Sep 19

Building the foundation for a move higher

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:11 EDT

Stocks hold the 1460 level for the 4th day, showing solid support for this price level.  Most selloffs after an unsustainable rally happen quickly and dramatically in the day or two following.  That is not happening here and the market is building a foundation for another move higher.  Any masochists still shorting the market are going to get smacked around again.

MARKET BEHAVIOR

Indexes are treading water around 1460.  The anticipated mass exodus has yet to appear and the price-action is supportive of these levels in spite of all the “experts” predicting a move lower.    Looking back at previous selloffs this summer, they started quickly and decisively after marking a new high.  This pause at 1460 shows buying is not drying up and selling isn’t flooding the market.

MARKET SENTIMENT

Bears still think the market should head lower, but they have been burned several times and are becoming more reluctant to stick their neck out and fight this rally.  Some bears are beginning to question their resolve and are finally warming up to the bull side.  But this shift in sentiment is just starting and has a way to go before it gets overdone.

The recent short covering and increasing reluctant to fight the tape means the spring is less compressed.  Upside short-squeezes won’t be nearly as pronounced or dramatic as we’ve experienced over the last few months.  Most of the fast money on the upside has already been made and we are transiting to a grind higher mode.  Former bears and reluctant buyers will start dribbling into the markets and buying every dip, putting a solid floor under the market.  From a supply and demand point of view, this new buying and decreased selling is the recipe for a move higher.

We’re not there yet, but the rally will get to a point where it is so slow and steady traders become complacent.  And that of course is the foundation necessary for a reversal lower, but that is still a ways out and we’ll cross that bridge when we get there.

TRADING OPPORTUNITIES

It is getting harder to find new breakouts as most of the strongest stocks already made their move and are becoming extended.  The most powerful stocks tend to make their move early in a rally and late breakouts often don’t perform as well.  If you find yourself underinvested, don’t chase, wait for a pullback to the 50dma and buy the high volume bounce.  Being smart about your buy and don’t be the sucker left holding the bag when the party ends by.  Money is made by buying right.  If you missed this, don’t fret; there will always be future profit opportunities.  The one thing you don’t want to do is put yourself in a precarious situation by chasing stocks because while there will always be future profit opportunities, losses are forever.

Stay safe

Sep 18

Stocks holding up nicely

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:38 EDT

Another tight trading day in the markets.  Technically a down-day, but such a small move is hard to flag as material.  Active trade around Thursday’s close is supportive of that new price level, even if it includes a modest slide back to 1450.  Stay long what is working, but harvest worthwhile profits because the sun can’t shine forever.

MARKET SENTIMENT

The indexes are off modestly for the second day on average volume.  This is constructive price action.  We avoided a waterfall selloff and at the same time are not rising unsustainably in a climax.  The important thing to note is current holders are not rushing for the exits.  They feel comfortable owning stocks at these levels and explains why selling volume is light and we are finding support.  On the other side, those left out of this rally are desperately hoping for a pullback to let them back in at more attractive levels.  They are reluctant to buy up here after missing the opportunity at lower levels and this foot-dragging accounts for the lighter buying volume.  But these latecomers can’t wait forever and a rising market will eventually force them to bite the bullet.  We’ll see when these reluctants start coming around in numbers because stocks will rise in a slow and steady uptrend as their buying prevents any type of pullback.

When evaluating supply and demand dynamics, combined with market sentiment, there were a lot of investors reluctant to own this market with all the headline risk and seeing short interest at five-year highs backs up this pervasive bearish theme.  But when viewed through the lens of supply and demand, this bearishness represented a large pool of available buyers.  And further, since so many investors were already out of the market, or short, that meant there were fewer available sellers remaining to push the market lower.  Large pool of potential buyers and small pool of available sellers; seems kind of obvious why the market rallied strongly these last couple months.

Traders and journalists want to assign a fundamental or technical reason to this rally, and no doubt the news played a role, but never forget, news doesn’t drive markets, traders do.  When the supply and demand became as skewed as it was recently, it made a move in one direction far more likely than. Think of it like a compressed spring.  It takes a lot of additional energy to further compress the spring, but it will uncoil by itself the first chance it gets.  And that is why the markets could pop 50 points over a couple of days.  The market wanted to go up and so it did.

