer going to come from?

MARKET BEHAVIOR

Stocks were up for the seventh consecutive week.  Over the last few years this is as long as any streak lasted and we should expect a red-week simply based on historical precedent.  While I’m sure there are many times over the last 100-years where the market strung together a larger number of winning weeks, trading is a game of probabilities and we need to trade what is most likely, not what is possible.

MARKET SENTIMENT

The recent rally and absence of volatility is making the market feel safe, something we need to fear.  I’m not promoting a crash, simply a red-week or two to keep traders on their toes.  How people respond to the dip will tell us how far it will go.  If the prevailing attitude is complacency and buy-the-dip, look for a deeper pullback.  If everyone starts yelling fire and rushing for the exits, look for another quick rebound.

The rule of thumb is trade the opposite of what most expect.  The sharp pullbacks to 1,500 two-weeks ago got traders attention and excited bears.  This was finally the pullback everyone was waiting for, but the market rebounded and is now 20-points higher.  That episode ago humiliated bears and sellers who jumped on the pullback bandwagon only to watch the market pop higher.  Now this group of potential sellers is less likely to pile on board a similar dip in the future.

This matters because nervous sellers and shorts have a limited war-chest and run out of ammunition quickly if bigger money doesn’t join the selling.  That is exactly what happened two-weeks ago.  But what happens if the nervous sellers are already out of the market and bears are reluctant to re-short the market?  That means the next dip isn’t manufactured selling, but real selling.  This is the fundamental difference between a buying-the-dip opportunity and a real market reversal.  If you know who is selling, you have a better chance of accurately anticipating the move.

The above scenario describes the way these things normally play out.  I’m not exactly sure where we are in this process and that is why we need to keep looking for clues from the market’s behavior.  The trend remains higher, but we need to be increasingly cautious with each passing day.

TRADING OPPORTUNITIES

Expected Outcome:
Look for a small red week this week or next simply because history says this is about as far as these things normally go.  This could be a small pullback, or the start of something bigger.  We need to keep a close eye on how the market and sentiment responds to any weakness, looking for clues on where this market is headed.

Alternate Outcome:
While seven up-weeks is a lot, it is not impossible for us to string together several more.  The momentum is clearly higher and reluctant buyers are finally starting to wade in.  Their buying will keep propping up the market until they run out of money and that will be when the market finally noses over.  Running out of buyers, not complacency is what finally causes a market to top.

The outcome I am most hoping for is a strong push higher because that is unsustainable, will clearly signal an intermediate top, and be an attractive place to short the market.  This grinding higher stuff is far harder to predict and time.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL is struggling again and the last few weeks of buying sucked in many of the bottom-pickers.  The question any AAPL bull has to answer is who is the next buyer that will keep the rebound going?  Markets are driven by supply and demand, so where is this new demand going to come from if all the AAPL bulls already own the stock?

My opinion is there is still too much hope and optimism left in the stock to stage a quick recovery.  The most likely scenario is the most loved stock will need to become the most hated stock before selling and hope finally exhaust themselves and the stock can bottom.  The other red flag is any weakness felt by the broad market will be exacerbated in AAPL shares.

Stay safe

Feb 17

WR: Amnesia

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

MARKET BEHAVIOR

Stocks closed flat for the week, up less than 2-points.  The range was tight, 0.7%, with a low of 1514 and high of 1525; both of these levels representing near-term support and resistance.

Exchange volume was right around average, but since it was option expiration week, volume was actually a little light.  The slow trade allowed the 10-week moving average to catch up and it is now just 48-points under the market and the slower moving 50-week moving average is trailing by 110 points.

MARKET SENTIMENT

Holders have not been interested in selling this market.  We’ve seen multiple dips to support, but nothing achieves critical mass and inevitably rebounds quickly.  If there was one trade that worked well with the indexes the last couple months, it’s buying anything, dips or not.  A few weeks ago traders were afraid of this too-far, too-fast market, but now that every sale, stop-loss, and short has been a mistake, cynics are finally coming around.  But the thing to be careful of is this shift in sentiment is what causes an intermediate market top; after everyone buys, demand dries up, and stocks dip.

There were tons of reasons not to buy this market a few weeks ago, but a relentless series of new highs is giving traders amnesia.  Everyone isn’t sold on this market yet, but they are coming over in larger numbers with each passing day.  How much longer this can keep up is the big question.

I don’t expect the market to collapse because there are still too many cynics remaining, but there is no more effective persuader than seeing everyone else make money.  This means there are two ways we can move ahead.  One is directly and the other is after a nerve rattling dip.  Straight up will suck in the last of the fence-sitters and exhaust demand in one final push higher.  Typically this happens on the largest weekly gains we’ve seen since the early days of the rally.  This would be the quickest route to a material pullback.

