Oct 02

Still holding up

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks opened lower as the gov’t shutdown carried into the second day and hope for a quick resolution evaporated.  The market tested and bounced off of the 50dma for a second day, eventually recovering almost all the day’s losses by the close.  As fearful as the headlines are, the market is holding this widely followed moving average and staying near the upper end of the summer’s trading range.

MARKET SENTIMENT
The hope of a quick resolution is fading as the more likely outcome is morphing into a two-week shutdown that simultaneously addresses the impending Debt Ceiling debate.  The gov’t shutdown is giving us lots to talk about, but the consequences are fairly minimal and is why most market participants are not rushing for the exits.  Those that feared these events had plenty of notice and pulled out days or weeks ago, leaving few to sell the news.

The bigger question revolves around the debt ceiling and the prospect of a default.  While the Tea Party is willing to drive us off a cliff to prove a point, there are enough moderate republicans that will break ranks before it comes to that.  Of course there are no guarantees and that uncertainty leads to near-term volatility.

One of the more interesting phenomenons is watching the illiquid pre/post market moves as compared to the more liquid primary markets.  Tuesday and Wednesday mornings pre-markets were down as traders sold/shorted the budget impasses headlines, but as soon as the market opened, few of the big money institutional traders sold.  These guys are taking a longer view of events and are less worried about a few week bump in the road.  There are major structural issues we need to be wary of, but short-lived partisan bickering is not one of them.

TRADING OPPORTUNITIES
Expected Outcome:
Going into our third day of shutdown, fewer are expecting a quick and painless resolution, but so far the markets are holding up as most owners recognize the short-term nature of this disruption.  While we might see more volatility as this drags on, this is not a fatal economic flaw and any weakness is a buying opportunity.

Alternate Outcome:
The Dems are calling the GOP’s bluff and it will be interesting to see if Boehner backs down or stubbornly digs in his heels.  If Obama and the Dems don’t give him a bone to call a success, pride might push him, and us, over the edge.  While we hope cooler heads will prevail, with egos this large it is hard to know exactly what will happen.

Trading Plan:
The market had every opportunity to plunge, yet here we stand, holding recent support.  That speaks well of support at these levels and shows few owners are willing to sell here.  While we should expect volatility to persist, it is not out of the realm of possibility to see the market rally in anticipation of a resolution.  Of course that could lead to a buy the rumor, sell the news scenario and we might actually want to sell the pop.

If the market holds up on Thursday, being long with a risk adjusted position size is not a bad trade.  Bears expecting the market to crack wide open need to reevaluate their analysis because the market just isn’t responding as expected.  Often that means the next move will be in the opposite direction.

Plan your trade; trade your plan

Oct 01

Gov’t Shutdown, a Bullish Catalyst

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks marched higher in the face of the gov’t shutdown, respecting support at the 50dma.  Standing strong in the face of such obviously bearish news means the market is not standing on a trapdoor and is positioned well to continue the uptrend.

MARKET SENTIMENT
Who would have thought a gov’t shutdown was a bullish catalyst, yet here we are, up nearly 20-points from yesterday’s weak open.  That’s what we get for thinking.  The fundamentalist and casual observer are flabbergasted by this “irrational” market.  A gov’t shutdown is so obviously bad that the market should tank on the news.  How can the market be so naive to rally on the news.  It makes no sense………or does it?

The key is how obvious the sell off should be.  What means is most saw it coming and were able to sell ahead of time.  This proactive selling virtually eliminating all the selling pressure following the event because all the potential sellers are already out.  Markets don’t move on fundamentals, only supply and demand.  When there is no one left to sell the news, supply tightens up and markets rally.  This market is behaving perfectly rational when we analyze it from the right point of view.

TRADING OPPORTUNITIES
Expected Outcome:
The big takeaway from today’s move is all the sellers are out, meaning most of the downside has been realized.  Any bear looking to capitalize on this headline is a day late and a dollar short.  Obviously a protracted, multi-week shutdown is a different animal, but so far most owners are comfortable holding through moderate volatility and political drama.

Alternate Outcome:
While a shutdown was already priced in, the market likely expects a prompt resolution.  A continued shutdown through the week will pressure the market as a worse than expected scenario comes into play.  Market stability actually takes some pressure off the GOP and gives them a little more flexibility to dig in and play hardball.  But ultimately this issue will be resolved and is not a structural problem in the financial system.  At worst this is a speed bump that will be in our rearview mirror in a couple of weeks.

Trading Plan
Stick with what is working.  The market is respecting support and every dip this year has been buyable.  While shorting opportunities exist, counter-trend profits need to be taken early and often.  Buying this bounce is risky and we will likely see more volatility as this story unfolds, but as traders we only make money when we take risks.  Recent lows under 1675 are a decent place to keep a stop for anyone adventurous enough to dip a toe in.  Realistically we will see more sideways volatility and could dip under recent lows before this is done, so any buyers should use smaller positions and give themselves room to avoid being shaken out unnecessarily.

Plan your trade; trade your plan

Sep 30

AM: The party of NO

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:30 EDT

S&P500 daily at 12:30 EDT

AM Update

MARKET BEHAVIOR
Stocks gapped lower at the open given the high-probability of a govt shutdown, but within minutes bounced and recovered half of the losses.  This dip challenged the 50dma, giving back 50% of the recent rebound, but so far it is holding support.  Two-steps forward, one back.

MARKET SENTIMENT
Ironic how the Tea Party is acting just like a labor union by using extortion to get what they want.  If they don’t get their way, they shut the whole thing down and screw everyone.  They hate it when the other guy does it, but it is okay when they do it.  Of course it would be naive to think politics works any other way.

The unfortunate thing for the Republican party is this strategy is branding them as the party of “no”.  While Obamacare is not popular, most of the public concedes we need some kind of healthcare reform and is hungry for alternatives, yet the only idea out of the GOP is to go back to the old way.  They are missing a golden opportunity to win the public over by providing solutions.  The GOP made huge strides in the ’90 with its “Contract with America”, but that was back when they had ideas.  Now all they look like is crybabies throwing a tantrum.  The public is dissatisfied with Democratic leadership, but as long as the GOP looks worse, the Dems have nothing to worry about.

But enough politics, the early panic never gained momentum and was more of a buying opportunity.  Many traders expected budget problems, but they sold last week, meaning there were few left to sell the news today.  While there might be a few hopeful left that will sell tomorrow when there is no overnight resolution, most of the owners who held through the August swoon are not worried about this temporary budget speedbump.  While it dominates headlines, I have not heard anyone claim the gov’t will remain shut down for months, meaning this is not a major structural problem, simply some political noise injecting temporary uncertainty in the market.

TRADING OPPORTUNITIES
Expected Outcome:
The most successful traders buy fear, not sell it.  The time to sell was two-weeks ago when everyone was giddy and expecting the 100-point rebound to continue to the moon.  Many longer-viewed investors still in the market are probably better served weathering this storm.  No doubt we must stick to our stops, but hopefully any short-term investor with a trailing stop is long out of the market and actively looking for an attractive entry.

Alternate Outcome:
The Tea Party might cut off its nose to spite its face and is the big risk here.  This is a high-stakes game of chicken and things will get ugly if someone doesn’t flinch.  Dems feel the public is on their side and will come out ahead from a shutdown, so they are less willing to compromise.  Obamacare is Obama’s legacy and he will never sign a bill that guts it, so unless the GOP yields, this will get ugly.  We will soon find out if the Tea Party is willing to die for their cause and take the rest of us down with them.

Trading Plan:
The market is holding up remarkably well since the consensus is the gov’t will shut down Tuesday.  This shows a lot of the fear is already priced in.  That likely means we are on the verge of a buying opportunity.  No need to get in front of this thing, but if the market remains stable through a shutdown, that resilience is buyable.  Bears can hold their shorts, but they should look to lock in gains if we don’t crash lower on bad news.  That means most of the negative headlines are priced in and the coiled spring is pointed higher.

Plan your trade; trade your plan

Sep 27

AM: Down but hanging in

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:36 EDT

S&P500 daily at 12:36 EDT

AM Update

MARKET BEHAVIOR
Stocks slipped as traders fretted over the impending Congressional votes and potential govt shutdown.  We dipped under 1690, but early weakness didn’t trigger a cascade of stop-loss selling.  The market is nervous, but not panicked and we are only 2.3% from recent highs.