I don’t think the spring is uncompressed yet, but with each surge higher we get closer to that point.  And of course the market won’t stop at zero as it almost always overshoots.  We need to watch for the point where the market is extended and thus prone for a pullback.  Up, down, up down.  That’s how the market works and getting in tune with these moves makes it far easier to make and keep profits.

MARKET BEHAVIOR

The trend since early August has been large gains followed by consolidation, before making another strong move higher.  So far the modest selloff following Thursday’s gains is consistent with this pattern.  The swing trade has been the wrong trade the last two-months and there are few sings it is the right trade today.  We could easily see a modest slide to 1450 as the market shakes out latecomers, but so far the violent moves lower are not a part of this market’s personality.  No doubt this will change at some point, just not yet.

TRADING OPPORTUNITIES

Keep doing what is working, which is buy and hold.  Let those profits bloom while the sun is shining because this calm won’t last forever.  But don’t take this too far by letting your fruit over-ripen and rot on the vine.  We’re in this to make money, not hold stocks.

PII daily @ 3:41 EDT

INDIVIDUAL STOCKS

LULU and PII are having rough days.  Both are still above their 50dma, but experiencing weakness after strong run-ups.  There is no way to know which pullbacks are normal and which are fatal.  Duration, gains, and popularity will give you a clue to how much of a run could be left, but these are just guidelines and not rules.  It is easy to make money in the markets, the challenge is keeping it.

Stay safe

Sep 17

iPhone, leader or laggard?

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:10 EDT

The indexes are consolidating after the recent 50point move; a normal, healthy, expected, and bullish behavior after such a big run.  No reason to sell and certainly not a good idea to short the rally.  The trend is our friend……..for the time being.  AAPL is riding high after record iPhone5 sales, but is the company falling behind its peers as other phone manufacturers are leading innovation?

MARKET SENTIMENT

Stocks paused after Friday’s new 4-year high.  While giving Friday’s gains, the market is still sitting above Thursday’s “Bernanke pop”.  This is expected and supportive behavior given the 50point move over the last two-weeks.  This is noteworthy bullish action finding support at these levels in spite of the obvious selling pressure from profit taking and shorts doubling down.

The key to figuring out where we are headed is getting into the mind of traders, especially big money managers.  We’ve had a big move since the summer’s low of 1266.  This rally has caught a lot of money managers off guard because the headlines and sentiment remain quite bearish.  But clearly the price-action indicates selling climaxed in early June.  All the sellers sold at that point and there was nowhere to go but up, and that is exactly what we’ve done.  Most watched in disbelief as we rallied, always anticipating the crash that never happened.  And now these traders are faced with a crisis of confidence and conviction, finding themselves clearly on the wrong side of the market.  We are not measured by the soundness of our ideas, bu the profits in our accounts.  The market is showing no indication it will crash and is in fact accelerating its climb higher with far fewer pullbacks giving late-chasers few opportunities to buy in.

No doubt the QE3 pop was a “come-to-Jesus” moment for many reluctant money managers.  I expect this was the breaking point for many as they finally realized they could no longer wait for the pullback and now have to start getting their portfolio in gear or else significantly underperform the indexes.  To catchup, they need to chase high-beta stocks, meaning many of those speculative sectors will start outperforming after lagging large-cap, blue-chip stocks for most of the summer.  Getting ahead of big money is where us little fish make most of our money.

And of course in its usual cruel fashion, as soon as these money managers are finally positioned on the long-side, the market will run out of buyers and nose over.   The market is a cruel, cruel beast for anyone trading behind the curve.  If you want to make money at this game, you need to get ahead of the tend, not chase it.