The slower, but more sustainable trade would be dipping dramatically to flush out some of this new-found complacency.  To continue sustainably the market needs to shake out recent buyers and tempt aggressive bears to short the market.  Once this limited selling runs its course, look for the market to find support and resume its rally.  A mid-rally dip like this could last a couple of weeks before resuming higher, but expect it to feel like the real selloff because that sense of panic is what will refresh the rally.

TRADING OPPORTUNITIES

Expected Outcome:
Look for near-term weakness from a sustainable rally or a strong push higher out of a topping pattern.  We are half way through the first quarter, meaning there are at most six-weeks left in this move, and possibly less.  The conservative trade is taking profits and the aggressive trade is squeezing out a little more.  If you like sleeping at night sell some stocks, if you enjoy the thrill of the chase, tighten up your stops and get ready to hang on.

The advantage of selling into strength is you don’t have to guess if a dip is just a dip or the start of a real selloff.  Chances are weakness next week will be another buying opportunity, but there are no guarantees and the aggressive trader will have to decide wither or not to sell.

Alternate Outcome:
The market is not always predictable and a strong break higher could be a buying opportunity, but that is a low probability trade and one I’ll just have to sit out.  I don’t need to make all the money, just the easy stuff.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL finally had a down-week after two-weekly gains following the post-earnings plunge.  Was this two-week rebound the dead-cat bounce or is this week’s weakness just a dip on the way higher?  The stock ran into psychological resistance at $485 and is currently retesting support at $460.  A dip under $460 would trigger more stop-loss and short-selling, pushing the stock back down to recent lows of $430.  To resurrect this stock from the dead, it will need to regain and hold $500, but in the near-term the stock will make for a far better swing-trade than buy-and-hold investment.  Buy the dips and sell the rallies and the stock swings between extremes of hope and despair.

Stay safe

Feb 10

LA: Rally continues

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review and Look Ahead

Another modest weekly gain, but volatility picks up.  AAPL is rallying on rumors and hope, but will Tim Cook deliver?

MARKET BEHAVIOR

The market finished fractionally higher in a week that provided the largest volatility we’ve seen since the Fiscal Cliff pop.  These swings show there is still indecision in the markets, but for all the attempted selloffs, the market held firm at 1500 and finished at a new high.

The market is 56-points above the 10-week moving average and 112-points above the 40-week moving average.  The faster 10wma turned up and is keeping pace with the market, trailing the index by only 3.6%.

MARKET SENTIMENT

Bears continue trying to take down this “overbought” market, but are helpless to stop it.  We saw three legitimate attempts to break this rally, but each one failed because the wider group of holders was unwilling to join the selling.  From a supply and demand viewpoint, each selloff shook out weaker holders, meaning those left holding stocks are confident in their positions and their resolve is keeping supply tight.

The new highs are also intensifying the pressure on money managers underweight this market.  “Smart money” had a horrible 2012 and 2013 is starting with a case of deja vu.  It is hard to predict how long these guys can sit out, but it looks really bad when dumb index funds are outperforming smart money by multiple percentage points.

TRADING OPPORTUNITIES

Expected Outcome:
While we saw some of the widest swings in over a month, the weekly gain was modest.  Often directional rallies top on one of the largest weekly gains of the move, and by that measure this rally still has room to go.  The high probability trade remains to the upside.

Alternate Outcome:
Every rally ends and this one will be no different, but the challenge is figuring out when.  Money is made knowing the difference between what is real and what is just noise.  Keep a close eye on 1505.  If we cannot escape 1500, that will indicate this market is running out of new buyers and we should prepare for an imminent pullback.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

AAPL climbed into the post-earnings gap on rumors and hope.  Tim Cook is speaking this week and traders are looking for hints at a more generous plan to return money to shareholders.  If Cook doesn’t say what investors want to hear, look for AAPL to selloff sharply.  And even if they get what they want, look for significant resistance at $500 as many regretful owners try to get out at break-even.

Stay safe

Feb 02

WR: Don’t doubt this bull just yet

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

Markets set another weekly closing high and are maintaining a moderate and sustainable pace of gains in spite of all the calls of overbought.   AAPL bulls are a stubborn bunch and the rebound will take even longer than I originally suspected.

MARKET BEHAVIOR

Stocks closed at a new weekly high and are up five-weeks in a row.  The winning streak’s duration and rate of gains is reasonable when compared to other rallies in recent history.  While it feels like a lot, it is not unusual to see markets string together consecutive up-weeks.  This also illustrates the advantage of looking at weekly charts because it eliminates most of the daily noise and more accurately reflects what the market is actually doing, in this case rallying smartly.