MARKET SENTIMENT
The half-full view is holders are confidently sitting on their positions, knowing this is the wrong time to sell.  The half-empty view is such a small pullback means there is still tons of downside left.  The truth probably lies somewhere in between.

Only the extremist thinks the US Govt is on the verge of going out of business.  Most rational traders expect the debate will be heated and ugly, but in a few weeks it will be ancient history.  There is little doubt Congress will increase the debt limit because they have no choice, the fear is how long this drags out.

In reality, this is just a bump in the road that comes up every couple of years.  Sometimes it slips under the radar when it is rubber stamped.  Other times political parties use it to extract concessions for programs they disagree with.  Right now the GOP is threatening to go nuclear over Obamacare.  The question for the market is if this is just political posturing and a negotiating tactic, or if the GOP is actually suicidal and willing to drive the car off the cliff.  That is the main source of uncertainty here, but this is nothing close to the structural problems we had in 2008 with the Financial Crisis.  Our politicians will figure something out and the market will rally on the relief.  Then it is on to the next worry, likely a return of Taper headlines.

One of the things that keeps this pullback more constrained is many of the weak jumped out in August’s selloff.  Those that fear Debt Ceiling are likely afraid of the Taper too.  That means most of the potential Debt Ceiling sellers are already out of the market.  No matter what the headlines say, we need people selling stocks to push the market lower and so far few are selling these headlines.  Trade people and their portfolios, not the headlines.

TRADING OPPORTUNITIES
Expected Outcome:
The market is holding up relatively well given the headline risk.  Either owners are oblivious to the dangers, or the fearful have already bailed out.  The August dip cleared a lot of dead wood, meaning there is less to get rid of this time.  Likely this pullback is just a little cooling off following the sharp 100-point rebound.  The Debt Ceiling will be ancient history soon enough and these discounts are buying opportunities.

Alternate Outcome:
The Tea Party’s hatred for govt spending and Obamacare is the wildcard in the mix.  Do they have enough influence in the GOP to shutdown the govt to prove a point?  We will soon find out.  While the risks of driving off the cliff are great, the probabilities are slim.  This creates an interesting “black swan” trade.  Buying some cheap, out of the money puts is akin to playing the lottery.  The chances are winning are slim, but the rewards are great.

Trading Plan:
The market is holding 1680 as expected (50% retracement of recent gains) and is closer to a buy point than a shorting opportunity.  The longer we hold these levels, the safer it is to wade in despite of the headline risk.  Bears have the wind at their back, but still cannot get the job done, meaning they are far weaker than most realize.  Plan ahead of time where you will buy and sell and stick to that plan.

Plan your trade; trade your plan

Sep 26

AM: Day number 4

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:42

S&P500 daily at 12:42

AM Update

MARKET BEHAVIOR
Stocks surged at the open, but turned around nearly as quickly and we are trading near breakeven by midday.  So far the market continues holding near 1700 as neither bears nor bulls have the strength or will to break this logjam.

MARKET SENTIMENT
Typically the fourth day testing support reveals which side has the upper hand.  Sucker’s rallies and temporary support is driven by a small group of dip buyers.  Within days they run out of money and the selloff resumes.  Holding support for four plus days shows investors with deeper pockets are buying the dip, or alternately bears ran out of sellers and the move lower stalled because there is no one left to sell the fearful headlines and weak trade.

While today’s trade is weak, it doesn’t seem to be shaking many out of the market.  Recent volatility chased off anyone afraid of Taper and traders had an open invitation to sell Debt Ceiling headlines over the last week.  Those who feared these events had plenty of time to get out and anyone that bought demonstrated a willingness to own risk.

Markets crash when they are caught off guard and right now everyone sees Taper and Debt Ceiling coming from a mile away.  This rally will rollover like everyone one before it, but it will take something new and unexpected.  Ignore the headlines and fear the things no one is talking about.

TRADING OPPORTUNITIES
Expected Outcome:
The market is holding 1690 and we could see a little more weakness, pushing us down to 1675, but if the selloff stays calm and orderly, this is a buying opportunity, not a shorting one.  Selloffs are swift and violent.  Trading sideways with fractional declines is the opposite of swift and violent.  The churn is giving traders the opportunity to sell the Debt Ceiling, but expect those to rush back in when the situation is resolved.  In typical fashion, expect the market to rally in anticipation and anyone buying the news will be late to the party.

Alternate Outcome:
The market is uneasy leading into the Debt Ceiling and looming govt shutdown, contributing to this modest weakness, but most expect it will be resolved without too much fuss.  There is the risk our politicians act especially stubborn and force a govt shutdown.  While most know this will eventually be resolved, the uncertainty will pressure the market and nothing shakes investor confidence like a crashing prices.  At that point it becomes an emotional sell first, ask questions later.

Trading Plan:
There is no reason for the nimble own this sideways chop.  Hopefully many locked in profits up above and are looking to buy back in at lower levels.  Maybe we bounce off 1690, or maybe it is 1670, but keep watching for a good entry point.  Longer-term investors can ignore all this noise because in three months the Debt Ceiling and Taper will be ancient history.  As for shorts, holding near 1700 for a fourth day is not encouraging and they should look for opportunities to lock in recent profits.

FB daily at 12:43 EDT

FB daily at 12:43 EDT

INDIVIDUAL STOCKS
Who would have thought FB  would be one of the hottest momentum stocks?  This is a perfect example of sentiment trading.  It was the biggest and most talked about IPO in a generation.  It dominated headlines and countless funds were buying shares over the counter in anticipation of a huge surge following the IPO.  Unfortunately for many, the IPO hype marked the top  and the stock crashed, eventually becoming the butt of many jokes.  The stock everyone wanted to own was soon the stock no one would admit to buying.  The most loved company quickly because the most hated company and that was finally the time it became buyable.  Don’t trade technicals or fundamentals, trade people.

Plan your trade; trade your plan

Sep 25

PM: The 2% crash

By Jani Ziedins | End of Day Analysis

S&P500 daily at end of day

S&P500 daily at end of day

PM Update

MARKET BEHAVIOR
Stocks finished at the lows of the day and continued the streak of consecutive down days.  The market closed under 1700 for the second day, but for all the bleeding, the market is only down 2.1% from all-time highs.  The market seems attracted to the 50dma and the 1680 level that provided resistance and support stretching back as far as May.

MARKET SENTIMENT
This selloff feels scarier than the numbers indicate.  Five consecutive down days is the biggest losing streak of the year, but the damage is only pushing us back to levels first seen last week.  Emotion driven selloffs are swift and breathtaking.  The only breath this dip is taking is from all the people talking about it.  It is crazy the number of naysayers that are promoting the end of the world and pointing to a 2% decline from all-time highs to prove their point.  Sure this weakness is making recent buyers uneasy, but that is how hot markets cool off before continuing higher.

All the media coverage is focusing on the impending govt shutdown, but we’ve been down this road before and anyone who reactively sold that weakness came to regret that decision as the market bottomed and resumed the uptrend weeks or months later.  Complacency is the accusation bears are constantly throwing around, but I hear far more talk about a Debt Ceiling/Taper collapse than bulls talking about buying the dip and 1800 here we come.

While I agree complacency is creeping into the market as every dip this year has been buyable, but complacency by itself is not a fatal flaw and is more often a bullish catalyst.  Complacent owners continue holding through thick and thin, keeping supply tight and allowing smaller demand to keep pushing us higher.  Complacency isn’t the enemy here, but lack of demand.  So far there has been enough better than expected news to force bears to buy back their shorts and win over some of those sitting on the sideline.  That is why this “complacent” market keeps making new highs.

Many are waiting for all these scary headlines to pass before believing in this market, but by then it will be too late and they will be buying the top.

TRADING OPPORTUNITIES
Expected Outcome:
The market keeps looking for a bottom and might dip to 1675ish before this rebound finds its footing and resumes the climb higher.  We will bounce on some constructive debt ceiling headline and everyone will credit that random news story for the surge to new highs, but the recent pessimism flowing into the market is the fuel that will propel the bounce.

Alternate Outcome:
While the market is uneasy approaching the Debt Ceiling negotiations, most traders expect a compromise to be reached within a reasonable timeframe.  If both sides dig in, refusing to budge and threatening to default on debt payments, that nuclear option isn’t priced in and could lead to a swift 10%+ selloff.