MARKET BEHAVIOR

Indexes are finding support at 1460, showing a fair number of people are willing to buy the market at these levels and few traders are anxious enough to sell here.  For most of the summer we traded in a volatile, upward trending channel, but the last material pullback was in July.  Almost two months without a volatile pullback shows the market has transitioned into another personality for the time being.  We are in the midst of a steady climb higher, but that pattern is getting a bit obvious and proactive traders need to start watching for the next personality of this schizophrenic market to come out.  Will that be an acceleration to the upside as big money is forced to chase the market?  Or will we finally see that material selloff everyone has called for?  Or will we see both of these happen sequentially?  I’d put my money on the third option, and in fact I already have.

TRADING OPPORTUNITIES

No reason to get less-long after this run-up.  The market is finding support and is converting former bears into believers.  Ride the wave a bit longer, but stay close to the exits.  Continue holding what is working and lock in 20-25% profits when you get them.  Most of the time you’ll sell early, but it is foolish to hold out for top dollar.  If you have a stock you know better than your spouse, you can take the chance on holding through a base, but that significantly adds to your risk profile.  And in most instances these additional risks are not necessary because it is so easy to buy a stock back after stages the next breakout.

AAPL daily @ 3:11 EDT

INDIVIDUAL STOCKS

AAPL is hitting a new high and pushing against the $700 level.  There is tons of hype over the iPhone5, but as a technology geek, I am stuck wondering if AAPL is still a leader or if it is finding itself in a lagging position.  The iPhone5 lacks any real innovation and is simply playing catchup to other phones from Samsung, HTC, and yes, even Nokia.  Larger screens, quad-core processors, and 4G have been the norm in Android phones for a year now.  No doubt the iPhone5 will be the most stylish phone out there, but is that enough when Android phones are now leading in innovation?  And how about fashion trends and people’s desire to be unique?  Does the iPhone still feel cool and special when everyone has one?  The saving grace for AAPL is the exploding global middle-class, but I expect competition will put significant pricing pressure on AAPL in coming years and this might not be a buy-and-forget-it investment going forward.  No doubt momentum is behind this stock and it could continue higher in the near-term, but from a technology and innovation point of view, Apple is falling behind its peers.  Its reputation will carry it for a little longer with consumers, but remember the stock market is forward-looking and the stock price will peak before the fundamentals do.

Stay safe

Sep 14

New highs holding up

By Jani Ziedins | Intraday Analysis

Bears, cynics, short-sellers, and profit-takers can’t dent Bernanke’s rally.  Stay long what is working, but be on the lookout for the market’s impending personality change.

MARKET SENTIMENT

Follow-on strength for Bernanke’s rally is keeping markets near 52-week highs.  So far profit taking by swing traders and doubling down by shorts have been unable to dampen the party.  No doubt many cynics are reevaluating their bearish views as the market is steamrolling them and disregarding any and all logical reasons it should go lower.

It feels like we are passing the threshold between fear of a correction and moving into fear of being left behind.  Investors are quickly forgetting about all their well thought out bearish research and are instead shifting gears into chase mode.  This is a major transition in market sentiment as bears and reluctant investors are throwing out their previous opinions and jumping on the bandwagon.  This shift won’t happen simultaneously the a short squeeze does, it will occur over a period of time causing the market will wedge higher as this late demand props up the market and supports every dip.  Over shorter periods of time the market is all about supply and demand.  Bears and underinvested are coming around and buying this market, pushing it higher.

MARKET BEHAVIOR

Markets can go up, down, or sideways, and without a doubt this market is going up.    We decisively broke above recent resistance and are making 4-year highs.  The swing trade of the summer is clearly behind us and we are in the middle of a very directional move, but we must be wary of any pattern that is becoming too obvious.  Previously there was a lot of reluctance by market participants to buy these breakouts to new highs, but the tide is turning and that will impact the market’s behavior going forward.  Breakouts and consolidations could become breakouts and wedges higher.  There is still room in this move as the former cynics change their tune and roll into the market, propelling this rally further and longer than anyone expects, but that will also be the final push of this move.  Depending on how high we eventually go, we could expect a sideways consolidation if the gains are more moderate, but if the rally gets carried away, we could see a correction to compensate for the overshoot.

