Category Archives for "Weekly Analysis"

LA: How far can this go?

By Jani Ziedins | Weekly Analysis

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.

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

WR: 4th in a row

By Jani Ziedins | Weekly Analysis

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.

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