BBRY daily at end of day

BBRY daily at end of day

Trading Plan:
If the market regains 1700 on Thursday and holds it through the close, it appears like the selling is drying up and all it takes is one optimistic headline to launch another leg higher.  If we continue sliding, that means buyers are shying away and the lower we go, the closer we get to the tipping point of emotional selling.  Holding 1700 is buyable and accelerating through the 50dma is shortable.

INDIVIDUAL STOCKS
BBRY is proving that something that looks too low often keeps going lower.  Anyone who bought the dip is learning first hand the dangers of catching knives.  It will ruffle a few feathers, but can we identify any similarities between the ubiquitous “crackberry” and the unmatchable iPhone?  BBRY failed to keep up with an evolving market.  Is AAPL falling victim to the same tech turnover?  Looking at the nonstop slide in market share for the iPhone and iPad, it sure is hard to argue “this time it’s different”.

Plan your trade; trade your plan

Sep 25

AM: How negotiations work

By Jani Ziedins | Intraday Analysis

S&P500 daily at 12:29 EDT

S&P500 daily at 12:29 EDT

AM Update

MARKET BEHAVIOR
Stocks sank under 1700 in early trade for the third consecutive day, but so far the weakness failed to trigger a cascade of stop-loss selling.  Constrained selling after a large move is a normal and healthy part of moving ahead.  While we might still have a date with the 50dma, orderly selloffs and consolidations are typically bullish.

MARKET SENTIMENT
The unbridled enthusiasm for continued QE vanished as quickly as it arrived.  We know Tapering is coming, so a three or six month reprieve is not that big of a deal in the big picture.  The same thing would have happened if the Fed started taper.  While the knee jerk reaction would have been in the opposite direction, it would have quickly recovered because markets look forward 6-months.  It came to terms with Taper this summer and already moved on to the next thing.

Now that Syria disappeared from the headlines, the focus turned to the impending Debt Ceiling.  There are two things the public doesn’t want to know how they are made, sausage and laws.   Republicans and Democrats are already positioning themselves for the negotiations.  There is a pretty standard template for negotiating that applies equally well to buying a car or negotiating arms treaties with other nations.  Step one, act aloof.  Step two, ask for absurdly more than you are willing to accept.  Step three, call off the negotiations and walk away halfway through.  Step four, reach a hard-fought compromise at the very last second.  That’s how it worked every other time and is how it will work this time around.

People often complain about how dysfunctional Congress is, but those people only show how little they understand negotiations.  Further, a ridiculously low approval rating means our govt is working, not broken.  At the end of negotiations, if someone is happy, it means the other side got screwed.  Remember this the next time you buy a car.  If the dealer is smiling and in a good mood, you are not getting a good deal.  Only when the dealer is grumpy and on the verge of kicking you out, have you finally reached rock bottom.  When both Republican and Democrat constituents feel they are getting screwed, we finally reached the ideal compromise between the two positions.  If Congress had a 50%+ approval rating, it means someone is getting screwed big time because someone else is getting everything they want.  Negotiations work best when both sides leaved pissed off.  Each side had to give up some things that were important as a concession to get the things that really mattered.  Neither side has a monopoly on the truth and the best solution lies somewhere between the two positions.

That is the lowdown on why we should expect ugly Debt Ceiling discussions, but don’t need to worry about them.

TRADING OPPORTUNITIES
Expected Outcome:
As long as the selling remains contained, the rebound is intact.  We broke under 1700 multiple times and didn’t trigger a wave of stop-loss selling, meaning there are not a lot of fearful traders on the verge of hitting the panic button.  While complacency will eventually be a problem, in the meantime it keeps supply tight and is propping up this market.

Alternate Outcome:
While we know the Debt Ceiling debate will be ugly but will eventually be resolved, getting sucked into the heated argument will make the market nervous since it often worries about the worst-case.  We could see the market pullback if the Republican standoff carries us over the line and they threaten default again.  They likely learned their lesson from the markets last time, making casual comments about default unlikely, but you never can tell with these guys.  They want to blow up Obamacare and might go nuclear to do it.  While that is a reason to be cautious and respect our stops, the volatility creates buying opportunities as we buy discounted shares from the fearful.

Trading Plan:
Holding near 1700 for another day shows this is more than just dip buying.  The profit-taking, preemptive selling, and out right shorting run their course in the first few days of a pullback.  Once that selling dries up, it clears the way for a continuation higher.  Three-days into this is a little early to claim the coast is clear, but things are looking better.  Even a pullback to the 50dma is not a lot to worry about as we consolidate recent gains.  Any bears that were lucky enough to short the top of the market, look to lock in profits if the market doesn’t continue the move lower by tomorrow.

Plan your trade; trade your plan

Sep 24

Holding support

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:40 EDT

S&P500 daily at 3:40 EDT

MARKET BEHAVIOR
Stocks bounced back from early weakness and reclaimed support at 1700.  This is the second day we’ve tested and held this level.

MARKET SENTIMENT
The euphoria following Summer’s withdrawal evaporated as quickly as it came.  We gave back all those gains and any late buyers are sitting on losses.  This is why savvy traders buy when everyone is fearful and sells when everyone is getting comfortable.

The market got a little ahead of itself, rallying 100-point in three-weeks and this pullback is normal and expected.  While it rained on the bulls’ parade and brought life back to demoralized bears, that is exactly what it needs to do before we can continue higher.  As we discussed earlier, big money hates buying breakouts and all-time highs.  They wait for the euphoria to pass and buy the pullback.  So far they are buying 1700 and is why we are finding support.  Of course two-days doesn’t make a bottom and we need to hold this level for two more days before we can feel more confident big money supports these levels.  Without their endorsement, this brief pause at support will continue lower as soon as the dip-buyers run out of money.

Source: Stocktwits 9/24/2013

Source: Stocktwits 9/24/2013

Bullish sentiment on Stocktwit’s SPY stream went from 26% to 60% over a couple of weeks as the market bounced off 1630 and notched new all-time highs.  The last few days brought that back to a more palatable 46% percent.  Recent sellers and shorts will be buyers of the next leg higher.  Of course we might need to see a little more selling or sideways trade before we are ready for the next move.  A dip to the 50dma creates an even more irresistible entry point for big money.

TRADING OPPORTUNITIES
Expected Outcome:

While the medium-term outlook is positive, near-term we might see a little more selling.  Buying here is picking a bottom and we typically wait at least four days before buying support.  A dip to 1680 is attractive because it creates an even better entry point for the swing trader.

Alternate Outcome:
Discussion of the debt ceiling is heating up and while most are aware of it, we have short memories and often forget just how ugly these things get before a compromise is finally reached.  Last time the threat of a default lead S&P to downgrade the nation’s credit rating.  Obviously that was a joke because bonds rallied on the news, but it shows just how contentious these things can get.  Expect the rhetoric to heat up and spook investors as we approach the deadline.

Trading Plan:
Buy the market if we firm up around 1700 over coming days and short crashing through the 50dma.

The recent dip to 1630 shows us how we make even more money when we are wrong.  If we originally bounced off 1680, that is 50 fewer points we could make on the rebound.  Sure we lost a little when we got stopped out, but I appreciate the volatility because that creates bigger opportunities.  While I would be “right” if we bounced off 1700, I would make more money if we dipped to 1650.  This is just one reason why being right and making money are two very different things.

AAPL daily at 3:40 EDT

AAPL daily at 3:40 EDT

INDIVIDUAL STOCKS
AAPL is flirting with $500, but has yet to break through this key level.  The company smashed sales records with its iPhone5s/c launch, but this is also the first time the company sold phones in China on the launch day, so obviously that skews the data and makes direct comparisons meaningless.

Clearly the company sold a lot of phones to the faithful that are willing to stand in line to have the newest AAPL gadget, but this is a small sliver of the market.  While it is great PR to have the news show people lining up to buy the latest Apple phone, the only thing that matters is how attracted average people are to these upgrades.  The smartphone market is evolving in two directions, larger screens and cheaper phones.  Right now AAPL is stuck in no-man’s land with a small and expensive phone, explaining most of their market share losses over the last couple years.  While the stock market cheered the 9 million phone sales, this pop is selling opportunity, not a buying one.

TSLA is bouncing around the $180 level, but it sure would be nice to see the stock form a base and shake out some of the momentum chasers.  Even a dip under the 50dma would be a great way to clear the deck.  Locking in profits at $185 is not a bad trade since the stock will inevitably pass through this level again in a future dip or rebound.  Even if you believe this is the next GM, take some profits and look to buy it back cheaper.