TRADING OPPORTUNITIES

Continue holding stocks for worthwhile profits, but at the same time don’t get greedy.  Remember, we are in this to make money, not own stocks.  This move will go further than most expect, but it will also end when everyone is most optimistic.  When you start day dreaming about what care you are going to buy with all your profits, let that be the baring warning siren to sell and wait for the next trading opportunity.

Stay safe

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Sep 13

Bernanke the Bearslayer

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:37 EDT

Bears are proven wrong yet again.  How many times will it take before they realize they are on the wrong side of this market?

MARKET SENTIMENT

Fed announced more mortgage buying and as a result, blew all the shorts out of the water.  It is dangerous to go against the trend and no matter how many times it ends badly, people still keep doing it.  But a short squeeze can only carry this market so far; we need follow on buying to keep this rally going.

Think about what is going through the heads of big money managers underperforming this market.  A couple of weeks ago the WSJ reported only 11% of hedge funds are beating the indexes.  Days like today won’t help and now they are stuck between a rock and hard place as they try to save their jobs.  The market has not pulled back like many were expecting and the longer they wait, the further they are falling behind.  At some point the pain of regret will become too large to resist and they will plunge in and start chasing.

Today’s pop will be the final straw for many reluctant investors as they are no longer able to deny this rally’s strength.  No matter how solid their analysis is, right now they are faced with only two choices, buy this market, or lose their job.  That will be an easy choice for most, but the ironic thing is their buying will mark the start-of-the-end for this rally.  We are past the halfway point and savvy investors will be on the lookout for signs this party is coming to an end.

MARKET BEHAVIOR

Market continued the trend of tight consolidation mixed with the occasional spike.  This is stereotypical behavior of an over-shorted market where bears are getting their faces ripped off on a regular basis.  Maybe congress needs to enact some new regulation that says if something isn’t working, stop doing it!!!  Of course I really don’t mean that, these bears keep giving me all their money, and besides, legislating common sense never works.

The interesting thing will be watching if the market changes its personality in the coming weeks.  These new highs and big moves are getting fairly obvious to everyone.  And if there is one thing the market doesn’t like, it is being obvious.  We’ll probably head higher for a bit, sucking in a larger number of chasers, but by the time everyone has come around to accepting this rally, that will signal the end of it.

TRADING OPPORTUNITIES

Stay long, but start eying the exit.  There is some upside left, but we’ve come 15% since the June low.  That is a big move for the indexes and it would be foolish to expect we have another dozen percent of upside left in the tank.  The key is watching other traders for signs of when too many of them become bullish and are fully invested.  That will be our indication to start taking profits.

INDIVIDUAL STOCKS

Most everything is up today and if it isn’t, it should be dropped like the boat anchor it is.  Further, don’t chase stocks that are extended because they are prone to pulling back after some of this euphoria dies off.  If you are out of this market, wait for a valid entry point before buying in.  There will always be future profit opportunities, but losses are forever.  Don’t force a trade when you can simply wait for the next one.

Stay safe

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Sep 12

Don’t fight the market…..yet

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:15 EDT

The stalemate between bulls and bears continues for the 4th day.  So far the pattern over the last couple months has been strong up-days followed by consolidation leading to another sharp move higher.  This remains intact and bears who are shorting the rally are fighting the market.  A trend is far more likely to continue than reverse, so stick with what is working until it stops.

MARKET SENTIMENT

Stocks rallied at the open on a German court ruling upholding Euro bailouts.  This was the most recent headline that was supposed to make-or-break the markets.  But just minutes after the announcement, it was ancient history and the market is already obsessing over the next major news event.  This time the focus is back to the US and our Fed.  And after that it will be something else.  The market is a perpetual worry machine and the cycle of fear over the next news cycle, political speech, or data point is never-ending.  In many ways you have to be an optimist to invest in stocks otherwise all the fear mongering will drive you crazy.

After the strong open, stocks gave back those gains and traded down to break-even, but then rebounded just as quickly.  The market is indecisive again and the staring contest between bulls and bears is back.  But from my view, the skew of reluctant bulls and aggressive bears is still evident, although moderating some as the rally continues.  A trickle of reluctant money is finally dripping back into the markets.  The sign the spigot is flowing will be a steady increase in prices, but we’re not there yet as these sideways standoffs continue.