MARKET SENTIMENT

This market is attracting a chorus of enthusiastic and vocal bulls, but a fair number of cynics remain, saying these new highs cannot last.  These cynics are right, but anyone who says the market will pullback is right simply because the market always pulls back.  But as traders, undefined predictions are meaningless because successful trading has little to do with direction everything to do with timing.  You can get the overall direction wrong, but if you have impeccable timing, you can still make lots and lots of money, and no doubt most of us have been frustrated by making the exact right call, but lost money because we screwed up the timing.  Never forget, predictions are meaningless when it doesn’t include timing.

If we focus on the immediate market, the trend is clearly higher and we are not extended yet, so stick with the trend.  Looking back at the last couple years on a weekly chart we can see most intermediate highs occurred when an extended run had a larger up-week than at any point in the rally with the exception of the rally’s first week.  The last surge higher is when bears throw in the towel and sideline watchers can no longer resist the temptation to buy.  This crates one last surge higher and is typically larger than any previous weekly gain.  This large price gain on high volume is the classic capitulation reversal.  Our recent weekly chart does not show signs of this behavior, so the high-probability trade remains to the upside.

TRADING OPPORTUNITIES

Expected Outcome:
Stick with the trend and don’t try to pick a top because this rally has legs.  We will eventually see the surge higher and that will be the sign to short this market.  I have no idea if that surge will be this week or next month, all we can do is watch the market for clues and trade what the market gives us.  Boring trade is sustainable, big gains here are not.

Alternate Outcome:
While markets often surge into turning points, it is not written in stone and we could see the market run out of buyers at any time, especially if the market is caught off guard by an unexpected headline.  But as we saw with last week’s GDP report, this market is not all that vulnerable to negative headlines.  Recent support is at 1500 and breaking this level will force us to reevaluate the bullish thesis.

Investorplace.com poll

Investorplace.com poll

INDIVIDUAL STOCKS

No matter how low AAPL goes, people still talk about what a great stock it is.  I heard a professional money manager say when AAPL broke his $470 stop-loss, not only did he keep holding, he added to his position at $450.  What is the point in having a stop-loss if you don’t use it?

I found this poll online that shows a lot of people think AAPL is still a Buy or Hold after falling over 35%.  There is far too much love for this stock for it to bottom and it could take a year or longer to demoralize all these hopeful owners.  Two-weeks ago I was an AAPL bull, but I quickly changed my mind when my initial thesis was proven invalid.  It is normal, even expected to be wrong in the markets, but it is fatal to stay wrong.

Stay safe

Jan 27

LA: How far can this go?

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Look Ahead

Four-weeks into the year and money managers are already behind the eight-ball.  As for AAPL, there are plenty examples of everyone’s favorite stock losing its mojo and trading sideways for years at a time.  Will this be AAPL’s fate?

MARKET BEHAVIOR

The market has been up every week this year.  Quarters often exhibit a consistent personality and so far this is starting out as a bullish quarter.  This would suggest the rally has legs and any dip should be considered a buying opportunity.

MARKET SENTIMENT

A lot of money managers are already behind their benchmarks and we are just a few weeks into the new year.  Last year was a difficult year for big money and this year is not starting out any easier.  At the end of 2012 many traders were reluctant to buy the Fiscal Cliff drama and chose the more conservative route of sitting it out.  That would have been a smart move if the market imploded, but it didn’t and instead shot up aggressively, leaving many traders behind.

From the first day of the year these under-invested managers were already lagging their benchmarks.  Rather than chase too-far, too-fast, they waited for the inevitable pullback.  But while they’ve been waiting, the market has continued higher, putting on even more pressure.  Things got even worse last week when AAPL imploded, but the indexes held firm.  AAPL is the single largest holding by most money managers and this put them even further behind the indexes.  It is already shaping up to be a cruel, cruel 2013 and the year is only beginning.

Why all this matters is money managers are faced with a major dilemma, keep waiting for the pullback at the risk falling even further behind, or bite the bullet and jump on board the bandwagon.  This is “deja vu all over again” as most money managers were stuck in this same place last January.  As long as traders are waiting for the pullback, it won’t happen and that is why the market continues rallying.  Once these guys reach their breaking point and jump on the bandwagon, the market will run out of new buyers and we nose over.