Plan your trade; trade your plan

Sep 23

Pulling back to support

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks dipped to support at 1700 in early trade.  100-points over a few weeks is a big move and retesting support should not come as a surprise; the bigger question is how the market responds.  We are at the upper end of the summer’s trading range and that gravity is trying to pull us back in, but every trading range ends and so will this one.  The transition from summer to fall is often a directional catalyst and why Sept and Oct often lead to large moves.  So far big money is more willing to buy than sell and that pulled us off the 1630 lows.

MARKET SENTIMENT
Nothing like 30-points of selling to rain on the Bull’s parade.  Current headlines promote an impending showdown over funding Obamacare and a potential govt shutdown.  From what I gather, many are not bearish because they expect fiscal calamity, but because they think other people will panic.  That is a very nuanced, but important distinction.  Selloffs happen when people become scared and sell, not when they expect others to become scared.

To breakdown under the strain of DC politics, we need people to be caught off guard by the headlines and right now a budget showdown is widely expected.  Anyone afraid of these impending headlines is already out of the market, meaning there are fewer left  to sell the news.  Further, recent examples of political discord were buying opportunities, not a cause for concern, so expect far fewer traders to impulsively sell the headlines.  That likely means this “sell the rumor” dip will be a bump in the road.

Markets don’t move on what traders expect others to do, but how they trade their accounts.  Most of us are wired with the same biology and learned trading from similar schools of thought.  That means more often than not, what we see and think is what everyone else is seeing and thinking.  If we are afraid of an impending collapse and sell ahead of time, a lot of other people did the same thing.  This shared view is what leads to the appearance irrationality.  People are convinced the market should do one thing, yet it does the complete opposite.  The market isn’t acting irrationally, it simply reacts to a supply and demand the only way possible.  When the crowd sells early, it prices in what everyone is afraid of and paradoxically the market will go higher when the news comes out because there is no one left to sell.  Right now the crowd anticipates problems over Taper and debt ceilings, meaning they already acted on this “insight” and it is already mostly priced in.  It is irrelevant that we are all-time highs, the only thing that matters is most people are aware of this impending calamity and those that fear it already sold.  This doesn’t mean we cannot selloff another couple dozen points, but it does mean much of the downside is already priced in and we have far less to fear than the naysayers claim.

TRADING OPPORTUNITIES
Expected Outcome:
Stocks retested support as expected, so no one can claim the sky is falling just yet.  Even another 20-points of selling is a normal 50% retracement of recent gains.  Two-steps forward, one back.

Alternate Outcome:
The market is far less fearful of the debt ceiling.  Politicians are quickly becoming the boy who called wolf with all this grandstanding and posturing.  While it will be ugly, most expect a deal to get done at the last-minute and is what the market is pricing in.  What isn’t priced in is a catrosphoic game of chicken where both sides go down in a ball of flames.  While the high probability outcome is a workable resolution, the black swan is a complete breakdown of reason, leading to a far larger move.

Trading Plan:
While the high probability outcome is higher, we must respect the risks and honor our stop losses.  Bouncing off support is buyable.  Slicing through the 50dma is shortable.

Plan your trade; trade your plan

Sep 20

Sliding to support

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks are lower for a second day following Wednesday’s breakout to all-time highs.  The market remains above the summer’s 1600/1700 trading range leaving us to decide if the market is entering a new phase of directional trade or if the sideways trade sucks us back in.  Buy the breakout, or sell the strength, that is the million dollar question.  Friday was options expiration, so the extremely high volume is not comparable to typical trading days.

MARKET SENTIMENT
Traders are notoriously afraid of heights and reluctant to chase breakouts, especially when they are nervous about impending headlines.  Watching buying pause here is normal and expected, but what we are most interested in is how owners react to these new highs.  Are they locking-in profits and selling too-far, too-fast, or are they holding on for more gains?  The modest pullback over the last couple days suggests most are still holding.  Obviously in a group as large as the market we will have some traders sell the breakout and this is contributing to modest weakness over the last two days, but current selling is more stream than tidal wave.

Even when most buyers remain reluctant, we can still move higher if existing owners continue holding and keep supply tight.  That is the stuff low-volume rallies are made of.  While conventional wisdom says we cannot trust low-volume moves, that is a myth.  We are 10-months into a low-volume rally that keeps making higher-highs.  Demand is only half of the picture, tight supply is just as powerful.

Source: Yahoo Finance 9/20/2013

Source: Yahoo Finance 9/20/2013

There were a couple more Yahoo Finance polls the last couple days showing just how “overly bullish” the market is at all-time highs.  Twenty percent are not worried about a bigger selloff and in a different poll, another twenty percent think stocks are a bargain.  I would hardly call one out of five “overly” bullish, especially since in both polls the bullish response was the least popular choice.  Remember, don’t confuse price with sentiment, they are two very different things.  A true contrarian trades against the crowd, not the price.  Right here the contrarian trade remains believing in this market.  All the doubters are already out of the market, meaning there is little selling pressure left.

TRADING OPPORTUNITIES
Expected Outcome:
Stick with what is working.  No matter what the headlines say, this market continues making higher-highs.  Expect some near-term weakness as profit-takers pressure the market, but once this wave passes and selling dries up, look for the market to add to recent gains.  Markets grind higher, especially in later stages of a rally so we need to be patient.  The most nimble traders locked in recent gains and will buy a bounce off support, but at this stage there is no reason to doubt this breakout.

Alternate Outcome:
Triple-tops, double-bottoms, a person can see whatever they want in the charts.  What we are looking for is strength where there should be weakness and weakness where there should be strength.  While this rebound to new highs caught many off guard, we need to tread lightly if this breakout fizzles and rolls over too quickly.  The expected outcome is support near 1700, anything less and we need to reevaluate our bullish thesis.

Source: Yahoo Finance 9/19/2013

Source: Yahoo Finance 9/19/2013

Trading Plan:
A bounce off support is buyable.  Don’t short until we break through support.  Locking in recent gains is not a bad trade given how far we’ve come in a few weeks, but be ready to get back in when the market firms up.

INDIVIDUAL STOCKS
As an iPhone5 owner, I’m  impressed with iOS7 and am glad AAPL finally moved its user interface out of 2007.  As big of a leap as this update is, it is only playing catch up with Android and not a compelling reason to buy an iPhone, just less of a reason to go with Android.  The problem AAPL continues having is it is Jony Ive vs the entire Android community when it comes to finding the next great software innovation.  Because Android is an open operating system, they have thousands of developers tinkering and will likely continue beating Apple to the punch on most software features.  While the Apple faithful waited in long lines to buy the iPhone5s, that was never in question.  We want to know is what the casual smartphone user thinks and we won’t know that for months.

Plan your trade; trade your plan

Sep 19

Holding the breakout

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:21 EDT

S&P500 daily at 2:21 EDT

MARKET BEHAVIOR
Stocks are holding most of yesterday’s breakout through midday trade.  This shows a wave of selling and profit taking has not hit the market and enough buyers are willing to step up and pay these prices.  No matter what the headlines say, the market continues making higher-highs and when in doubt, stick with the trend.  Former resistance at 1700 becomes support and we will see if the gravity of this summer’s trading range is strong enough to pull this young breakout back to earth.

MARKET SENTIMENT
Obviously bulls are happy with recent gains, but even they have a fear of heights and are tentative following recent gains.  Given the headline risk, few are actively promoting 1800.  Compare this to many bears’ outlook a couple of weeks ago when they were certain we were destined for 1500.  We have cautious optimism from bulls and extreme negativity from bears.  That skew in sentiment is the fuel that keeps this rally alive.

Obviously the market moves in waves and we go up and down all the time, but the next major down move will only happen when sentiment flips and bears are cautiously pessimistic while bulls are enthusiastic.  Remember, we don’t trade fundamentals or technicals, but people and their portfolios.  As long as traders remain wary of this rally, that means we have a large pool of prospective buyers sitting on the sidelines.

TRADING OPPORTUNITIES
Expected Outcome:

If this breakout holds 1700 over coming weeks, expect the market to finish the year strong.  Traders are notoriously afraid of heights and their reluctance to own this market for the last 10-months left many sitting out.  As these watchers warmed up to this market, or more likely were afraid of being left behind, they started chasing, creating the demand that elevated this Teflon rally to all-time highs.  The more people fear a market, the more prospective buyers we have.