Supply and demand dynamics work in such a way it is often best to go against crowd.  This happens because the crowd already did their buying or selling according to their views and at that point are simply along for the ride.  When everyone is convinced we are headed higher, there will be few buyers remaining to drive prices higher because the larger bullish crowd is already fully invested.  And in fact, the large crowd fully invested creates the potential for a lot of selling pressure.  Crows create fuel for a move in the opposite direction and that is why contrarian investing works so well.  And always remember, contrarian trading is going against the crowd.  Too often people mistake contrarian trading as going against the trend.  What these people miss is often the real contrarian trade is going with the trend when everyone is doubting the sustainability, like where we find ourselves today.

MARKET BEHAVIOR

We are continuing the consolidation after Thursday’s surge higher.  The pattern still remains large steps higher followed by tight sideways trade.  Often the market breaks down sharply after an unsustainable breakout, but the last four days at the 1430 level show many investors are comfortable buying and supporting the market up here.

Sideways to slightly lower consolidation is a healthy part of moving higher and demonstrates there is plenty of fuel left in the tank.  What we need to watch for is breaking of support in a dramatic way, or alternately wedging higher.  Either of these will indicate  a new market personality coming out.

TRADING OPPORTUNITIES

Stay long the names that are working.  But do be careful of extended stocks too far above their 50dma and 200dma.  It is exciting to see a stock race for the moon, but eventually gravity will catch up.  FRAN, TFM, UNFI, and MLNX are just a handful of examples where high-flying stocks have been knocked back to their 50dam.  Remember, the goal of trading isn’t to own the best stocks, it is to make money.  Take worthwhile profits and move on.

INDIVIDUAL STOCKS

The big single stock story of the day was AAPL’s iPhone5 announcement.  The stock hardly budged after the announcement.  Seems the phone was exactly in line with what the market expected, mostly because the new phone matched the leaked photos.  Now the question is how customers will respond when it starts selling in just over a week.

Stay Safe

Sep 11

Bears are impotent against this rally

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 2:30 EDT

Bears are looking impotent against this rally.  No doubt the profit takers and short sellers have already made their move against this market and we are still hanging within a 1/4% of a four-year high.  If that is the best they can muster, we have clear sailing ahead.

MARKET SENTIMENT

Stocks recouped most of Monday’s slide.  No doubt a lot of bears were jumping on the short into the close yesterday as the decline accelerated in the final hour of trade.  But in the first hour of trade this morning most of those shorts turned into losers as the market bounced hard.  For a lot of bears, it seems they are seeing what they want to see.  When the market starts sliding, they all pile on convinced the market is about to break wide open.  But so far each of these have been bear traps and the bulls have been fleecing these premature bears for everything they are worth.

The problem for bears is they are trading their view of the world, not the market’s view.  No doubt most of the bears are smarter and more thoughtful than I, but the market doesn’t care about that stuff.  It goes where it wants to go and the most successful traders ride along with it.  In spite of all the gloomy headlines and data points, the market wants to go higher.  Is this a case of the market leading the fundamentals, or the market stubbornly denying fundamentals that will eventually take its knees out from under it?  Good cases could be made for each, but logic and reason don’t factor into our P&L, only price moves do.  If a person needs to be right, they can continue arguing with the market, but I’m in this game to make money and I’m following the market’s lead regardless of what I think it should be doing.

MARKET BEHAVIOR

The market is finding additional support for Thursday’s breakout and we are not seeing the same reversal that plagued the Sept 21st breakout.  No doubt a lot of the profit takers and shorts sellers have already put their weight into the market and failed to budge it.  The recent pattern is low volatility days followed by the occasional jump higher.  For the time being this trend remains in tact.  We should expect some sideways drifting as the market digests the big gain before it is ready for its next move.  Most likely it will be higher, but we need to keep our eyes peeled for a change in behavior that would signal a breakdown of the uptrend.

TRADING OPPORTUNITIES

Same as it has been for a while, stay long high quality names that are working and lock in profits on anything that made a 20% move.  Keep doing what is working until it stops working.  At that point we will reevaluate the market and determine the next high probability trade.