TRADING OPPORTUNITIES

Expected Outcome:
We have not seen any real selling in 12-trading sessions and the biggest down day of the year is a modest 0.32%.  For those brave enough to buy the Fiscal Cliff paranoia and stick through to0-far, too-fast, it’s been a fantastic start to the year.  While the market cannot go up every day, any weakness should be looked at as a buying opportunity.  I would be reluctant to buy here, but if the market dips for a day or two, that is an invitation to join the rally

Alternate Outcome:
While the trend is clearly higher, we could breakdown at any time if a nasty headline spooks the market or we simply run out of buyers.  Rallies always end, but typically they go further and longer than most expect.  We might see a dip to support this week, but don’t expect the market to breakdown.  Smart money is buying the weakness, not selling it.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

There are a lot of people defending the intrinsic value in AAPL and if it was a great buy at $550, then it is a steal at $450.  And while they might be right, the market doesn’t agree and we all know what happens to traders who argue with the market.

There are plenty of examples of iconic businesses with great growth, but their stock price stagnated for a decade.  MSFT is well off it’s all-time highs and has been dead money for over a decade.  Same exact thing from CSCO.  WMT finally regained its 2000 high thirteen-years later.  SBUX peaked in 2006 and didn’t regain that level for five more years.  Even AAPL traded sideways for over a decade after surging 700% between 1985 and 1987.  Without a revolutionary new product, expect AAPL to join the ranks of has-beens, at least in traders’ eyes.

The question any AAPL owner needs to ask is how long are they willing to hold to get their money back. No doubt we could see a bounce back to $500 and that would make for a great short-term swing-trade, but any strength in AAPL should be sold.  MSFT, WMT, CSCO, and SBUX were great companies with strong growth and industry leading profitability,  but that didn’t prevent the stock from stagnating for long stretches.  There is a lot of profit to be made swing-trading AAPL, but buy-and-hold investors are not going to see new highs any time soon.

Stay safe

Jan 26

WR: 4th in a row

By Jani Ziedins | Weekly Analysis

S&P500 weekly at end of week

S&P500 weekly at end of week

Weekly Review

Another up week as this rally knows no limits, but a strong market didn’t save AAPL traders who are stuck wondering what to do with their losing positions.

MARKET BEHAVIOR

The S&P500 rallied another 1.1% this week, making the 4th consecutive weekly gain and 8 out of the last 10.  Weekly volume was lower than average but only because of the holiday shortened week.  We are 61-points above the 10-week moving average and 102-points above the 40-week moving average.  Outside of a few weeks of weakness in the final weeks of the year, the market has rallied non-stop from November’s 1340 lows.

MARKET SENTIMENT

Following the financial news and trader forums, most of last month’s worries are long forgotten and the market is pretty pleased with the world.  The market often swings between extremes of pessimism and complacency.  Last November and December the world was falling apart and now everything seems fine.  Funny how that works.

The contrarian in me is suspicious of this rally, but the thing to remember is moves in the direction of the go further and longer than anyone expects.  While people have called for a pullback since the huge Fiscal Cliff spike, the market has marched higher instead.  Obviously this cannot continue indefinitely, but when in doubt, stick with the trend.  Eventually this market will run out of new buyers, but it hasn’t happened yet.

TRADING OPPORTUNITIES

Expected Outcome:
The market rallied over 100-points nearly non-stop in less than a month.  While the market goes further and longer than anyone expects, there are times when the odds are in your favor and others when it is best to sit it out.  Right now is time for sitting.

Alternative Outcome:
The market will only pullback when everyone stops calling for a pullback.  Are we there yet?  Obviously not since the market is up eight-days in a row.  The market can go even further if it means humiliating the experts and gurus, but while the market can go higher, that doesn’t make it a good trade.  We are here for the easy, high-probability money and jumping on this rally is late in the game.  While more upside might remain, that doesn’t make it a good trade.

AAPL weekly at end of week

AAPL weekly at end of week

INDIVIDUAL STOCKS

I received a lot of questions from holders of AAPL about sticking with their positions after last week’s plunge. The simple answer is only hold is if your original trading plan calls for holding in situations like this.  If you bought at $550 and acknowledged that the stock could continue falling another 20% before rebounding, continue holding.  But if you bought at $550 and didn’t expect the stock to dip under $500, then clearly your original thesis is invalid and there is no reason to keep holding at $450.

AAPL could bounce at any time, but even if it does, selling is still the right thing to do.  This isn’t about what works this one time, but about how we want to trade over our career.  I have friends who are still holding CSCO they bought at $60 and waiting for it to come back 13-years later. Can anyone actually claim that is the smart trade?  What is the difference holding AAPL at $450?  Personally I don’t care if AAPL comes back or not, when a trade violates my original thesis, I get out.   This is larger than a single trade and is about being a successful trader.  Undisciplined traders might get lucky here and there, but the traders who stick to his plan will succeed over the long haul.

Stay safe