Alternate Outcome:
While current headlines are already priced in, we need to watch for something the market is not prepared for.  Debt Ceiling is the next bogie on the horizon.  Politicians keep kicking this can down the road and the market is growing immune to all the political noise.  Fear of the Fiscal Cliff last fall created an outstanding buying opportunity.  Chances are this time around fewer sellers are going to show up simply because anyone who sold political uncertainty last year regretted that decision.  But this lack of selling ahead of time leaves the market more vulnerable to a worse than expected political trainwreck.  More likely than Debt Ceiling is unquantified risk from a headline that isn’t even on our radar yet.  Stay cautious and defensive.

Trading Plan:
Proactive traders can sell the pop and wait for a pullback to 1700.  Others can continue holding after moving up their trailing stop to just under recent resistance at 1700 or 1709.  Being short here is nothing more than trying to pick a top and we should wait for a material violation of support before betting against this breakout.

INDIVIDUAL STOCKS
AAPL continues the bounce off $450 and recovered half of the recent selloff on favorable reviews of the new iPhone5s.  While no one disputes the build quality fo AAPL products, the question is if these new “innovations” are enough to reverse the market share losses to Android.  In order to compete for market share, they need a large screen phone and a cheap phone, something we still don’t have.  As a business, I respect AAPL’s decision to stick with what they know best, high quality, premium priced hardware.  They have a great brand, reputation, and company and will be a force in the industry for years to come.  But what they are not is the largest and most successful company in the world.  The recent bounce is a good chance for longs to get out and bears to short.  We could make it all the way back up to $500, but it will likely act as a ceiling and the stock will rollover once the initial buzz from the iPhone5s fades.  Longs can hold as long as we stay above the 50dma, but have and respect your stop-losses.

TSLA daily at 2:22 EDT

TSLA daily at 2:22 EDT

TSLA is the stock that just keeps on giving, breaking above a recent consolidation today.  We can split this story in two pieces, there is the car company and the feeding frenzy around the stock.  For the company, the make a well received, high-priced car.  It is a very niche brand and more like Maserati than Porsche.  Sure Tesla could expand their product line, but they will eventually face stiff competition from the major auto companies.  The drivetrain is one of the simpler pieces to making, marketing, and selling cars in large volumes.  It won’t take much effort for a F, GM, TM, or BMW to convert an assembly line to electric vehicles and pump those cars through existing distribution channels.  Tesla and Musk have done an impressive job creating a new car company, but it is foolish to think they have a sustainable competitive advantage over other auto companies.  The greatest asset Tesla has is the buzz around the brand, and as we’ve seen with Apple’s rapidly falling market share, those advantages only last so long once lower priced competition shows up.

As for TSLA the stock, it is the go-go momentum stock of the moment.  The strength is aided by the fact many shareholders are insiders and not selling.  The small number of shares available for trade make it easy for limited demand to drive the prices to insane levels.  It is a great ride, but just realize this is only a ride and have an exit in mind.  While the stock can keep going higher, fear a misstep by the company, the “Qwikster” equivalent that sent high-flyer NFLX down 75% over a couple of months.  I have no idea what that might be, it could be a PR disaster like cars catching fire or a fundamental data point like slowing sales once the initial backlog of cars is delivered.  What I wouldn’t fear is analyst downgrades.

Plan your trade; trade your plan

Sep 18

Buy the fear

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:17 EDT

S&P500 daily at 3:17 EDT

MARKET BEHAVIOR
Stocks surged 15-points on news the Fed was not Tapering in September and continued charging higher through the afternoon.

MARKET SENTIMENT
This pushed us well past all-time highs at 1709 and put the hurt on anyone betting against the rally.  Now that we are back in clear air above previous highs, everyone with a diversified portfolio is sitting on profits and we no longer have sellers trying to get out at break-even.  With fewer people selling, it is easier for the market to continue making new highs.

Five-percent pullbacks always feel like the end of the world, that is why they work.  It spooks out the weak and seduces the naysayers to short.  When we have all this reactive selling after only a few point decline, it clears the market of weak holders and replaces them with confident owners.  Once the reactive selling dries up, the market rebounds on tight supply.  Don’t fear the five-percent selloff that feels like the end of the world, buy it.  The dip we have to watch for is a selloff that the crowd is making excuses for because everything looks so good.

The explosive nature of today’s breakout shows just how negative the market’s been.  The coiled spring sprung to the upside because everyone was positioned for a move lower.  I agree with the bears that this delay only puts off the inevitable and is fairly trivial in economic impact, but remember, we don’t trade fundamentals, we trade people and their portfolios.  When the crowd fears Taper, they sell proactively ahead of it.  This creates an asymmetrical trade.  Since modest Taper was already priced in, modest Taper would leave the market flat.  Anything above modest Taper leads to a rally and it takes a bigger than expected Taper to send the market lower.  Only one out three outcomes leads to a selloff, meaning the better trade was buying Taper, not selling it.

TRADING OPPORTUNITIES
Expected Outcome:

The market convinces us we are wrong just before proving us right.  It was tough being bullish at 1630, but clearly that was the better trade.  We’ve come nearly 100-points since then and now we need to figure out what comes next.  When in doubt, stick with the trend.  While we might check back to 1700 in coming days, finding support at this psychological level is bullish and suggests a continuation into the end of the year.  For 10-months now people have called for a pullback and that fear of the market is what keeps pushing us higher.

Alternate Outcome:
Every rally comes to an end and so must this one.  The thing to be wary of is an acceleration higher, signaling unsustainable buying.  We can continue holding gains, but be ready to step off and lock-in gains at some point.

Trading Plan:
Move trailing stops up to at least 1700 and possibly 1709.  We are sitting on nice gains and don’t want to give those away.  100-points over a couple of weeks is a big move and not a bad place for the cautious to lock-in profits.  This continues to be a bad place to short, wait for a violation of support before betting against this market.

Plan your trade; trade your plan

Sep 17

Holding 1700

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:26 EDT

S&P500 daily at 1:26 EDT

MARKET BEHAVIOR
Stocks rallied back above 1700, recovering yesterday’s slide into the close.  This is the second day the market traded around this level as it waits for the next wave of buying or selling.  We are at the upper end of the 1600/1700 trading range and challenging all-time highs.  The biggest gains are early in a move and the nearly year-long rally is slowing down.  That doesn’t mean the rally is dying, just resting.

MARKET SENTIMENT
Amazing what a couple of weeks does.  Two weeks ago bullish sentiment on Stocktwits was in the 20s and today it is pushing toward to 60%.  Obviously this is far from a scientifically valid sample and cannot be extrapolated to the investing public, but it does give us a good sense of who is proudly promoting their outlook online.  Two weeks ago bears were bragging about their investing prowess and now it’s bulls turn.  Nothing turns fear into relief as quickly as rising prices.  Seventy-five points later and the world doesn’t look so bad.  The question is if there is anything more to this move than a simple short squeeze.  Can we find real buyers to prop up this market and push us to new highs?

The Taper is coming, but everyone already knows that and it is already priced in.  Sure we can argue what month it will start, but a difference of a couple of months is trivial to a market that is already looking forward six months.  Military strikes seem increasingly unlikely, so that uncertainty is quickly evaporating.  The race for Bernanke’s replacement was recently shaken up, but the eventual successor will no doubt realize the economic risks of abruptly changing policy and the market should not fear drastic action.  Any weakness from this debate will likely be just another buying opportunity.

TRADING OPPORTUNITIES
Expected Outcome:

Stocks are holding up as few are actively selling this rebound to 1700.  Most of the nervous sold in the dip to 1630, leaving us with a far more confident core group of owners.  Their willingness to hold volatility paradoxically eliminates volatility since they keep supply out of the market.  Anyone who reactively sold the market this year came to regret that decision and traders are being conditioned to keep holding no matter what.  Eventually this will end in disaster because it always does, but in the meantime stability is buyable and bullish.

Alternate Outcome:
Predicting the market is easy, getting the timing right is where all the money is made.  Everyone who says this market will correct will eventually be proven right, unfortunately for their account they’ve been a tad early.  Watch for stalling and a retreat back under the 50dma.  Of course any short trade is a counter-trend trade and we need to take profits early and often.  Anyone who is greedily waiting for a big selloff let a lot of short profits slip through their fingers.  Don’t be that guy.