AAPL daily @ 2:30 EDT

INDIVIDUAL STOCKS

AAPL is showing some interesting price action ahead of the iPhone5 announcement tomorrow.  It could very well be setting up for a buy-the-rumor, sell-the-news.  The iPhone5 will be a huge seller no doubt, but the challenge for the AAPL bulls is will the iPhone5 release exceed the already lofty expectations?  If any of the leaked photos are legitimate, the biggest new feature is a slightly taller screen.  Is that enough to get people to shell out hard-earned cash for the upgrade?  Further, the rumor is the plug on the phone is changing, meaning all the existing accessories for the phone will no longer work.  So not only will the phone cost money to upgrade, it will potentially make many of the existing accessories people own obsolete. That might create a higher barrier for many people to upgrading.

The other thing I noticed while browsing the AT&T mobile website is most of the smart phones are now far less expensive than the subsidized iPhone.  The iPhone is a great product, but competitors are attacking its premium price point and no doubt it is working with Android phones outselling the iPhone two-to-one.

AAPL will have to knock the ball out of the park to continue this recent stock run and I’m not sure how much innovation there is left in smart phones.  I hope AAPL proves me wrong and blows me away with some amazing, must have features, but I’m not expecting much more than a minor redesign and internals upgrade.  How much an evolution will drive sales is anyone’s guess, especially when a lot of lower cost alternatives are catching up.

Stay safe

Sep 10

Bears keep banging their head agains the wall

By Jani Ziedins | Intraday Analysis

Definition of insanity: doing the same thing over and over, yet expecting a different result.  Bears are regrouping and doubling their efforts to short this ‘overbought’ market, but there is no reason to expect this time will be any different.  Markets are modestly lower, but that is actually demonstrating bullish strength.  Bears and profit takers are stubbornly fighting against this rally with everything they have and the best they can do is a fraction of a percent decline.   This pullback is a healthy part of moving ahead.  And the more people who disagree with me, the more confident I am in my bullish position.  In fact, I hope we go lower and suck in more bears and shake out more weak holders to clear the way for the next move higher.

S&P500 daily @ 3:40 EDT

MARKET SENTIMENT

The market is continuing support of last Thursday’s huge rally.  The indexes are down slightly, but given how far we came last week, this morning’s givebacks are fairly trivial.  The interesting thing from a sentiment perspective is how few bears are ready to acknowledge defeat.  Many are sticking to their guns and re-shorting this new high after getting blown out last week.  How much pain are these guys willing to subject themselves to?  But their pain is our gain.  If they want to keep giving their hard-earned money to bulls, that is their prerogative.

Rather than everyone rushing in to buy the breakout, I continue seeing pros and amateurs alike say things like “the market is extended”, “take your profits”, “I’m in cash.”, “I’m shorting this breakout”, etc.  This is the ‘contrarian’ trade.  Except it isn’t.  The contrarian trade is going against the crowd, not the trend.  And to me it seems the contrarian trade continues to be buying this market in spite of all the reasons not to.

There are a lot of risky headlines floating around, but remember anything widely known is already factored into the price.  In fact, most often the market over estimates actual risk, meaning there is a high probability the real risk is less than the perceived risk.   This difference gives the savvy investor an arbitrage opportunity. Buy when traders are fearful and sell when traders are confident.

Prices move up and down because the market gets its projections about the future wrong.  Figure out if the market is obsessed with risk or ignoring it.  This will give you the best indication which way the market is inclined to move.  Remember, we are not talking about price here, but sentiment of the crowd.  Don’t let price moves fool you into joining the crowd.  Step back and only look at what traders are saying and how they are position themselves.  Currently skepticism continues to be the rule and that is why the market will continue higher.

MARKET BEHAVIOR

The market is digesting Thursday’s big gain and all the profit takers and new shorts are unable to pressure the market as this price level is receiving a lot of support.  Thursday’s short squeeze demonstrates just how much bearishness there was in the markets and my qualitative survey of various media outlets and investor forums shows few bears are ready to give up the fight.  This rally has been most volatile to the upside and the declines have been small and slow.  We’ll probably continue that trend.  Each time the perceived weakness sucks in the bears and that primes the pump for the next explosive move to the upside.

Of course this pattern won’t continue for much longer.  Soon the market will start wedging higher as the obvious rally converts bears and reluctant investors into buyers  of this market.   At that point the steady stream of buying will cause the market to wedge higher.  But that calm is a warning that we are about ready to run out of buyers and we should lock in our profits.

TRADING OPPORTUNITIES

The long trade continues to be the best trade.  We might see a modest pullback as we digest last week’s big move, but this is normal profit taking.  The market  maintains its trend of higher highs and lower lows.  This is a better market for longer time frame position holds and not so good for shorter term swing trades.  Find the things that are working and hold on for larger gains 20% gains.  But don’t get greedy.  Be willing to lock in profits and move on.

MLNX daily @ 3:41 EDT

INDIVIDUAL STOCKS

MLNX is having another horrible day, down 8%.  Silver lining is it’s finding support at the 50dma.  But that is minor consolation to someone who chased the stock the last few weeks as it wedged higher.  Wedges after a big move show chasing and in most instances are not sustainable.

The thing we always need to remember is market is never easy.  Anytime you feel like a genius, you need to look behind for that sledge-hammer that is about to crush your skull.  MLNX was an easy and obvious trade and it was a complete disaster for anyone who was sucked in by that tranquility.

Ironic thing is the stock is far less risky after that plunge than it was during its steady climb higher.  The violent shakeout could be clearing the way for a move higher.  Watch how it holds up around the 50dma and it could present a buying opportunity.  But don’t get ahead of the gun on this one since it could easily head back down to $40 in the blink of an eye.

URBN and UNFI keep heading higher after their breakouts.  These have also been easy rides so far, but don’t let that lull you into complacency either.  The big difference I see is it seemed like everyone was talking about MLNX when it broke out.  URBN and UNFI seem to be more under the radar and that makes them  less susceptible to a MLNX like crash.  But I said, less susceptible, not immune.  Nothing wrong with taking profits and moving on to the next opportunity.  The key to succeeding in the markets isn’t making money, it’s keeping money.

Stay safe

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Sep 07

Market holds gains on weak employment

By Jani Ziedins | Intraday Analysis

MARKET SENTIMENT

“To ease or not to ease, that is the question.”  Ben Bernanke.

Jobs numbers came in lighter than expected, but the market opened higher because in its view, this weakness increases the likelihood of further quantitive easing.  Never mind that it shows the economy is weaker than expected, free money is what the market cares about right now.  But as I’ve shared before, I’m not much of a news guy because news doesn’t drive the market, traders do.  So instead of focusing on if the headlines are good or bad, it is more profitable to follow what other people think of this news.  And so far the market seems to be OK with this worse than expected employment report.  Initial support at these levels is important in holding yesterday’s big gains and new high.  A couple of weeks ago the market made a new high and then immediately reversed lower.  Ideally this time the gains will stick.  A lot of bears are saying this breakout should be shorted and if they fail to move the market lower, it indicates these levels are here to stay and potentially higher levels are in our future.

The surprising thing was to see how stubborn many of the bears are after yesterday’s breakout.  Rather than jump on board, they increased their criticism of the rally and said the new high was that much better of a place to put a short.  That is throwing good money after bad if you ask me.  The only time to add to a trade is when it is working.  If something is going against you, it is time to start reducing your exposure and reevaluating your thesis, not doubling down.  The bears might eventually be proven right, but timing is everything in the markets.  Right idea, wrong time will get you killed.  Of course I’m not on the bears side when looking down the road.  I think the world is recovering and the future is brighter than the present.  The recovery might be frustratingly slow, but they usually are.  Remember, the market is better at predicting the news than the news is at predicting the market.