Trading Plan:
Anyone who owned the rebound to 1700 can take those well deserved profits.  Of course for the more adventurous, we can move our stops up and see if there is more upside.  The market is behaving fairly well, but two-days of sideways trade doesn’t qualify as support.  If we continue holding 1700 by Thursday, that means the higher probability trade is higher and anyone that missed the rebound can buy the breakout.

AAPL daily at 1:26 EDT

AAPL daily at 1:26 EDT

INDIVIDUAL STOCKS
AAPL recovered some of yesterday’s losses, but most disciplined bulls were stopped out dozens of dollars higher.  Many people made a lot of money in AAPL over the years, but don’t let what happened in the past skew our view of the future.  AAPL had its time in the spotlight, but unfortunately like most companies in the technology space, it is hard to stay on top.  Some analysts are predicting an iPhone market share as low as 13% next year, hardly the dominating force of just a couple of years ago.  source  The technology space is fiercely competitive and there is no reason to assume AAPL won’t be like all the other disgraced tech titans before it.  We trade the future, not the past.  While AAPL is still highly profitable, Wall Street is already writing the obituary and we should pay attention.  The market is far better at predicting the news than the news is at predicting the market.

Plan your trade; trade your plan

Sep 16

Back to 1700

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:53 EDT

S&P500 daily at 1:53 EDT

MARKET BEHAVIOR
Stocks surged above 1700 on news Larry Summers withdrew from consideration as the next Fed Chairman.  This opening gap leaves us a few points from all-time highs at 1709 and erased most of the late summer selloff.  So far the best trade has been buying weakness and selling strength.  Will that continue, or is the market finally ready to breakout of the 1600/1700 trading range?

MARKET SENTIMENT
While the news might be random, the market’s reaction is not.  It is easy to attribute today’s move to Summer’s decision, but the only reason the market moved this strongly is because the spring was already coiled.  If it wasn’t this headline, it would have been something else.  There was no guarantee we would break 1700, there are no such things in the market, but the market was poised for this move and that made it the high probability trade.  Luck is always a big component in any individual move, but over time a sound process is what leads to consistent, long-term success.

Obviously the market was oversold at 1630 and it snapped back as soon as traders realized things were not as bad as feared.  Once those afraid of the headlines sold, supply dried up and we rebounded to the upper end of the trading range.  Prices move on nothing more than supply and demand.  No matter what the fundamentals, technicals, or crowd says, markets bounce when we run out of sellers and is exactly what happened here.

TRADING OPPORTUNITIES
Expected Outcome:
We came a long way from the recent 1630 lows, but we only make money trading what is in front of us.  The question is should we sell this strength, or hang on for a breakout?  Right now either decision is a sound call.  The sideways summer trade allowed the market to consolidate first half gains, clearing the way for a potential continuation higher.  It is coming to terms with gradual  Tapering and military action in Syria seems less likely.  We have a date with the Debt Ceiling, and while the rhetoric will be ugly, past flirtations with disaster were buying opportunities and the market is less likely to get bent out of shape this time.  Of course that complacency increases the downside risks if complications do arise and is something we need to watch, but so far the year’s bullish theme of “less bad than feared” is continuing into the Fall.

Alternate Outcome:
More and more traders are becoming comfortable holding modest volatility.  While in the near-term that provides stability and is bullish, it adds water behind the dam and increases to the risk for when things finally breakdown.  Five percent pullbacks are a healthy part of moving ahead, but so are ten, fifteen, and twenty percent pullbacks.  We always have a date with more selling and every buyable dip brings us a step closer to the one that doesn’t bounce.

Trading Plan:
Lock in recent gains, or see if there is more in the tank by moving up your trailing stop.  Either trade works here.  Obviously being short any time over the last two weeks was a painful trade and adding new shorts is only trying to pick a top.  We are moving into the fall and that catalyst improves the odds of seeing the next directional move.  Right now bulls have the ball and it is their turn to show us what they have.

AAPL daily at 1:53 EDT

AAPL daily at 1:53 EDT

INDIVIDUAL STOCKS
AAPL continues struggling following the disappointing product announcement.   More of the same from the most innovative company is never bullish.  The stock is down nearly 10% from the $500 level and is yet another example of why we need to take profits after big moves.  Some people love owning AAPL, but I’m in this to make money and the only way to do that is selling our winners.  While many AAPL bulls see this weakness as a buying opportunity, the company clearly lost its mojo and has yet to stem the market share losses.  They are a healthy and profitable company with a loyal following, but the market is less willing to make it the most valuable company in the world and expect more air to be let out of the stock price.  For buy-and-hold investors, that likely means a date with the mid to lower $300s over the next twelve to eighteen months.  Hold this at your own peril.

Plan your trade; trade your plan

Sep 13

Support continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at end of day

S&P500 daily at end of day

MARKET BEHAVIOR
Stocks continue consolidating recent gains, holding above the widely followed 50dma.  They are within a dozen points of reclaiming 1700 and just over one-percent from all-time highs.  We are in the upper end of the 1600/1700 trading range that stretches back to early May.  Do we sell this strength, buy the breakout, or can a nimble trader do both?

MARKET SENTIMENT
Markets regained their composure following brief anxiety surrounding Taper and Syria.  With a couple of weeks to digest headlines, it decided all the fear was unwarranted, but that is not entirely true.  For simplicity, we often talk about the market as a single entity, but it is really a composite of individual opinions.  Anyone previously afraid of Taper and Syria is likely still afraid of these events, but they have since moved out of the market, selling at a discount to opportunistic traders willing to bet things are not as bad as feared.  This churn in ownership ended the recent selloff and is pushing us back toward new highs.  With all those afraid of Taper and Syria already out of the market, it will take all new headlines to send the new crop traders rushing for the exits.

Much of the lift from the 1630 lows came from short covering as many bears were forced to buy as prices moved against them.  Unfortunately for many of these traders, the pain of losses forced them out after they failed to lock in recent profits.  We are in this to make money and the only way to do that is selling our winners.  In choppy, sideways markets, take your profits early and often.  Greedily holding for more profits hasn’t worked for either bulls or bears all summer.

TRADING OPPORTUNITIES
Expected Outcome:

The rate of gains is slowing as we run low shorts covering and prospective buyers remain reluctant to jump in head first.  The big takeaway is few are selling this strength and that allows the market to holding the 50dma even with weak demand.  Stable trade is most often bullish and holding these levels for a couple more days suggests 1700 and new highs are on their way.  As anxious as traders remain, the market needs that nervous energy to continue higher.  Stocks rally in the face of fear and decline on the back of complacency.

Alternate Outcome:
While traders still fear headlines, each buyable dip lulls them into inaction.  Every dip they sold this year was a mistake and many promised themselves never again.  That resolve to continue holding keeps modest selloffs in check as supply stays out of the market.  That works for a while, but even under tight supply, markets fall under their own weight when we run out of new buyers.  Once traders screens fill with red, formerly confident owners turn into fearful sellers.

Trading Plan:
The long trade is still the right trade as we hold recent gains.  Keep stops under recent resistance.  While recent highs are in play, it is anyone’s guess how the market will respond once we get there.  Stay nimble until the market breaks out of the summer’s trading range.

Plan your trade; trade your plan

Sep 11

The AAPL blunder

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:25 EDT

S&P500 daily at 1:25 EDT

MARKET BEHAVIOR
Stocks traded around 1680, digesting recent gains.  Money managers returning from summer vacation are more inclined to buy the discount than sell the risk.  Early losses turned green by late morning and if we hold these modest gains, it will be seven in a row and nine out of the last ten.

MARKET SENTIMENT
Recent anxiety is dissipating and so far buying the fear has been the savvy trade.  Bears who were certain we were headed for the 200dma pressed their shorts, but are now scrambling to unwind their positions, providing much of the demand lifting us toward all-time highs.

Taper is a page-5 story as Syria and Apple dominate the headlines.  But remember, anything on the front page is already priced in, meaning we need to dig deeper, looking for that new, up and coming story.  We are approaching another fiscal cliff, but that’s a broken record and while it will make the market a little uneasy, we’ve been there, done that, so don’t expect a big selloff.  Recent dip buyers obviously don’t fear modest weakness, so expect them to sit through continued volatility.  Their resolve to hold keeps supply off the market and adds stability.