MARKET BEHAVIOR

Yesterday’s breakout was big support for this rally and decisively put the 1400 level struggle behind us.  All the big days in the market have been to the upside, a fairly unconventional phenomena in the markets where typically downside days provide the greatest excitement.  Down days are normally bigger because fear is a stronger motivator than greed.  People are more inclined to rush for the exits simultaneously than try to pile into the market at the same time.  So what gives with these huge spikes higher?  It is the same phenomena except turned on its head because of how many traders are short the market.  In the current environment, the rush for the exits is bailing on short trades as all the bears are in a mad dash to cover their positions.  This is called a short squeeze and we are having one after another as bears keep getting blown out of this market.  We’ll see when the bearishness finally recedes when the market flips back to more normal behavior of creeping higher and plunging lower.  Until then, stay long because the bears will keep bidding up the market until they run out of money.

TRADING OPPORTUNITIES

No reason to quit what is working.  The market wants to go higher in spite of the fundamentals, the tripple-top technicals, or whatever else people are using to say this market is overvalued.  The market wants to go higher and it is more profitable to go with it than to fight it.

I’m out of the office today, so I won’t be able to post charts or analysis of individual stocks.   The normal routine will be back on Monday.

Stay safe

Sep 06

The spring sprung

By Jani Ziedins | Intraday Analysis

S&P500 daily @ 3:00 EDT

MARKET SENTIMENT

The spring sprung to the upside today in a powerful rally today.  This continues the trend of the biggest market days moving to the upside.  This indicates how much artificial bearish pressure is on top of the market trying to hold it down.  The thing a lot of people forget is the market is always stronger than bears, bulls, and even fundamentals.  The market wants to go higher and there is nothing we can do to stop it.  If you can’t beat ’em, join ’em.

No doubt the explosive move is driven largely by shorts getting their faces ripped off.  There are people far smarter than I that have figured out exactly what the market should do, but in my case ignorance is bliss.  I don’t trade fundamentals or technicals, I trade supply and demand because that is the undisputable law of nature governing the markets.  Simple truth is the market is far larger than any of us and it doesn’t care what we think.

Now the question remains if this rally will fizzle like the previous high back on Sept 21.  But nothing is indicating this rally is on the verge of petering out.  We put in rock solid support at 1400 and there is a huge contingent of investors watching this move from the sidelines as they are under-invested.  Over time they will slowly convert from afraid of a correction to afraid of missing the rally.  Fear drives the market and this time fear is going to drive it higher.

MARKET BEHAVIOR

As mentioned earlier, today continues the trend of the biggest moves occurring to the upside. Bears have been getting blown out of the water all summer and this pattern continues.  The time to short the market was back in May when everyone was bullish.  But like normal, most traders are stuck looking back at what would have worked and not looking forward to what will work.  Profits are located beyond the right edge of the chart, not to the left.

The trend of higher highs and lower lows remains in tact.  The trend is our friend this time.  Remember, a trend is far more likely to continue than reverse because trends continue countless times, but only reverse once.  Stick with what is working.

TRADING OPPORTUNITIES

We have employment tomorrow and a couple European and Fed headlines next week, but clearly the market wants to go higher and has ignored any and all the reasons it should go lower.  Trade the market, not opinion.  It wants to go higher and that is what side we need to be on. Stay long until the market tells us it wants to do something different.

The volatile swing trades are behind us and we should focus more on position trades and holding for larger gains.  There is a real possibility this trend could continue to the election.  How it responds then will be up for reevaluation at that point based on how other market participants are positioned.

Regardless of what anyone says, the market is agnostic politically, so who wins doesn’t really matter.  The market would probably prefer a friend in Romney, but the major downside to a Romney win is his promise to “Repeal and Replace” Obamacare and financial regulations.  The market hates uncertainty and reopening those debates would weigh heavily on the markets.

AAPL daily @ 3:01 EDT

INDIVIDUAL STOCKS

On a day like today, most everything is up, but some more than others.  The out-performance/under-performance could signal a stock’s strength going forward.  But don’t over analyze these things because some of the stocks could have already made their big move prior to the market.  For example AAPL’s move today is fairy modest, but I wouldn’t throw the stock out yet.  It’s been outperforming the market recently so a slow day ahead of a major product release is not that big of a deal.

Stay safe