TRADING OPPORTUNITIES
Expected Outcome:

Stick with what is working as this market is drawn toward 1700 and all-time highs.  We covered a lot of ground in two weeks, so a red day here or there is expected, normal, and healthy.  Where we go after new highs is a bigger question.  Are we in the middle of the last buyable dip and will finally see the selloff everyone’s been waiting for this fall?  Hard to say and we will take it day by day, but so far the high probability trade remains higher as we recover from oversold levels.

Alternate Outcome:
Bulls are back in control, but if they cannot maintain control and stumble in coming days, that signals demand is drying up and this is nothing more than a sucker’s rally.  Failing to hold the 1670/50dma shows buyers are unwilling to support these prices and we can actually start looking at shorting that weakness.

Trading Plan:
Own the market as long as we hold the 50dma/1670.  Disciplined shorts are long out of the market, hopefully capturing a nice profit.  Any bear who overstayed their welcome are watching profit evaporate and turn against them.  Countertrend trades always need to be quick and nimble.

AAPL daily at 1:25 EDT

AAPL daily at 1:25 EDT

INDIVIDUAL STOCKS
What is the value of an innovative company that can’t innovate?  We are about to find out.  AAPL missed the mark so badly with the iPhone5c and iPhone5s, it was like they were shooting with their backs to the target.  “C” certainly doesn’t stand for cheap because there are only a couple of phones more expensive than its unaffordable $550 price tag.  So much for breaking into developing markets.  Don’t get me wrong, the “C” will be a strong seller, how could it not be, it is the new, cool, and fun phone from AAPL, unfortunately its success will come almost entirely from cannibalizing the flagship “S” model.  Sure the “S” has a 64-bit A7 chip, but all the techno-geeks who care about that stuff already defected to Android phones two-years ago.  For most people, the only functional difference between the “C” and “S” is the fingerprint scanner.  A $100 premium is pretty steep, especially since Apple already acknowledged most users don’t care enough about security to lock their phone.  This also assumes the fingerprint reader works as advertised and is more reliable than recent “innovations” like Siri or Apple Maps.  If it takes two or three attempts to recognize my fingerprint, I’ll stick with the passcode.

When the “C” becomes AAPL’s best-selling model, we need to be ready for a material hit to revenue and earnings.  Some analysts point to strong margins on the “C”, but profits are measured in dollars not percentages, so strong margins don’t count for shit if earnings are falling.  AAPL really missed the boat with the “C” to make smart phone with global appeal.  I would have loved to see a iPhone3gs type of device priced around $200.  That would have been a home run and brought a lot of new people to the brand without cannibalizing the flagship model.  In reality the “C” is nothing more than the “5” with a less expensive plastic back.  We didn’t see anything on Tuesday to stem the market share losses and over the next two years expect to see the iPhone and iPad with single digit market share.

One of the more interesting nuggets from the presentation was AAPL’s announcement it is giving away their office suite for free on mobile devices.  Are they seeing early signs of professional users migrating to the MSFT‘s SurfaceRT which includes office?  It sure is a strange move on AAPL’s part, responding to a device with a paltry 3% market share unless their research shows it as a real, up and coming threat.  That admission by AAPL could be a bullish signal for MSFT and the Surface.

Plan your trade; trade your plan

Sep 10

What collapse?

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:14 EDT

S&P500 daily at 1:14 EDT

MARKET BEHAVIOR
Stocks are crushing it as they continue the surge higher.  Today we blew past resistance at the 50dma and 1670 as strength makes it a painful day for shorts.  The market is up 50-points in less than two-weeks as many fears are quickly fading in the rearview mirror.  We remain inside the Summer’s trading range and this bounce is more  a reaction to oversold levels than strong demand for stocks.

MARKET SENTIMENT
Traders often try to get ahead of the market by out thinking it.  They use fundamentals and technicals in an attempt to predict its next move, but what they miss is market prices are nothing more than a function of supply and demand.  It makes no difference what the fundamentals or technicals show, if we are running out of sellers, markets find a bottom and bounce.  Far and away the hardest part of contrarian investing is ignoring what everyone else is obsessing over.  Taper?  Forget about it.  Syria?  Already priced in.  If people are talking about it, they already traded it, and it is no longer relevant.  You can take that to the bank.

TRADING OPPORTUNITIES
Expected Outcome:
Hard to argue with what is working.  The market decisively recovered the 50dma and blew through last month’s stalled rebound to 1670.  While new highs seem a done deal, don’t expect the market to race straight there.  There will be some zigs and zags along the way.  Fear and uncertainty over Syria is quickly fading and everyone is expecting the Taper, so it will take new headlines to reignite the move lower, but expect headline driven volatility to persist.  As long as we respect recent lows, this weakness is just another entry point.

Alternate Outcome:
While the near-term collapse is temporarily off the table, we need to acknowledge bears are not wrong, just early.  This market will come down at some point and we need to be ready for it. I have no idea if it will be next week, next month, or next year, all that matters is we are prepared.  While I am constructive on this market, as soon as it stops acting as expected, it is time to pull the ripcord.  Most still don’t trust this market, but we are getting closer to the day when people stop fearing every red day and that will finally be our time to stick with a short.  The market has a nasty habit of convincing us we are wrong just before proving us right.  Stay flexible and open-minded.

AAPL daily at 1:14 EDT

AAPL daily at 1:14 EDT

Trading Plan:
Hopefully shorts took profits days ago because they are getting dangerously close turning into losses.  The goal of this game is making money and the only way to do that is selling our winners.  We reclaimed the 50dma and avoided starting a trend of lower-highs, so bulls are back in control.  We can own this market with stops under recent resistance, plus a safety margin to keep us from getting shaken out.  How big that margin is depends on the individual trader’s conviction and appetite for risk.

INDIVIDUAL STOCKS
AAPL is minutes away from unveiling its “cheap” phone.  While a great looking iPhone5c will cause the stock pop, anyone looking two steps ahead will see that means massive cannibalization for the far more profitable flagship model.  The less capable the “c”, the better it is for AAPL’s bottom line, so don’t hit the sell button if it isn’t something you want to buy.  That’s the point because it will keep demand up for the top end phones.

Plan your trade; trade your plan

Sep 09

Rebound continues

By Jani Ziedins | Intraday Analysis

S&P500 daily at 3:09 EDT

S&P500 daily at 3:09 EDT

MARKET BEHAVIOR
Stocks are on track for their fifth consecutive up day and seven out of the last eight.  The market is sitting on the 50dma and within points of 1670, where the previous rally attempt stalled out.  The market is prone to headline volatility and we are still well within the summer’s trading range so the coast is anything but clear.

MARKET SENTIMENT
The market goes back and forth over military strikes in Syria.  Some days it is “on”, other days it is “off”.  Today it seems to be “off”, at least that is one reason the media is giving for today’s strength.  But here is the thing, anyone afraid of these events is already out of the market.  They sold at a discount over the last two weeks to more bold traders willing to take the risk.  This churn in ownership brings more stability to the market.  Anyone holding here acknowledged the risk of military action and chose to buy or continue holding.  If bombs start falling, these people are less likely to hit the sell button because they already demonstrate a willingness to hold in the face of these uncertain risks.  This ownership churn is how markets price in events long before they even happen.

Between Taper, Syria, and weaker than expected employment, the market has every reason to sell off, yet here we are, reclaiming lost ground and only 2.5% from all-time highs.  That’s how this game is played, we rally when everyone is scared and slide when everyone feels safe.  The more nervous people are, the more upside there is and vice-versa.  It is hard to find people excited about this market and makes it easy to find a bottom.  After all the nervous and paranoid sellout, there is no one left to sell.  The best trade is usually buying what you don’t want to buy and selling what you don’t want to sell.

MARKET BEHAVIOR
Expected Outcome:
The market is challenging last month’s rebound highs.  Either this is resistance and sets the trend of lower highs, or it is the middle of a double bottom that propels us to new highs.  Given the lack of complacency and fear surrounding recent headlines, my money is on new highs.  No doubt I could be wrong because nothing is certain in the markets; that is why all savvy traders have a good defense.  While headline volatility will persist, the market already digested the biggest chunks of uncertainty surrounding Taper and Syria and is holding up relatively well.  This market will rollover at some point, but this doesn’t look like it.

Alternate Outcome:
Every dip is buyable until they are not.  The hard part is sucker’s rally looks seductively buyable and is why so many people fall for them.  If this game were easy, everyone would be rich.  If we run out of dip buyers, look for the market to rollover on a lack of demand.  5% dips are routine and happen multiple times a year so we cannot read too much into recent weakness, but every 15% selloff starts with that first point lower.  While I am reluctant to short this market, failing to make new highs is a concern and creates an interesting short entry.  We don’t pick tops, but we do short weakness where we expect to see strength.

Trading Plan:
Hopefully shorts didn’t get greedy and locked in profits days ago.  We remain in a bull market and counter-trend trades need to be nimble and quick.  We broke the 50dma and 1670 in late trade.  If we hold these levels, look for new highs in coming weeks.  If we fail to hold, look for a test of the 200dma.  We can own the market with tight stops under these key technical levels and short a violation of the same levels.

AAPL daily at 3:09 EDT

AAPL daily at 3:09 EDT

INDIVIDUAL STOCKS
AAPL has its big product launch tomorrow.  It seems like most of the big announcements leaked out already and are already priced in.  While many are looking forward to the iPhone5c, hopefully AAPL does a good job differentiating it from the higher priced model.  A low resolution screen, slower data antenna, and smaller battery would both make the phone cheaper and keep demand strong for the high-end phone.  If there is no meaningful differentiation, expect most buyers to opt for the new, fun, and cheaper iPhone5c.  That will kill revenue and margins.   I am in favor of the iPhone5c, but it must be a clearly inferior phone to its bigger brother to both open lower end markets yet not cannibalize flagship sales.  If the c has retna, 4G, decent battery, and is sold in the developed world, expect to see massive cannibalization.

Plan your trade; trade your plan

Sep 06

Challenging the 50dma

By Jani Ziedins | Intraday Analysis

S&P500 daily at 2:39 EDT

S&P500 daily at 2:39 EDT

MARKET BEHAVIOR
We opened higher on marginal employment, but gave up 20-points minutes later as Obama reiterated his resolve to bomb Syria at the G-20 summit.  Nearly as quickly as we fell, we bounced back, erasing all early losses by late morning.  While headline volatility persists, moves either direction quickly stall, leaving us in this persistent, choppy sideways trade.  We remain under the 50dma and recent resistance at 1670, but are inching higher.

MARKET SENTIMENT
Employment numbers missed the mark, but  were close enough to avoid a major move either way.  Syria remains a wildcard and will continue driving volatility, but to understand where this market is headed, it helps know the different traders in the market.  The easiest way to segregate traders is by their holding period.  We have the buy-and-hold-forever crowd.  Most big money managers hold for approximately one year because of the difficulty building and unwinding positions.  Then comes smaller and more nimble swing- and day-traders.

Most of us recognize only traders buying and selling in the present affect prices, while everyone else is simply along for the ride.  No matter how big a trader, once they are fully invested, there is little they can do to actively steer market prices.  This is why day- and swing-traders play a much larger role in the day-to-day price moves.  Over the course of a year, someone who trades 10x per day has 2,000 the impact as the one who trades 1x per year.    But this isn’t the whole story.  Nimble traders have to be small by nature because that is the only way they can effortlessly enter and exit positions.  So while they have huge influence, they also have limited strength.  These are the skittish traders that drive volatility as they react to every headline, but because of their limited size, they cannot push the market more than a few percent either way before their influence fades.  Only buying and selling by larger groups can sustain a breakout move.

Taking this concept to the present, we have lots of intraday reactions to headlines, but most of these moves stall as the larger pool of longer-term investors sits on their hands.  Most significant is the masses are not spooked by scary headlines driving this choppy volatility.  The lack of wider selling keeps tight reigns on supply and puts a floor under this market.  The only way for this move lower to continue is if it convinces larger investors to bail and so far it hasn’t done that.

TRADING OPPORTUNITIES
Expected Outcome:
The extended selloff remains MIA.  We are lower by a few percent, but if we were standing on a trapdoor, early weakness would have triggered an avalanche of selling, something we haven’t seen.  At this point it looks more like stalled selling than anything else.  Traders are watching the 50dma and 1670 closely and look for a wave of breakout buying and short-covering if we cross these levels.  If we don’t see a decisive breakout, that means the market struggles to find buyers and bulls need to tread lightly.

Alternate Outcome:
Sucker’s rallies only work because they look real.  If tops and bottoms were obvious, this game would be easy and everyone would be rich.  Clearly that’s not the case, so we must watch every move with suspicion.  The market remains under the 50dma and until we cross this barrier, bears remain in control.  If we see buying dry up as we break through this technical level, short the break back under.

Trading Plan:
The market remains volatile and choppy.  Anyone trading this market needs to be confident in their positions and give them more room to move around or risk being shaken out at the exact wrong time.  This adds to the risk and makes for a poor risk/reward.  Every time we hold stocks, we expose ourselves to risk.  Owning or shorting a sideways market piles on the risk, but don’t get paid for it.  That’s why it is better to sit in cash waiting for the next directional move.  Of course where is the fun in that?  We are traders and the best way to follow the market is to be in the market.  So anyone long here, cover under recent lows and anyone short cover a strong break above 1670.  Just recognize the elevated risk in trading a choppy sideways market and adjust position sizes accordingly.

Plan your trade; trade your plan

Sep 05

AM: Holding yesterday’s gains

By Jani Ziedins | Intraday Analysis

S&P500 daily at 1:21 EDT

S&P500 daily at 1:21 EDT

MARKET BEHAVIOR
Stocks traded modestly higher, holding yesterday’s gains.  The market remains a few points under the still upsloping 50dma and is the next major hurdle for a days old rebound.  1670 is another notable technical milestone representing the middle high of a potentially bullish double bottom.  Volume is inching higher this week as traders return from summer vacation and start positioning their portfolios for the last few months of the year.

MARKET SENTIMENT
Weekly jobless claims are at their lowest levels in years, but tomorrow’s monthly jobs report is far more influential for both the Fed and market.  Years ago the monthly employment numbers moved markets, but it’s been over a year since they generated anything more than intraday volatility and as long as they are not shockingly good or bad, expect much of the same tomorrow.  Earlier in the year bad was good when traders worried about the sustainability of QE, but that ship already sailed and everyone is expecting Tapering in coming months at the latest.  Since Tapering is already priced in, good is good again and a strong employment number is bullish for the economy and markets.

Some of the Syrian hype and fear is dying off as traders are coming to terms with military action.  Bad news isn’t all that bad when it is quantified, it is the uncertainty that kills markets.  As the political debate rages on in DC, it appears like this will be a very limited action and the market is gradually becoming less concerned over it.

Between the impending Taper and the shock over Syria, the market had every excuse to selloff, but bears just couldn’t get it done.  In fact it looks more like selling stalled on the heels of these fearsome headlines.  Scared markets plunge dramatically and three weeks into this selloff, it would be hard to call 3% off all-time highs a plunge.  There is nothing wrong with distrusting this market, even going so far as shorting recent weakness, but we have to pay attention to how the market behaves to determine if our trade is working.  We use stops as a last resort to get us out of bad trades, but most of the time we should exit trades that are not working long before our stops force us out.

TRADING OPPORTUNITIES
Expected Outcome:
The selloff seems stalled and is looking more like a buyable dip than shorting opportunity.  We are still under the 50dma and the middle peak of a potential double bottom.  Use either of these as a valid entry.  A bolder trader could buy under these technical levels and use recent lows as a stop, but for most of us it is better to be a little late than a lot early.  If we regain and hold the 50dma, new all-time highs are all but a done deal.

Alternate Outcome:
Bears can shoot against this market using the 50dma or 1670 as stops. We’ve come a long way and historically September has seen some brutal selloffs as big money managers dump shares into the end of the year.  While the political debate around Syria is creating more

clarity, escalation by either side could catch the market by surprise.  When calculating risk/reward, it is more than just probabilities but also magnitude of the potential windfall.  Even if a rebound to all-time highs is more probable, betting against this market could be the better trade if the size of the payout is significantly larger.  This is the highly profitable black-swan trade.  While the world appears stable, the profit potential of everything unraveling can be attractive.  Since these lottery style trades don’t work very often, the best way to trade them is through options that limit the losses of the more probable outcome.

Trading Plan:
Watch this market, waiting for the eventual breakout/breakdown.  The ambitious can buy/short with tight stops.

Plan your trade; trade your plan